Minimum wage increases can lead to lower income for employees

HAMISH_MCTAVISH

When the minimum wage was first introduced many economists had concerns that it could reduce overall employment, however, this concern was largely incorrect and there was little if any negative effect from introducing minimum wages observed in developed economies around the world.

Since it's introduction however UK minimum wage has increased much faster than inflation, and is currently increasing rapidly with a target of around £9 per hour by 2020.

Similar experiments have also been taking place in the US, and the city of Seattle has recently seen two fairly rapid and material increases to minimum wage, to $13 per hour.

The results are interesting....

New research released Monday by a team of economists at the University of Washington suggests the wage hike may have come at a significant cost: The increase led to steep declines in employment for low-wage workers, and a drop in hours for those who kept their jobs.

Crucially, the negative impact of lost jobs and hours more than offset the benefits of higher wages — on average, low-wage workers earned $125 per month less because of the higher wage

https://fivethirtyeight.com/features/seattles-minimum-wage-hike-may-have-gone-too-far/

As far as I know this is the first established example of a minimum wage increase resulting in the effects initially predicted of lowering employment and actually reducing average income for workers.

So it does seem that the employment market will push back against wages that are driven too high, via reduced hours and fewer jobs, and I see no reason to believe that pushback would be any different whether the wage increase was caused by legislation or a shortage of labour (which some people seem to want to happen via Brexit).

So how high is too high for bottom end, largely unskilled, hourly wages?

At what point will those employees start to see negative outcomes, fewer hours worked, higher unemployment and reduced average income because their hourly wage is just too high for the job to be economically viable with the previous hours worked?

Discuss...

PasturesNew

I'd rather work 10 hours/week at £9/hour .... than 15 hours/week at £6/hour though

Of course I'd much rather work 2 hours/week at £45/hour.....

robin58

So OP what has his got to with Housing?

Thrugelmir

robin58 wrote: »

So OP what has his got to with Housing?

Wages pay the mortgage.

chucknorris

robin58 wrote: »

So OP what has his got to with Housing?

Don't you think that it might have something to do with the economy? This forum board is 'Debate House Prices and the economy'.

System

We could have a mass debate...

NMW exists for the benefit of the taxman to limit how much salary sacrifice you can do or benefits you can claim, it makes business pay the welfare bill, so it is basically a tax on business

chucknorris

MatthewAinsworth wrote: »

We could have a mass debate...

NMW exists for the benefit of the taxman to limit how much salary sacrifice you can do or benefits you can claim, it makes business pay the welfare bill, so it is basically a tax on business

I can see what you are saying, but those businesses will also pay less tax to the Gov. as there wage bill (which is as an allowable business expense) climbs, most on NMW will pay less tax than the amount of the business's tax reduction. So the question is, does the net tax take (allowing for benefit payments) increase or decrease?

System

Bear in mind tax credits with a 41% taper, and NI...

chucknorris

MatthewAinsworth wrote: »

Bear in mind tax credits with a 41% taper, and NI...

I was including NI in the 'total tax take, but I have to admit that I am completely unfamiliar with the benefit system (especially tax credits), and I will remain so until others contribute in that area. There is also the wider issue of trying to financially motivate those on benefits to work (and I'm not saying everyone on benefits is work shy).

michaels

chucknorris wrote: »

I was including NI in the 'total tax take, but I have to admit that I am completely unfamiliar with the benefit system (especially tax credits), and I will remain so until others contribute in that area. There is also the wider issue of trying to financially motivate those on benefits to work (and I'm not saying everyone on benefits is work shy).

Basically it means for each extra pound someone fulltime on the minimum wage in receipt of tax credits is paid, the govt benefits by 86.8p, the employee benefits by 27p and the employer pays out 113.8p.

This is just counting tax credits, income tax and ni, the employee may lose more (and the govt gain more) if housing benefit, council tax benefit etc are also impacted.

I will respond to Hamish's substantive point later.

System

Even more stealthily there will be stamp duty gains from rises in property prices that will come with higher wages - as well as gov generally not wanting a property crash that would destroy mortgage lenders that would then need bailing out

So wage rises are quite certain...