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minimum/living wage


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#1 johnmatrix

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Posted 02 February 2014 - 09:29 PM

is it a good thing? should we abolish it?

Political crusades for raising the minimum/living wage are back again. Advocates of minimum/living wage laws often give themselves credit for being more "compassionate" towards "the poor." A simple and one of the most fundamental economic principles is that people tend to buy more when the price is lower and less when the price is higher. Yet advocates of minimum wage laws seem to think that the government can raise the price of labour without reducing the amount of labour that will be hired.Switzerland is one of the few modern nations without a minimum wage law.Switzerland's unemployment rate was 3.1 percent. (It does have collective bargaining agreements between its workers and management and almost the entire population is covered by it).Most people start off in entry level jobs that pay much less than they will earn after they get some work experience. But, when minimum/living wage levels are set without regard to their initial productivity, young people are disproportionately unemployed ie priced out of jobs.Unemployed young people lose not only the pay they could have earned but, at least equally important, the work experience that would enable them to earn higher rates of pay later on.Many advocates of minimum wage laws usually base their support of such laws on their estimate of how much a worker "needs" in order to have "a living wage" — or on some other criterion that pays little or no attention to the worker's skill level, experience or general productivity. So it is hardly surprising that minimum wage laws set wages that price many a young workers out of a job.Minimum wage laws can also even affect the level of racial discrimination. In an earlier era, when racial discrimination was both legally and socially accepted, minimum wage laws were often used openly to price minorities out of the job market. In 1925, a minimum wage law was passed in the Canadian province of British Columbia, with the intent and effect of pricing Japanese immigrants out of jobs in the lumbering industry. In South Africa during the era of apartheid, white labor unions urged that a minimum wage law be applied to all races, to keep black workers from taking jobs away from white unionized workers by working for less than the union pay scale. People whose wages are raised by law do not necessarily benefit, because they are often less likely to be hired at the imposed minimum wage rate. Labour unions have been supporters of minimum wage laws in countries around the world, since these laws price non-union workers out of jobs, leaving more jobs for union members.

 



#2 Northern Sol

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Posted 02 February 2014 - 09:42 PM

Wrong forum I'm afraid.

 

On this forum it is fashionable to display total ignorance about economics and to imply that anyone that does know about it is stupid.


Edited by Northern Sol, 02 February 2014 - 09:42 PM.


#3 Trojan

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Posted 02 February 2014 - 09:58 PM

Since in this country Union power is minimal, some sort of minimum wage is only fair. This government talks a lot about making work pay, in order to justify cutting benefits.  Surely a better way to make work pay would by making it pay more in comparison to benefits.  I freely admit I don't know a lot about economics. But I do know quite a lot about people. The puzzle is why this government believes that those in poorly paid jobs need less money as an incentive to work harder whereas those in the best paid jobs need more money as an incentive.  Let's face it, the falling unemployment figures are a sham.  Yes many of those in a job have been removed from the unemployed register, but they are in zero hours contract jobs, or is part time jobs that don't pay enough to feed their families, pay the rent (mortgage) and keep them warm.  No wonder the food banks (recently slagged off by Edwina Currie no less) are booming. And the high interest pay-day loan companies are making a fortune.  Who'd heard of "Wonga" four years ago?


Edited by Trojan, 02 February 2014 - 09:59 PM.

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#4 Northern Sol

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Posted 02 February 2014 - 10:17 PM

Since in this country Union power is minimal, some sort of minimum wage is only fair. This government talks a lot about making work pay, in order to justify cutting benefits.  Surely a better way to make work pay would by making it pay more in comparison to benefits.  I freely admit I don't know a lot about economics. But I do know quite a lot about people. The puzzle is why this government believes that those in poorly paid jobs need less money as an incentive to work harder whereas those in the best paid jobs need more money as an incentive.  Let's face it, the falling unemployment figures are a sham.  Yes many of those in a job have been removed from the unemployed register, but they are in zero hours contract jobs, or is part time jobs that don't pay enough to feed their families, pay the rent (mortgage) and keep them warm.  No wonder the food banks (recently slagged off by Edwina Currie no less) are booming. And the high interest pay-day loan companies are making a fortune.  Who'd heard of "Wonga" four years ago?

That's essentially an economics argument. Johnmatrix focused on the demand for labour, your argument is one based on the supply of labour.



#5 johnmatrix

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Posted 02 February 2014 - 10:22 PM

The minimum wage law requires employers to discriminate against persons with low skills. No one describes it that way, but that is in fact what it is. Take a poorly educated teenager with little skill whose services are worth only £5.00 an hour. He or she might be eager to work for that wage in order to acquire greater skills that would permit a better job. The law says that such a person may be hired only if the employer is willing to pay him or her £6.31 an hour. Unless an employer is willing to add £1.31 in charity to the £5.00 that the person’s services are worth, the teenager will not be employed. It has always been a mystery why a young person is better off unemployed from a job that would pay £6.31 an hour than employed at a job that does pay £5.00 an hour. The high rate of unemployment among teenagers, is both a scandal and a serious source of social unrest. Yet it is largely a result of minimum wage laws.



#6 Northern Sol

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Posted 02 February 2014 - 10:30 PM

The minimum wage law requires employers to discriminate against persons with low skills. No one describes it that way, but that is in fact what it is. Take a poorly educated teenager with little skill whose services are worth only £5.00 an hour. He or she might be eager to work for that wage in order to acquire greater skills that would permit a better job. The law says that such a person may be hired only if the employer is willing to pay him or her £6.31 an hour. Unless an employer is willing to add £1.31 in charity to the £5.00 that the person’s services are worth, the teenager will not be employed. It has always been a mystery why a young person is better off unemployed from a job that would pay £6.31 an hour than employed at a job that does pay £5.00 an hour. The high rate of unemployment among teenagers, is both a scandal and a serious source of social unrest. Yet it is largely a result of minimum wage laws.

Oh these days young people are often work for free or even pay to do so, it's called an internship. A dreadful thing which should be outlawed.

 

Minimum wage laws generally have lower rates for the young for the reasons that you describe.



#7 ckn

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Posted 02 February 2014 - 10:36 PM

OK, let's abolish minimum wage.  That'll just mean more people will have to claim benefits to survive.  If people working full-time still require benefits to survive then it's the company being subsidised by the state rather than the individual.

 

To successfully cut minimum wage and still have people surviving then these points need to be addressed:

 

- domestic fuel prices.  A typical house costs around £100p/m for gas and electricity.  Should people just turn off their heating in winter?

- house prices, owning and renting.  The cost of renting even a very, very basic and cheap flat is exorbitant these days.

- food prices.  Food price escalation has kicked in to the point that it's just silly these days in many supermarkets.

 

For simplicity, let's say that someone earning the NMW of £6.31p/h earns £1000p/m, £920 or so after tax/NI.  Let's deduct £100 for domestic fuel.  £450 for rent.  £75 for council tax.  £25 for water.  £12 for TV license.  Assuming this person never buys replacement clothes, never needs a haircut, can walk to work (but never wears out his shoes), doesn't have a phone line, mobile or internet connection, takes the risk of having no insurance, doesn't need to buy prescriptions or any of the other parts of civil necessity, he'll have £258 to feed himself and provide all other household necessities.  And don't forget, that'll mean he can't save a bean for a pension.

 

There's a reason that even that arrogant buffoon George Osborne says that the NMW needs to increase and by a substantial amount.


Arguing with the forum trolls is like playing chess with a pigeon.  No matter how good you are, the bird will **** on the board and strut around like it won anyway


#8 John Drake

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Posted 02 February 2014 - 10:44 PM

The minimum wage law requires employers to discriminate against persons with low skills. No one describes it that way, but that is in fact what it is. Take a poorly educated teenager with little skill whose services are worth only £5.00 an hour. He or she might be eager to work for that wage in order to acquire greater skills that would permit a better job. The law says that such a person may be hired only if the employer is willing to pay him or her £6.31 an hour. Unless an employer is willing to add £1.31 in charity to the £5.00 that the person’s services are worth, the teenager will not be employed. It has always been a mystery why a young person is better off unemployed from a job that would pay £6.31 an hour than employed at a job that does pay £5.00 an hour. The high rate of unemployment among teenagers, is both a scandal and a serious source of social unrest. Yet it is largely a result of minimum wage laws.


The minimum wage has variable rates and for under 18s is a little as £3.72. For apprentices under 19 it is even lower.

https://www.gov.uk/n...imum-wage-rates

The minimum wage protects not only employees from exploitation, but also protects good employers from being undercut by cowboys.

London Mayor Boris Johnson is a supporter of the Living Wage.

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#9 Northern Sol

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Posted 02 February 2014 - 10:49 PM

OK, let's abolish minimum wage.  That'll just mean more people will have to claim benefits to survive.  If people working full-time still require benefits to survive then it's the company being subsidised by the state rather than the individual.

 

To successfully cut minimum wage and still have people surviving then these points need to be addressed:

 

- domestic fuel prices.  A typical house costs around £100p/m for gas and electricity.  Should people just turn off their heating in winter?

- house prices, owning and renting.  The cost of renting even a very, very basic and cheap flat is exorbitant these days.

- food prices.  Food price escalation has kicked in to the point that it's just silly these days in many supermarkets.

 

For simplicity, let's say that someone earning the NMW of £6.31p/h earns £1000p/m, £920 or so after tax/NI.  Let's deduct £100 for domestic fuel.  £450 for rent.  £75 for council tax.  £25 for water.  £12 for TV license.  Assuming this person never buys replacement clothes, never needs a haircut, can walk to work (but never wears out his shoes), doesn't have a phone line, mobile or internet connection, takes the risk of having no insurance, doesn't need to buy prescriptions or any of the other parts of civil necessity, he'll have £258 to feed himself and provide all other household necessities.  And don't forget, that'll mean he can't save a bean for a pension.

 

There's a reason that even that arrogant buffoon George Osborne says that the NMW needs to increase and by a substantial amount.

I don't entirely disagree with what you say here but I do disagree with the underlined bit.

 

Johnmatrix is right that increasing the wage rate does result in higher unemployment. Economics is about swings and roundabouts really, you can't ever have your cake and eat it.

 

In the UK, I don't think that the unemployment caused by the minimum wage is very high but in some countries it is. Spain has a youth unemployment rate of over 50%, policies such as the minimum wage are to blame.

 

As ever, it is a case of finding a balance.



#10 Northern Sol

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Posted 02 February 2014 - 10:51 PM

The minimum wage has variable rates and for under 18s is a little as £3.72. For apprentices under 19 it is even lower.

https://www.gov.uk/n...imum-wage-rates

The minimum wage protects not only employees from exploitation, but also protects good employers from being undercut by cowboys.

London Mayor Boris Johnson is a supporter of the Living Wage.

The Tory conversion to the minimum wage is almost entirely because the unemployment caused turned out to be much lower than had been thought. Few Tories talked this way before 1997.



#11 johnmatrix

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Posted 02 February 2014 - 10:53 PM

Can the government can raise the price of labour without reducing the amount of labour that will be hired? minimum wage does not require an employer to hire an employee. Rather, it mandates that if he does, he must pay at least whatever the law stipulates! Suppose the worker’s marginal productivity is, say, only £5.00 hour. That means that if the firm offers such a person a job, it will lose an hourly£1.31, under present arrangements if the company does so, it will lose profits and thus the battle with competitors, and be inclined toward bankruptcy then, it will be unable to employ anyone at all. Why stop at £6.31 per hour? No one can have a really good lifestyle based on that wage 



#12 ckn

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Posted 02 February 2014 - 10:55 PM

I don't entirely disagree with what you say here but I do disagree with the underlined bit.

 

Johnmatrix is right that increasing the wage rate does result in higher unemployment. Economics is about swings and roundabouts really, you can't ever have your cake and eat it.

 

In the UK, I don't think that the unemployment caused by the minimum wage is very high but in some countries it is. Spain has a youth unemployment rate of over 50%, policies such as the minimum wage are to blame.

 

As ever, it is a case of finding a balance.

I might be missing something, if I am I apologise, if people have not enough money to survive then they either claim benefits or get into extortionate debt.  My example deliberately assumed our minimum wage worker had not a penny of debt that had to be serviced.  If you cut the NMW by £1p/h then you nearly remove the person from taxation and NI but you also remove about £180 from their pockets meaning in my example the person would have around £80p/m for things other than essential bills.


Arguing with the forum trolls is like playing chess with a pigeon.  No matter how good you are, the bird will **** on the board and strut around like it won anyway


#13 John Drake

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Posted 02 February 2014 - 11:00 PM

The Tory conversion to the minimum wage is almost entirely because the unemployment caused turned out to be much lower than had been thought. Few Tories talked this way before 1997.


In other words, they were proved wrong and thus changed tack.

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#14 ckn

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Posted 02 February 2014 - 11:00 PM

Can the government can raise the price of labour without reducing the amount of labour that will be hired? minimum wage does not require an employer to hire an employee. Rather, it mandates that if he does, he must pay at least whatever the law stipulates! Suppose the worker’s marginal productivity is, say, only £5.00 hour. That means that if the firm offers such a person a job, it will lose an hourly£1.31, under present arrangements if the company does so, it will lose profits and thus the battle with competitors, and be inclined toward bankruptcy then, it will be unable to employ anyone at all. Why stop at £6.31 per hour? No one can have a really good lifestyle based on that wage 

You, sir, are a troll.  Only a troll or the truly thick would put up this argument. (not my bold text, it's in the original post that's obviously a copy/paste from elsewhere.)


Arguing with the forum trolls is like playing chess with a pigeon.  No matter how good you are, the bird will **** on the board and strut around like it won anyway


#15 John Drake

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Posted 02 February 2014 - 11:05 PM

Can the government can raise the price of labour without reducing the amount of labour that will be hired? minimum wage does not require an employer to hire an employee. Rather, it mandates that if he does, he must pay at least whatever the law stipulates! Suppose the worker’s marginal productivity is, say, only £5.00 hour. That means that if the firm offers such a person a job, it will lose an hourly£1.31, under present arrangements if the company does so, it will lose profits and thus the battle with competitors, and be inclined toward bankruptcy then, it will be unable to employ anyone at all. Why stop at £6.31 per hour? No one can have a really good lifestyle based on that wage


But you advocate paying them even less?

Consider this. By your argument, we could have full employment if everyone earned 1p per hour. But with wages so low, the vast majority of workers would have no money to buy anything. And without consumer demand, the economy would collapse, and businesses would have no one to sell their stuff to. End result, recession and high unemployment.

Economics is complicated, isn't it.

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#16 Northern Sol

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Posted 02 February 2014 - 11:45 PM

But you advocate paying them even less?

Consider this. By your argument, we could have full employment if everyone earned 1p per hour. But with wages so low, the vast majority of workers would have no money to buy anything. And without consumer demand, the economy would collapse, and businesses would have no one to sell their stuff to. End result, recession and high unemployment.

Economics is complicated, isn't it.

It is but spending is fairly constant fraction across income so that if everyone earned 1p an hour (assuming nobody died) then it would mean that the capitalists at the top would making huge amounts of money. Their increased spending would make up for almost all that lost by all the wage slaves.



#17 Northern Sol

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Posted 02 February 2014 - 11:46 PM

You, sir, are a troll.  Only a troll or the truly thick would put up this argument. (not my bold text, it's in the original post that's obviously a copy/paste from elsewhere.)

It's textbook economics and he's right. It's not IMO the full picture but there is nothing that he has said that isn't economically sound. He has clearly studied economics.


Edited by Northern Sol, 02 February 2014 - 11:58 PM.


#18 Northern Sol

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Posted 02 February 2014 - 11:47 PM

In other words, they were proved wrong and thus changed tack.

Yes.



#19 Northern Sol

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Posted 02 February 2014 - 11:56 PM

I might be missing something, if I am I apologise, if people have not enough money to survive then they either claim benefits or get into extortionate debt.  My example deliberately assumed our minimum wage worker had not a penny of debt that had to be serviced.  If you cut the NMW by £1p/h then you nearly remove the person from taxation and NI but you also remove about £180 from their pockets meaning in my example the person would have around £80p/m for things other than essential bills.

You are right but at the same time, if you increase the price of something then almost invariably you lower the demand for it. If electricity becomes more expensive then you look again at ways of using less of it. The same goes for employing people, if it becomes more expensive then you might cut back. This is the effect on the demand for labour.

 

Of course yourself, John Drake and Trojan have made valid arguments that relate to the supply of labour. It's also true that if you increase wages then you make it easier for people to come off benefits.

 

It's also the case that the more people that come off benefits, the more money the government saves and the less tax we all have to pay and this is good for the economy. The one Tory MP that I recall being in favour of us joining the social chapter explained it as "privatising the benefits system". You also made this argument. Subsidies represent economic inefficiency.

 

It all comes down to which effects are the strongest. Overall I'd say that the minimum wage does have an effect on employment (as per johnmatrix) but as you, John Drake and Trojan argue, there are other effects that mitigate it.



#20 Trojan

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Posted 03 February 2014 - 08:25 AM

In the eighties under Thatcher, the balance in wage negotiations was slewed in favour of the the employer by that government's anti union laws.  The employers can't have it both ways, either we have a minimum, living wage, or the government removes the strict regulation of trades unions and allows proper free collective bargaining, allowing wages to find their true economic level. In the seventies  the right screamed that the unions were too strong IMO the pendulum has swung too far in the opposite direction.  Either we have a fair minimum wage or we have a correction to the employer/employee balance.


"Your a one trick pony Trojan" - Parksider 10th March 2013




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