Living wage - does good politics result in bad economics?

michaels

Oh dear, looks like 7.20 is enough to stoke inflation and cut employment, I wonder what impact £9 plus will have, I can see major unemployment outside of London and the SE, an ideal breeding ground for radicalism as the French experience has proved.

http://www.bbc.co.uk/news/business-34177370

Whitbread plans to increase prices at its chains as it prepares to introduce the national living wage.
The Premier Inn and Costa Coffee owner said it would also "mitigate this substantial cost increase" by cutting costs and increasing productivity.
Also on Tuesday, Manpower said the living wage was sending "shockwaves" through the UK labour market.
Its survey warned the living wage was prompting employers to cut back on hiring.

Generali

michaels wrote: »

Oh dear, looks like 7.20 is enough to stoke inflation and cut employment, I wonder what impact £9 plus will have, I can see major unemployment outside of London and the SE, an ideal breeding ground for radicalism as the French experience has proved.

http://www.bbc.co.uk/news/business-34177370

Time will tell.

Australia has a minimum wage (actually lost of minimum wages) which are a lot more than the UK's without causing substantial unemployment and that's before you add in compulsory 'Super' (pension) contributions of 9.5%. I suspect that it helps that Aus is a very low tax economy, the lowest in the OECD I believe: fuel is 60p/litre and GST (VAT) is 10% with many exemptions.

michaels

Off topic but if the commodities slump continues for a few years can Australia still afford the high wages and low taxes?

onlyroz

Isn't this just shifting the burden from the tax payers (via tax credits) to the employers (via the minimum wage)? Overall the workers will get roughly the same amount of money, but they'll get it all from their employer rather than from benefits.

I can't really see a downside.

wotsthat

onlyroz wrote: »

Isn't this just shifting the burden from the tax payers (via tax credits) to the employers (via the minimum wage)? Overall the workers will get roughly the same amount of money, but they'll get it all from their employer rather than from benefits.

I can't really see a downside.

Consumers, who give the money to the employers to pay the employees, may baulk at being asked to pay a non taxpayer subsidised price for a cup of tea or coffee.

Personally I think this is a matter for the consumer to decide but the downside is that our employee delighted to have received a pay rise finds himself without customers to serve and out of a job.

michaels

onlyroz wrote: »

Isn't this just shifting the burden from the tax payers (via tax credits) to the employers (via the minimum wage)? Overall the workers will get roughly the same amount of money, but they'll get it all from their employer rather than from benefits.

I can't really see a downside.

I can sort of see this if it is just that the returns to captial (profits) are reduced by the same amount as wages are increased but of course in most low pay sectors where wages make up a large proportion of turnover there is not the 30% profit margin available so instead prices will rise and thus demand and employment will fall.

And of course where profits do fall that means that shareholders (ie everyone with defined contribution pensions) will suffer.

Generali

michaels wrote: »

Off topic but if the commodities slump continues for a few years can Australia still afford the high wages and low taxes?

She did before the mining boom. It remains to be seem if she can afterwards.

michaels

Generali wrote: »

She did before the mining boom. It remains to be seem if she can afterwards.

The UK could afford the welfare state before the banking boom but unfortunately the expansion in tax revenues that was thought to be permanant but turned out to be a one off was accompanied by an increase in welfare that could not so easily be switched off when the money dried up....

martinsurrey

michaels wrote: »

Oh dear, looks like 7.20 is enough to stoke inflation and cut employment, I wonder what impact £9 plus will have, I can see major unemployment outside of London and the SE, an ideal breeding ground for radicalism as the French experience has proved.

http://www.bbc.co.uk/news/business-34177370

https://www.whitbread.co.uk/content/dam/whitbread/download_centre/reports_and_results/2015/Interactive-Annual-Report-2015.pdf

Whitbread employed 38k people in 2014/15, on an average salary of £17k

If EVERYONE got a £2 an hour increase that would cost the company £151m a year before tax, £120m after tax, or 5.7% of turnover, or 33% of profit before tax.

So if they didn't increase prices at all, they would still be a very profitable group, my guess is that a few locations would close down in unprofitable areas, there would be a slight price rise in the remaining locations, but they would open a few more new locations, as some of the competition realigns their business models as well.

Not saying this is the case overall, but the economy wouldn't keel over.

borkid

onlyroz wrote: »

Isn't this just shifting the burden from the tax payers (via tax credits) to the employers (via the minimum wage)? Overall the workers will get roughly the same amount of money, but they'll get it all from their employer rather than from benefits.

I can't really see a downside.

This is my, perhaps naive, way of thinking. I would rather pay slightly higher prices in the shops ( if that's where some of the money is needed to be raised) and be able to choose where my money goes than subsidise the likes of Tesco etc via WTC.