Minimum wage increases can lead to lower income for employees

Fella

HAMISH_MCTAVISH wrote: »

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....

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...

I think a high minimum wage is a massively flawed idea, makes no sense, & will definitely lead to less jobs & the people who do them being forced to work much much harder.

I don't see how it can do anything other than price lots of (low-skilled, low-ability) workers out of the market completely. As a quick silly example, say I run a store & want to pay somebody to stand on the door & welcome customers. That's a job almost anybody could do & maybe I'd be prepared to spend what it cost to pay somebody £5/hour to do it (still a take-home wage for them of £200 a week on a 40-hour week). But at nearly twice that much per hour I just can't/won't pay somebody to do something that trivial.

For me personally, at some point soon I'd be happy to quit "real" work & do something possibly part-time more for fun. If so I'd far far rather do a job I enjoyed at £5/hour than a job I didn't for £9/hour. But nobody will be able to offer me a £5/hour job.

jamesmorgan

The effects of the minimum wage all depend on the level it is set at.

a) Set it at around the typical wage for low value workers - effect is minimal. At the edges a few workers get a higher wage, but broadly there are few (positive or negative) effects

b) Set it higher than the typical wage of low value workers - a whole range of market distorting effects happen. Very difficult to anticipate the overall impact.

Up to now, we have broadly had option a). We are now potentially moving into option b). As a very simple example, a business can choose to employ 4 people at £5/hour or it can alternatively employ 3 more experienced people at £7/hour and get the same work output. The wages are largely determined by the amount of productivity the organisation gets from the employees. In this example, simple maths dictates that the company employs the 4 low value staff. If you distort the market by putting the minimum wage up to £6/hour, the company reverses the decision and employs the 3 more experienced staff.

Having a minimum wage above the market rate increases unemployability of low value workers. Unions welcome this as it protects their members employment (existing members typically being experienced workers). It is usually bad news for young, inexperienced or disabled workers.

What it certainly doesn't do is increase the 'wealth' of the nation. It just moves payment from one group of workers to another.

PasturesNew

Govt fiddling is where it all went wrong - as they underestimated the reverse-thinking of a growing number of people.

NMW quickly became the employer's "this is THE wage"; many jobs' wages never increased after that and NMW slowly caught them all up. I was paid £17k in 1997 to do a skilled/clever job - in 2017 that same company is probably STILL paying £17k for that job.

Tax credits etc were where a lot "went wrong". Intended to encourage people to take jobs where they didn't earn "quite enough" employers realised they didn't have to pay people above "the minimum" as the Govt would top them up to what the Govt decided they "needed".

So the Govt's been increasingly picking up the tab for an increasing number of employers who simply never felt they needed to increase any wages because "ah, the Govt will top it up - and we've always got plenty of people who apply for the jobs".

It used to be that, say, a couple with a child would have one working full-time and the other one getting an evening/weekend job. Now that same couple have worked out that if the one full-time works only 24 hours and the other one doesn't get a 2nd job, the Govt tops them up to have an income equal to what they used to get.... so that's what a lot of people started "choosing" to do.

Meanwhile, employer takes one 48 hours/week job and chops it in half, offering two 24-hour jobs, or cuts it into three 16 hour jobs.

So in a swoop you've decreased wages, decreased full-time jobs and made it so a whole group of people "don't NEED to work full-time".

Now, if you've got a cr4ppy job and can't see that improving ever, then why'd you bust a nut to work longer, with the hassle of time-keeping and doffing your cap, when you don't need to.

You also have a lot of noise of people saying "living on benefits" as if they're poor, because they've been lead to believe they're poor .... but they are a lot better off than a lot of people who don't get the magical top ups and who DO have to go out and soldier on for 40-45 hours/week. This creates a noise machine determined to hammer any Govt that suggests cutting/capping/reducing ANY benefits, no matter how worthy the recipients are/not or how fair/out of step they've become with "regular hard working people".

Benefits became a monster that's too big to stop....

Conrad

My 17 yo Son works part time as pot washer at the local pub which I know for a fact is struggling along. He gets £4.20 p hr, a sum he is more than happy with. This gastro pub employs a good number of pt youngsters.

Now the lefts argument is that if a firm cannot pay people 'properly' it deserves to go bust.

I find this incredibly short sighted. If Labours MW for the young kicked in, this business would go bust unless customers wore the price hikes but I suspect they would not.

PasturesNew

Conrad wrote: »

My 17 yo Son works part time as pot washer at the local pub which I know for a fact is struggling along. He gets £4.20 p hr, a sum he is more than happy with. This gastro pub employs a good number of pt youngsters.

Now the lefts argument is that if a firm cannot pay people 'properly' it deserves to go bust.

I find this incredibly short sighted. If Labours MW for the young kicked in, this business would go bust unless customers wore the price hikes but I suspect they would not.

I think, in a lot of cases, firms should be able to pay people correctly for the work they do. If you take a one-man business, he makes money from what he does - every time he takes somebody on it is to do a "lesser" job that he no longer needs to do, freeing him up for more hours to earn the higher rate his business attracts. Theoretically, every boss should be prepared to work in their employee's job for the rate they're paying them.

Re going bust - that's in part due to the high value/cost of the physical buildings - and any taxes they pay to the Govt. Taxes that then get put into the benefits pot that pays for all the pen-pushers to then decide who gets an extra £20-200/week from the pot.

Increase wages, reduce the number of people on benefits, you need fewer pen pushers to pay for. Fewer systems. Fewer forms. Fewer pointless reams of booklets/sheets being posted out to 000s of people because they had "one tiny change in circumstances".

Also, while a lot of food industries do close down soon after opening - this is probably in part due to poor business planning/research of owners who are simply "living a dream" that wasn't a viable business.

On the other hand, I don't see the likes of Oliver, Ramsey and Roux skimping by having a Sun holiday, or fretting over the payment for their Ford Escort this month. Often it's millionaires who complain they can't afford to pay hard working staff an extra £1/hour .... staff who are probably giving them 3-5 hours' free overtime every week here and there (if not more).

Conrad

PN you're correct about lifestyle business owners. I've dealt with a fair few pub owners and invariably they are limping along and many go bust. Thier idealistic romantic view of running a pub did not extend to the day to day realities such as being bothered to ensure only clean oil is used for frying, or the hard work required to deliver good food at a competetive price.

I'm amazed how many get beer wrong to.. It's all very well serving up these new trendy micro brewery lines, but all too often pubs are stocking these light bitters that have fruit overtones such as grapefruit. Me an my mates unless on larger, want a nice dark proper bitter not these nasty blonde things.

Classic mistake is stocking beer YOU like, and not catering properly for a range of tastes. By all means stock some light blonde bitters, but don't forget the deep darks ones too!

Thrugelmir

jamesmorgan wrote: »

As a very simple example, a business can choose to employ 4 people at £5/hour or it can alternatively employ 3 more experienced people at £7/hour and get the same work output. The wages are largely determined by the amount of productivity the organisation gets from the employees.

Somewhat unlikely.Unskilled low paid work. Retail, cleaning, food and drink, machine operators etc.

Be less jobs and more automation. As technology becomes more cost effective to purchase and implement.

Think of self service checkouts in supermarkets. Our town centre Tesco's has no one on a manned till at 7.30 in the morning. Simply 20 self service checkouts with 2 staff. One who switches if necessary.

michaels

PasturesNew wrote: »

I think, in a lot of cases, firms should be able to pay people correctly for the work they do. If you take a one-man business, he makes money from what he does - every time he takes somebody on it is to do a "lesser" job that he no longer needs to do, freeing him up for more hours to earn the higher rate his business attracts. Theoretically, every boss should be prepared to work in their employee's job for the rate they're paying them.

Re going bust - that's in part due to the high value/cost of the physical buildings - and any taxes they pay to the Govt. Taxes that then get put into the benefits pot that pays for all the pen-pushers to then decide who gets an extra £20-200/week from the pot.

Increase wages, reduce the number of people on benefits, you need fewer pen pushers to pay for. Fewer systems. Fewer forms. Fewer pointless reams of booklets/sheets being posted out to 000s of people because they had "one tiny change in circumstances".

Also, while a lot of food industries do close down soon after opening - this is probably in part due to poor business planning/research of owners who are simply "living a dream" that wasn't a viable business.

On the other hand, I don't see the likes of Oliver, Ramsey and Roux skimping by having a Sun holiday, or fretting over the payment for their Ford Escort this month. Often it's millionaires who complain they can't afford to pay hard working staff an extra £1/hour .... staff who are probably giving them 3-5 hours' free overtime every week here and there (if not more).

There is a theory that you give everyone enough to live on at a minimum level - say a 4k pa 'citzens income' and no other benefits or tax breaks, so no personal allowance etc, income tax starts on the first £ you earn but however much you earn you don't lose the 4k. Pretty much no admin needed and everyone has an incentive to work more because they don't lose benefits - I think Finland are experimenting with this.

BJV

We have never paid our employees minimum wage. We are however heavily investing in tech as ultimately staff will become too expensive or at least that a negative effect on our ability to be competitive.

I wish I could pay everyone £50.00 and hour. The issue is that if everyone is paid £50.00 then the cost of your coffee the cost of food the cost of everything will go up as someone will have to pay for the person to stack the shelf, pour the coffee, clean the streets etc.

As minimum wage increases real cost of living simply rises. The fundamental is not how much you are paid it is how much everything else costs.

Thrugelmir

Tech is more reliable too. Nor requires paternity or maternity leave, or be paid sick or holiday pay. Basic wage is only one aspect of the cost to a business. Increasing levels of pension contributions by employers will likewise cap increases in basic pay to the bare minimum.