Living wage - does good politics result in bad economics?

martinsurrey

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.

Yeah, that would be a problem, afaik France combines its high minimum wage, with strict labour laws (meaning its harder to hire and fire) and a 34% corp tax rate, giving little flexibility or incentive to hire.

as I've said through all my posts, this efficiency in the labour market, will need to be balanced with job creation created by the increased efficiency, which the Gov could foster through capital taxation (to make the capital to create efficient jobs affordable) , training support (to make those least productive workers more productive), both of which lead to a more productive economy, but you're right too high a wage, too soon, and you will get problems as the market needs time to flex, but I don't think its an insurmountable problem, but only time will tell.

CLAPTON

martinsurrey wrote: »

Yeah, that would be a problem, afaik France combines its high minimum wage, with strict labour laws (meaning its harder to hire and fire) and a 34% corp tax rate, giving little flexibility or incentive to hire.

as I've said through all my posts, this efficiency in the labour market, will need to be balanced with job creation created by the increased efficiency, which the Gov could foster through capital taxation (to make the capital to create efficient jobs affordable) , training support (to make those least productive workers more productive), both of which lead to a more productive economy, but you're right too high a wage, too soon, and you will get problems as the market needs time to flex, but I don't think its an insurmountable problem, but only time will tell.

it's not entirely clear why more jobs are created by increased efficiency
there are indeed many example where a decrease in price creates a great deal more demand although this doesn't necessarily create more jobs
equally there are many examples where increased efficiency leads to a smaller work force.

it's equally not clear that price (interest rates) is the cause of a shortage of capital : interest rate have never been so low.

martinsurrey

CLAPTON wrote: »

it's not entirely clear why more jobs are created by increased efficiency
there are indeed many example where a decrease in price creates a great deal more demand although this doesn't necessarily create more jobs
equally there are many examples where increased efficiency leads to a smaller work force.

it's equally not clear that price (interest rates) is the cause of a shortage of capital : interest rate have never been so low.

You're right, and its these uncertainties that lead to differences of opinions, we've both got well reasoned arguments that both try and simplify a horrendously complex and multi headed beast. Even after its happened we wont know who was right, "Was it the minimum wage that caused X or was it China?"

As long as we have an honest and open debate on it, everyone is free to make up their own mind, and vote accordantly when we get to the next election.

CLAPTON

martinsurrey wrote: »

You're right, and its these uncertainties that lead to differences of opinions, we've both got well reasoned arguments that both try and simplify a horrendously complex and multi headed beast. Even after its happened we wont know who was right, "Was it the minimum wage that caused X or was it China?"

As long as we have an honest and open debate on it, everyone is free to make up their own mind, and vote accordantly when we get to the next election.

I doubt the option to reduce /abolish the £9.35 ph will be offered by any significant party.

easier to introduce than to reduce.

Thrugelmir

CLAPTON wrote: »

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

You need capital to open a High Street business.

Thrugelmir

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

Not that people feel rewarded for their efforts. That they are able to enjoy a reasonable standard of living. Are therefore happy at work. Therefore are more productive naturally.

CLAPTON

Thrugelmir wrote: »

You need capital to open a High Street business.

so they are not all equal

some have capital
some have the initiative to search for capital
some mortgage there own home and some won't take the risk
some work 24/7 to save capital to start a business

not all equal

michaels

Thrugelmir wrote: »

Not that people feel rewarded for their efforts. That they are able to enjoy a reasonable standard of living. Are therefore happy at work. Therefore are more productive naturally.

I thought empirical evidence shows that above a very modest standard of living, people's subjective opinion on whether they enjoy a reasonable standard of living is all about relative rather than absolute income, thus people will only feel 'rewarded' if they are better paid than their peers, obviously it is an impossibility to make everyone [STRIKE]feel [/STRIKE]relatively better off...

Mistermeaner

michaels wrote: »

obviously it is an impossibility to make everyone feel relatively better off...

Nicola has squared that circle

Thrugelmir

michaels wrote: »

I thought empirical evidence shows that above a very modest standard of living, people's subjective opinion on whether they enjoy a reasonable standard of living is all about relative rather than absolute income, thus people will only feel 'rewarded' if they are better paid than their peers, obviously it is an impossibility to make everyone [STRIKE]feel [/STRIKE]relatively better off...

There's the question of fairness as well to address as a society. As I've said before. This isn't a blank sheet of paper proposal. It's part of a far wider agenda to address the cost of the welfare state. Which no longer just supports those in need.