2 thoughts on “Living Wage likely to destroy jobs and increase poverty”

  1. Posted 11/09/2012 at 20:00 | Permalink

    Any increase in costs to a government contractor is the same as a tax increase on the population. In effect more pay means more revenue for the government in a short term method as the costs will increase across the board to absorbe the net effect ie inflation!

  2. Posted 12/09/2012 at 11:14 | Permalink

    The problem is that the solutions for the unemployed are different from those for low-paid jobs, so a single measure cannot help both groups – and indeed risks harming one at the expense of the other.

    The majority of benefits are paid to people who are in work but not earning enough to pay their existing expenses. Now, they could try going to their landlord and negotiating a rent reduction on that basis. With utilities it would be a case of not using them so much (i.e turning down the heating, cooking less, eating more cheaply, making fewer phone calls). Some of these are achievable with little impact, some would noticeably diminish the quality of life and some are virtually impossible.

    Some economists would argue that if enough people did challenge their landlords rents would be forced down. Maybe so, but it would be a slow and painful process with no certain or even vaguely predictable outcome. In any case, it’s a very unequal power relationship: at the moment average rents are actually rising: landlords would probably bullishly accept people moving, expecting to to find another tenant willing to pay the desired amount. If rents are unaffordable people will leave those areas, causing a degree of havoc since they could probably no longer afford to commute either leaving, at best, companies having the headache of rising staff turnover and at worst certain low-paid but essential jobs unfilled (which may force wages up in any case as employers have to offer more to attract staff back!)

    Some have argued that the government, rather than looking at how much money it raises and thinking about what to do with it, should look at what it needs to do and only raise the money for that. That is exactly what many low-paid do at the moment: there is no way they can escape or change their housing commitments [what they need to do] so there is an externally enforced salary floor. If they don’t even meet that, the benefits system brings them up to it.

    But it is a phenomenally inefficient way of organising things (the fact that the “minimum wage” is taxed, further locking people into the benefits spiral is a logical insanity). It essentially boils down to: companies pay small wages and high taxes; the government uses those taxes to supplement to the low wages.

    In short, the benefits system is a massive (and massively inefficient) short-term subsidy to employers which they end up paying for it in the long-term.

    Surely it would be better for companies to pay higher wages and for the benefits system to be much smaller, requiring smaller taxes? What is patently impossible is to pay low wages, low taxes and no benefits.

    The question is how to get there in a reasonably efficient and humane manner. Perhaps an even higher level of “Recommended Wage” with companies that offer it getting a tax break?

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