Living wage - does good politics result in bad economics?

borkid

Thrugelmir wrote: »

Which no longer just supports those in need.

In need of what? I know no one who is claiming JSA but I do know some who claim CTC and others claiming ESA. The ones claiming CTC appear to have more than I do but maybe they are in debt. I don't count myself in need and feel comfortably off but I don't have all the latest electronic gadgetry, don't have a holiday every year, no sky TV, maybe have a meal out once every couple of months. one small car shared between me and hubby, no beauty/ hairdresser treatments etc.

Also what do you mean by fairness? Everyone have the same income despite the different abilities effort etc? Your vision of fairness is probably not everyones vision. if we aren't careful it will be easy to say why bother if everyone gets the same.

Mistermeaner

I always wonder what's fair?

Me: single dad, child with learning difficulties, work 50 hrs a week, often 2/3 nights away from home. Get nothing in CB, ctc, wtc etc. Pay 300/month for childcare. Do earn a very good wage for someone my age but live very modestly, although I do save alot. By way of example my house has 2 bedrooms and I park on the road, my holiday this summer was camping in Wales.

My acquaintance: lives with partner, 2 kids. S h e doesn't work on basis she wants to spend time with the kids (both 5+ in school) he works but add hoc as cash in hand gardener. They live in big 3 bed semi, huge garden, sky tv, car, foreign holidays and enjoy a very active social life - plenty of weekends away (without the kids). They had in the past fiddled the benefits but are now legit (plus paying back some overpayments) his earnings are approx 250 a week (perhaps not fully declared).... but on basis of earning approx 20% of what I do (gross) they have use of far greater material assets than me, have far more free and leisure time, have more time with their kids, apparently more disposable income and are protected from things like redundancy and repossession - primarily on the back of (indirectly) the work I do and the tax I pay.

I am not jealous of their lifestyle as I prefer mine and find my work rewarding. Ultimately I know I will be 'richer' than then in accumulated wealth but right now they are 'richer' than me in many ways.

How is that fair? They benefit from cb, wtc, hb, jsa, etc as a lifestyle choice rather than because they need all those things.

I can only imagine how much annoying this must be for someone on averages wages which would be fraction of mine

michaels

Next says NLW means price increases of 6%

The retailer Next has set out the effect it thinks the government's National Living Wage will have on its prices.
It predicted that prices would have to rise an extra 6% between 2016 and 2020.

http://www.bbc.co.uk/news/business-34201617

Basic supply and demand curve economics says that a 6% increase in prices will equate to a fall in volumes - lets say of 3% which equates to 3% less employment, even before any attmepts to increase efficiency.

But what of the extra demand from higher wages? IFS calcs say even with no employment effects the reduction in purchasing power from the cuts in tax credits far outweighs the extra income

It found that families with someone in paid employment that are eligible for benefits or tax credits would lose an average of £750 a year as a result of the changes.
The IFS estimates that this group of 8.4 million working-age households will gain an average of £200 a year from the NLW.
It says this is an optimistic estimate because it assumes that the NLW will have no effect on GDP, employment or the number of hours worked.

Lets not forget that these are people at the bottom of the income distribution who are getting less money - people with a marginal propensity to save likely to be around zero. Whereas any savings in tax resulting from less govt spending are likely to be shared accross the income distribution and thus at least soem will go to higher earners who are likely to save some or all of any increases in income from lower taxes.

The last equivalent politcal 'masterstroke' was when Gordon Brown removed the 10p tax rate and used the money to cut the basic rate by 2p. Perhaps a welcome simplification but certainly regressive.

martinsurrey

michaels wrote: »

Next says NLW means price increases of 6%


http://www.bbc.co.uk/news/business-34201617

Basic supply and demand curve economics says that a 6% increase in prices will equate to a fall in volumes - lets say of 3% which equates to 3% less employment, even before any attmepts to increase efficiency.

But what of the extra demand from higher wages? IFS calcs say even with no employment effects the reduction in purchasing power from the cuts in tax credits far outweighs the extra income


Lets not forget that these are people at the bottom of the income distribution who are getting less money - people with a marginal propensity to save likely to be around zero. Whereas any savings in tax resulting from less govt spending are likely to be shared accross the income distribution and thus at least soem will go to higher earners who are likely to save some or all of any increases in income from lower taxes.

The last equivalent politcal 'masterstroke' was when Gordon Brown removed the 10p tax rate and used the money to cut the basic rate by 2p. Perhaps a welcome simplification but certainly regressive.

you've misread that report I'm afraid, in a big way - page 8.

the cost of the LWP is £11m, the cost of paying people above that more (to retain the differential from minimum to the next level) is £16m, giving a total LPW cost of £27m or 1% of sales.

The 6% you are using includes the cost of TOTAL pay rises based on a 4.5% pay rise for everyone, not just the people at the Bottom.

So the LWP costs 1% of sales, while general wage inflation is 5% of sales.

so I think you should rethink the above.

michaels

martinsurrey wrote: »

you've misread that report I'm afraid, in a big way - page 8.

the cost of the LWP is £11m, the cost of paying people above that more (to retain the differential from minimum to the next level) is £16m, giving a total LPW cost of £27m or 1% of sales.

The 6% you are using includes the cost of TOTAL pay rises based on a 4.5% pay rise for everyone, not just the people at the Bottom.

So the LWP costs 1% of sales, while general wage inflation is 5% of sales.

so I think you should rethink the above.

I haven't read the Next report, only the BBC article which pretty clearly states that the NLW will increase the wage bill by 1% directly and 6% altogether when differentials are factored in, over and above what it would have risen by otherwise.

It predicted that prices would have to rise an extra 6% between 2016 and 2020.
The increase is a combination of 1% from the living wage itself and 5% from the knock-on effects on other wages.

Apologies if the BBC have misinterpreted what Next actually said.

Edit: Have now read the actual PDF and I agree with your interpretation rather than that of the BBC.

Next do mention differentials but only as a second order effect that might kick in if nominal wages do not increase by the (probably optimistic at least in the short term) 4.5%pa forecast by the OBR.

martinsurrey

michaels wrote: »

I haven't read the Next report, only the BBC article which pretty clearly states that the NLW will increase the wage bill by 1% directly and 6% altogether when differentials are factored in, over and above what it would have risen by otherwise.



Apologies if the BBC have misinterpreted what Next actually said.

Yup that's very very poor reporting.

The report sets out very clearly that the LWP is not material to Next at all in the greater scheme.

"The £27m additional LWP cost is not immaterial but, in the context of NEXT’s wider cost base, is not transformative. We estimate that we would need to increase prices by around 1% to compensate for this cost which, taken over four years, is unlikely to have a material effect on the trading performance of the business. It should be noted that this is probably a pessimistic view of the required price rise, as we have assumed no improvements in productivity. In reality, we hope to be able to compensate for some wage inflation through increased productivity measures throughout the business."

martinsurrey

http://www.bbc.co.uk/news/business-34201617

I emailed them once and they changed the title,

I emailed them again, and they changed the content (correctly changing it to 1% LWP 5% general wage inflation...)

Edit:
emailed them again as they say 1 and 5% per year, when its really 1 and 5% over 4 years...

they really need to learn to proof read.

Thrugelmir

To put matters in perspective according to Next's Annual Accounts the 3 highest directors pay packages combined amounted to £14.3 million.

I'm in no a way a socialist. But I again I use the word fairness. A £10 million reduction would provide 30% of the money required.

How much money does one person need to earn? The Chief Executive has had a £1.8 million in 4 years or put another way around 68%.

Not as if it's their Company either. They are mere custodians who'll leave when the profits are poor.

Next bleating may well backfire. Like Goldsmith, Starbucks and others. As customers aren't stupid.

Mistermeaner

But the owners have decided that as custodians that is how much they should be paid.

Perhaps if they were not paid as much they would leave (to a competitor) and next would no longer be a successful company.

Do not under estimate the influence on success those at the top have

Thrugelmir

Mistermeaner wrote: »

But the owners have decided that as custodians that is how much they should be paid.

Perhaps if they were not paid as much they would leave (to a competitor) and next would no longer be a successful company.

Do not under estimate the influence on success those at the top have

I think that the bad publicity should not be under estimated either.

What's the knock on effect if 20 people who know each employee no longer shop at Next?

Something like this can ripple out. The good guys will court good publicity. Never been any different.