Living wage - does good politics result in bad economics?

Thrugelmir

michaels wrote: »

I bet whichever country you go to people, especially those at the bottom of the salary distribution, would tell you they deserve to be paid more...unfortunately total pay can not be more than total output. A higher minimum wage will price the least productive out of jobs reducing total output and mean there is less not more to go around.

Unless central Government intervenes and redistributes wealth. Which was the plank of Browns welfare reforms. Many people are now employed by foreign owned multinational companies. There only option is to exit the market if they don't like the costs involved. Others will fill the gaps. Hopefully more Co-operative type organisations.

Can't remember the name but a coffee chain has started where everybody earns the same wage. On the basis that everybody's contribution is important to the success of the business. I thought the idea novel and refreshing.

CLAPTON

Thrugelmir wrote: »

Unless central Government intervenes and redistributes wealth. Which was the plank of Browns welfare reforms. Many people are now employed by foreign owned multinational companies. There only option is to exit the market if they don't like the costs involved. Others will fill the gaps. Hopefully more Co-operative type organisations.

Can't remember the name but a coffee chain has started where everybody earns the same wage. On the basis that everybody's contribution is important to the success of the business. I thought the idea novel and refreshing.

yes, but it isn't so
otherwise each and every one would own their own chain of coffee bars

martinsurrey

CLAPTON wrote: »

as I understand you are saying

- current minimum wage is unacceptable to you

no, I just think that the current minimum wage + top up is an absurd method of doing things

CLAPTON wrote: »

-that politicians should decide how much the minimum income should be

they already do through WTC's

CLAPTON wrote: »

-that the top up shouldn't come from taxpayers but from employers (personally I would call that a stealth tax)

At the minute the WTC top up comes directly from tax, so its already a tax, so if you want to think about replacing a tax with a tax, that's fine.

CLAPTON wrote: »

-recognise that taxpayers (well all customers) will actually pay for the higher wages through higher prices

a possibility, but if you keep everything constant we could also get massive tax cuts to compensate (a £ extra on a company's wage bill, that reduces the WTC bill by a £ means we need a £ less tax), however, the market will become more efficient (people will be employed in more productive roles, so overall I would expect to see an increase in efficiency, and taking the state into account, lower prices overall, or higher quality services (this would happen when the government doesn't pass on the tax savings, but invests them in health or education).

CLAPTON wrote: »

-you are content that if this means higher unemployment then that's a price worth paying

I know that this could cause a level of unemployment, I don't know what that level is, if it was found to be too high, I'm not going to blindly stick to this on principle, it can be changed. again, as demonstrated by my numerical example, the efficient allocation of resources at a society level, leads to job creation as resources are better utilised.

CLAPTON wrote: »

I don't accept that a company paying the going rate makes it a zombie

Its only the going rate if that rate isn't topped up, and not all companies are productively inefficient with respect to labour (zombies), but the WTC top up protects the ones that are, as they are getting productive inputs for a level lower than we as a society value them.

Imagine the government set a ceiling for electricity prices, they do this by buying all the electricity the grid produces for £11 per MWH, and then they sell it consumers and businesses for £7.25 per MWH, do you think this is efficient? Would that encourage the efficient use of power?

Another way to think about this, the WTC funding has to come from somewhere, how about you fund it via a payroll tax, lets say, for every employee employed in a company under £9 an hour, your employee NI rate increases to 33% (so you pay an extra £1.45~£2.00 per hour, which will cover most of the WTC the Gov then pays the employee), would that be acceptable to you, its just a variation to an existing tax, which happens all the time...

Generali

I suppose one way of looking at this higher minimum wage is that it is much harder to avoid via tax havens and the double Irish Dutch sandwich. Starbucks might find it trivia to avoid UK taxes but they have to pay at least the minimum wage to do business in the UK.

The Government, as with the TV licence, is moving some of the burden of welfare from the state to not the state.

martinsurrey

CLAPTON wrote: »

I do a little work for a charity


we employ a couple of people who aren't really capable due to being mentally disabled.
they are long term employees and their jobs are safe but at £9.35 per hour (2020 figures) they would never be recruited now.

And while I applaud your charity work, their efficiency isn't what got them the job, its your belief that everyone can do something and be productive.

I'm not saying that just by making WTC's redundant by raising the minimum wage all of life's problems will disappear.

The government could use some of the WTC saving to introduce a disability employment allowance, to directly benefit the employment of people with special needs, now your employees are paid more, but need less government support, and you are directly rewarded for employing them.

CLAPTON

martinsurrey wrote: »

no, I just think that the current minimum wage + top up is an absurd method of doing things


they already do through WTC's


At the minute the WTC top up comes directly from tax, so its already a tax, so if you want to think about replacing a tax with a tax, that's fine.


a possibility, but if you keep everything constant we could also get massive tax cuts to compensate (a £ extra on a company's wage bill, that reduces the WTC bill by a £ means we need a £ less tax), however, the market will become more efficient (people will be employed in more productive roles, so overall I would expect to see an increase in efficiency, and taking the state into account, lower prices overall, or higher quality services (this would happen when the government doesn't pass on the tax savings, but invests them in health or education).


I know that this could cause a level of unemployment, I don't know what that level is, if it was found to be too high, I'm not going to blindly stick to this on principle, it can be changed. again, as demonstrated by my numerical example, the efficient allocation of resources at a society level, leads to job creation as resources are better utilised.



Its only the going rate if that rate isn't topped up, and not all companies are productively inefficient with respect to labour (zombies), but the WTC top up protects the ones that are, as they are getting productive inputs for a level lower than we as a society value them.

Imagine the government set a ceiling for electricity prices, they do this by buying all the electricity the grid produces for £11 per MWH, and then they sell it consumers and businesses for £7.25 per MWH, do you think this is efficient? Would that encourage the efficient use of power?

Another way to think about this, the WTC funding has to come from somewhere, how about you fund it via a payroll tax, lets say, for every employee employed in a company under £9 an hour, your employee NI rate increases to 33% (so you pay an extra £1.45~£2.00 per hour, which will cover most of the WTC the Gov then pays the employee), would that be acceptable to you, its just a variation to an existing tax, which happens all the time...

it's possible that the replacement of one government intervention in the labour market (which you consider 'absurd') should be replaced by another government intervention which I consider 'absurd' may lead to an 'improvement' in some sense..

Like most socialist interventions : when they don't work very well, the answer is always more and/or different intervention rather than market forces.

Maybe we could become more 'efficient ' like the French : more output per worker but more unemployed.

martinsurrey

CLAPTON wrote: »

it's possible that the replacement of one government intervention in the labour market (which you consider 'absurd') should be replaced by another government intervention which I consider 'absurd' may lead to an 'improvement' in some sense..

I can fully see why you think its a bad idea, and I respect that, I don't agree, but we don't need to, if there was a right answer, life would be a lot easier!

CLAPTON wrote: »

Like most socialist interventions : when they don't work very well, the answer is always more and/or different intervention rather than market forces.

I think that's not limited to socialist interventions, that's the fact of every government intervention, like schools, hospitals, roads, defence, street lights, policing, criminal justice, fire service.

None of them would work very well if left to market forces, so when they aren't working very well, the Government changes how it does them, this is no different.

CLAPTON wrote: »

Maybe we could become more 'efficient ' like the French : more output per worker but more unemployed.

Now your going a bit straw man, the French problem is a lot deeper than replacing a current government cost, with a private cost (with no real detail on the resulting spending of Gov savings).

Maybe if you don't like the minimum wage we could become more like Sweden, one of the happiest countries in the world, no government minimum wage, but over 90% of jobs are covered by collective bargain agreements, which include a minimum wage, these are controlled and negotiated by unions, and over 70% of the population belong to one.

http://work.sweden.se/living-in-sweden/workers-rights-and-unions/

Remove the minimum wage in the UK but also remove a lot of the anti union and anti strike provisions (it would seem strange to give power to an employer, without giving it to employees as well).

michaels

So a higher minimum wage leads to higher labour productivity for two reasons:
The relative price of labour compared to capital is higher so employers have incentive to invest in more capital per worker
The least productive workers are priced out of the employment market

It is the later that worries me as in France it has led to the ghettos and socialietal radicalisation problems that are proving so dangerous. Sure we have a disadvantaged underclass with soem intergenerational unemployment but nothing like the French situation with twice the rate of unemployment.

Generali

michaels wrote: »

So a higher minimum wage leads to higher labour productivity for two reasons:
The relative price of labour compared to capital is higher so employers have incentive to invest in more capital per worker
The least productive workers are priced out of the employment market

It is the later that worries me as in France it has led to the ghettos and socialietal radicalisation problems that are proving so dangerous. Sure we have a disadvantaged underclass with soem intergenerational unemployment but nothing like the French situation with twice the rate of unemployment.

It's okay, in France the unemployed are the young, the Arabes and the old. As long as you went to Sci Po and are white (preferably male too although that is less a qualification than it was) then you are fine.

MacMickster

michaels wrote: »

It is the later that worries me as in France it has led to the ghettos and socialietal radicalisation problems that are proving so dangerous. Sure we have a disadvantaged underclass with soem intergenerational unemployment but nothing like the French situation with twice the rate of unemployment.

The French situation is the result of a myriad of issues.

Surely in the UK we want our private sector to be as efficient as possible, but without consigning the less productive members of society to the scrapheap so that they are totally unproductive.

A possible answer would be to redirect the savings from in-work benefits to set up jobs with social value (with pay higher than unemployment benefit but lower than minimum wage) for those unemployed for over 6 months. Hopefully, most would gain the necessary skills to join the mainstream labour market and improve their financial situation. For others, these social "jobs" would be long-term answers so that they would at least be contributing something to society rather than sitting at home with their games console all day.

I'm sure that others on this forum can come up with many alternative solutions.