Professor Christopher Pissarides:

I agree that a good minimum wage is essential to encourage people to go out to work. The minimum wage is viewed in the same way that the medical profession views alcohol. Too much alcohol is not good for you, and no alcohol is also not good for you, but the middle way is really good for your heart, which is advice that I always follow. The same logic applies to the minimum wage. The absence of a minimum wage is not good because it introduces lower expectations of work in the minds of people, but too high a minimum wage will work against job creation. Where to strike the balance partly depends on the economy in question, but there are many similarities in the structures of European economies. Economic studies have found that for optimum benefit the minimum wage should be set at between 45% and 50% of the median wage. This does not harm employment. The minimum wage in Britain is about right, as no study has found that it has harmed job creation. It is a little bit higher than the rate in the United States, where it was found that minimum wage actually encouraged employment, but it is less than what they have in France, where studies have shown that the minimum wage has damaged employment. If I were to use percentages, I would say younger workers should be paid 35% to 40% of the median wage at a maximum. If an adult is getting 45% to 50% of the median wage, one would have to take 10% off that rate, because young workers are inexperienced and their wages are lower. A range of 30% to 40% of the median wage is good for the youth labour market. That is the rate, more or less, that applies in Britain. The minimum wage council conducts research into the impact of the minimum wage and recommends the necessary adjustments.

I agree entirely with the points Members made on investment. There is only one budget for all public spending, and investment is the easiest thing to cut. I have repeatedly made the proposal that the investment budget should be split from the current budget. The investment of funds from private sector pensions into public projects is a good idea and it could fit into public private partnerships. I must confess that I am not aware of any success stories, but that might be because I have not looked for one. If I had seen or heard somebody discuss that option, I would be able to tell Members about it, but I have not heard of any such success stories. The most recent information I have on pension funds investment is the direct opposite. In the financial press today, it is reported that pension funds are more heavily invested in bonds that have secure incomes and are no longer invested in equities. The culture of investing pension funds in equities is gradually going away because of the uncertainties in the rate of return from equities. Those who manage pension funds know the obligations they have and feel that a fixed income investment will remove much of the uncertainty. Of course, investing in public private partnership is a move in the opposite direction. I am not too optimistic that such funds can be persuaded to invest in projects now that the investment environment is so uncertain. That is the reason I suggested the European Union should come in and part-fund the projects through the Structural Fund.

One of the most significant problems we are facing is inequality in pay. This problem, together with the debt cliff, will haunt America in years to come. We see the extremes in America. I do not find that palatable. The gains from technology in America in the past 30 years went to the top 1% of income earners, which is not acceptable. Almost all of the gains, with some minor exceptions, went to the top 1%. We see what is happening in Greece where those on lower incomes are being squeezed to pay for the cuts. It is creating greater social tension. It is a major problem for a country to deal with that tension.

The solution in the Nordic countries to deal with the issue of low incomes is to create public sector employment. To finance public employment, the average tax intake in countries such as Sweden and Denmark is more than 50% and ranges from 53% to 55% of GDP. That is acceptable to the Swedes and the Danes because they trust that the Government is doing a good job by creating jobs in social care and so on. I cannot see something like that working in Greece in the current climate. I also cannot see it working in a country such as Britain because the electorate would find it completely unacceptable and would simply vote the Government down. This is a major problem. How much a government can do is down to politics.

However, we have solutions. I would like, and believe it would more acceptable, to have something like the system that is in place in the Netherlands where there is a good deal of support but the support is not the extent of that found in the Scandinavian countries, which I do not believe would be acceptable to voters in general. It is a case where the government needs to intervene to reduce the unequal outcomes that have resulted from the new technologies introduced. New technologies eliminate the layer of middle executives. The layer of middle executives and department heads employed in the manufacturing industries in big numbers are not compatible with new technologies. There are the very top people, the managers, the CEOs of the big companies, and then there is an army of people who do the work. Apple is the best example of this. The majority of Apple employees in the United States earn very close to the minimum wage. These are the demonstrators, the delivery people, those who work in the Apple stores, those who answer the telephones and those who chat to customers who want to buy products on the Internet. All those are Apple employees and they are proud to work for the coolest company in the world but they do not earn much more than the minimum wage. Then there are the top executives who earn millions of dollars every year. The layer of middle executives have been lost with the new technologies. The government needs to redistribute within that picture but how it does that it more of a political decision.

On the job losses that have occurred here, green investments for the greening of our buildings in particular should be subsidised because of the social benefits that ensue from them for the environment. It is a typical case in economics of a social benefit about which an individual would not care. One could tell someone to give more money to save the environment, to which that person would reply, "Why me?" A good test of this would be to check how many passengers contribute to airlines that invite passengers to pay another ¤20 to offset their carbon footprint. I do not know how many people take it up. If pressed to make a guess, I do not believe many people would take it up if they pay themselves but if one can claim expenses, one might pay the money and it might make one feel better.