Minimum Wage To Go Up, Are you negatively effected?

CLAPTON

It would seem classical economic to say that if the government imposes higher costs like minimum wage then all other things being equal

- the price of the products will increase to help offset the costs
- the volume of sales will fall
- the employment in that sector will fall due to lower demand
- there will be an additional effort to substitute labour by innovation and increased efficiency
- the increase in efficiency will probably take a time to implement as one would assume that low hanging fruit has already been picked.

At a time of high employment and low unemployment the effects may be modest on total levels of employment but, as always, the real effects will be felt when the economy turns down and unemployment rises.

we will see what 2020 brings us.

Generali

michaels wrote: »

Sure there will be some substitution from labour to capital but if this were costless why wouldn't it have happened already so therefore it will not be enough to offset the increase in labour costs.

^^This.

As a company you can spend money on capital goods (machines) or on labour (people). As the cost of the two vary relative to each other the spend varies.

If I need to clean an office I could buy a bunch of Roombas or I could employ a cleaner and give him a Henry.

The decision as to which is better to do depends, in part, on the relative cost of cleaners and robo-vacs.

I have mixed feelings about the increase in the minimum wage: on one hand it reduces the demand for labour (probably reduces strictly speaking as it should be noted that there has been no obvious impact on employment levels so far since the minimum wage was introduced) yet on the other it reduces Government spending and thus taxation.

kabayiri

Generali wrote: »

...
The decision as to which is better to do depends, in part, on the relative cost of cleaners and robo-vacs.
...

Cheap labour reduces the need & desire to innovate as a way of improving productivity.

We have been very good at creating relatively low value jobs since the GFC. That doesn't help us climb up the productivity table though.

Generali

kabayiri wrote: »

Cheap labour reduces the need & desire to innovate as a way of improving productivity.

We have been very good at creating relatively low value jobs since the GFC. That doesn't help us climb up the productivity table though.

If you get rid of investment bankers, in the GDP figures some of the most productive workers in the world, productivity will fall.

Kim_13

The worst of it is that there seems to be a refusal for the difference in pay bands to narrow. Because of this, it's increased pay for more than those that are directly affected. This means rather than small increases in prices, it's larger rises and loss of hours, plus people being expected to share between them the work that would have previously been done by someone else, when there were other staff doing more hours. They might be getting a bit more in their banks, but they'll be working harder for it and having their own expenses go up anyway.

If companies would simply raise the pay of those under the Living Wage to the Living Wage (as perhaps was intended) and take the hit on profits, then there wouldn't be a problem. But they never would, the same as I doubt the government will reduce taxation, even if its spending does fall.

The government wants redistribution, but the people at the top will never have it and it goes round in a circle.

PasturesNew

michaels wrote: »

.... obviously same pay for fewer hours will have no impact on the tax credits bill....

It will be for those who were only doing 16 hours because that's when WTC kicks in for them - and now their boss wants them to do 14-15.

Heck, they'll be 'forced' to find another way to work the system, or change jobs! It's "just like the real world" where things aren't always cozy.

mwpt

Generali wrote: »

I have mixed feelings about the increase in the minimum wage: on one hand it reduces the demand for labour (probably reduces strictly speaking as it should be noted that there has been no obvious impact on employment levels so far since the minimum wage was introduced) yet on the other it reduces Government spending and thus taxation.

Could you explain the mechanism by which increased minimum wage reduces government spending? I'm drawing all sorts of lines in my head but not sure I can reach this conclusion ... conclusively.

Thrugelmir

mwpt wrote: »

Could you explain the mechanism by which increased minimum wage reduces government spending? I'm drawing all sorts of lines in my head but not sure I can reach this conclusion ... conclusively.

Have a play yourself.

https://www.gov.uk/working-tax-credit/overview

mwpt

Thrugelmir wrote: »

Have a play yourself.

https://www.gov.uk/working-tax-credit/overview

Well, that's the immediate leap to make, yes, but I can't seem to work out a holistic theory that shows you can reduce welfare spending by mandating minimum wage increases.

I mean, I'm all for not subsidising our entire low wage private sector with tax credits and housing benefit, so I hope that conclusion is correct.

CLAPTON

mwpt wrote: »

Well, that's the immediate leap to make, yes, but I can't seem to work out a holistic theory that shows you can reduce welfare spending by mandating minimum wage increases.

I mean, I'm all for not subsidising our entire low wage private sector with tax credits and housing benefit, so I hope that conclusion is correct.

maybe I misunderstand you, but the in work benefits depend upon the recipients' income: if their income rises due to high minimum wage then benefits fall