Living wage - does good politics result in bad economics?

michaels

Justin King former boss of Sainsburys certainly thinks so but the HYS comments were universally in favour of the living wage.

http://www.bbc.co.uk/news/business-34090038

The background is of course a budget promise to spend other peoples money to distract from what can only be described as swinging cuts in support for low paid families. I think the rights, wrongs and impacts of these cuts have been debated elsewhere so this thread is about the living wage.

Whilst the level and scale of any affects is no doubt open to debate there is no doubt that making it very expensive to employ people will reduce employment as some things simply become more expensive to produce and in other cases it becomes worthwhile replacing people with technology (self checkout tills being a good example)

I think this presents two problems:
A national wage rate is unlikely to be suitable for a diverse country
Pricing the lowest skilled out of employment has led to social problems and extremism

So good politics but carp economics.

princeofpounds

Given that most people want their leaders to give them something for nothing, then almost by definite good politics is bad economics. It's one reason the likes of Jeremy Corbyn can do so well - until they run out of other people's money.


Having said that, the national 'living' wage is probably one of the less harmful distortions.


I do agree that on a regional basis it can be a problem. It can make uncompetitive areas of the company even more uncompetitive. But a regional system would be impossible to administer outside of government-controlled companies.


But in aggregate, a lot of the people who would earn below this wage if left to 'natural' employment will need direct support of some kind anyway. It's not that much worse to subsidise people through this method than through benefits - arguably people have more chance for productivity


Pricing the people at the boundary of employability out might be some kind of issue, but I think in practice it is likely to be less of an issue given the relatively low rate of unemployment. There is also an incentive for those sorts of people that the leap to employment is so much more attractive with a higher wage. As it stands the fact that minimum wage doesn't earn you much more than sitting on the dole means and you have to give up full time hours means that benefits effectively prices many people of this type out of work anyway.

JencParker

I always find it extraordinary is that when people (leaders either politically or in industry) talk about the low paid, they talk negatively of a minimum wage and that market forces should dictate wages (very useful in keeping the low pay low when there are so many looking for work), but when it comes to the highest pay, they go on about having to pay the high salaries to get the right people!!!!

CLAPTON

it's likely that the £9.35 per hour will lead to permanent higher unemployment levels along the lines of France and some other european countries

but we will see in due course

the test wouldn't be when the economy is booming but when it is in recession

Thrugelmir

michaels wrote: »

So good politics but carp economics.

Very simplistic to take a one sided view. The challenge for GO was to address the issue as it stands today. In the longer term post 2020. The level of the wage could be allowed to slip backwards in real terms if it was found to be excessive. Nor discount the fact that Corporation tax rates are reducing which does provide a degree of offset.

ukcarper

CLAPTON wrote: »

it's likely that the £9.35 per hour will lead to permanent higher unemployment levels along the lines of France and some other european countries

but we will see in due course

the test wouldn't be when the economy is booming but when it is in recession

The same arguments were used when minimum wage was introduced but as you say we will have to see.

CLAPTON

ukcarper wrote: »

The same arguments were used when minimum wage was introduced but as you say we will have to see.

yes that argument was used.

however the original minimum wage was set very low so very few were affected.
Even when it was raised it was at a time of the boom (when boom and bust was abolished) so wages were anyway buoyant and unemployment low

£9.35 is not a low figure relative to current pay levels so it might have a more significant effect

when the recession came, employment in the UK held up better than in France and many european countries with higher minimum wages (and other more restrictive employment laws too).

The test will be when the economy turns down. AS ever it will be difficult to distinguish the effect of the multi changes at that time

Conrad

Commensurate rise in prices will offset wage rises, so back to square one. In the end consumers dictate incomes.

CLAPTON

Conrad wrote: »

Commensurate rise in prices will offset wage rises, so back to square one. In the end consumers dictate incomes.

is that the french experience?

Thrugelmir

CLAPTON wrote: »

£9.35 is not a low figure relative to current pay levels so it might have a more significant effect

That is for the over 25's though. There's no impact on the lower age groups.

CLAPTON

Thrugelmir wrote: »

That is for the over 25's though. There's no impact on the lower age groups.

are all supermarket workers, shop workers etc under 25?