5 thoughts on “Unemployment and the minimum wage”

  1. Posted 14/09/2013 at 15:16 | Permalink

    It really does not matter what method is used; they are all irrelevant as they do not deal with the more fundamental issue of how much a business is able to pay whilst keeping its product internationally competetive.

    It is no more than a government stealth tax on all employers. If government really want to look after the poor old worker, how much better to do so through the welfare system and to properly fund it with taxes.

    Taxes are also a cost of production but far better we see clearly the now immense direct cost of government and its spending habits rather than have them hide the cost by passing them on to the private sector dressed up as something else.

  2. Posted 15/09/2013 at 17:41 | Permalink

    Waramess has a point when he says “If government really wants to look after the poor old worker, how much better to do so through the welfare system and to properly fund it with taxes.”

    In other words if an employer who thought an employee who was worth 50p/hr was able to actually pay them that amount, with the state bringing the employees take home pay up to the socially acceptable minimum, the result would be a huge increase in employment for youths, the unskilled, etc.

    But the problem would be that employers would put far more employees onto 50p/hr (or even 1p/hr) that they should, because employer and employee would know full well that the state would pay the bulk of the wage.

    However there is actually a solution to the latter problem, and as follows: let employers pay employees whatever they want, but where the state is subsidising an employee, give the state the right to call the employer’s bluff. That is, give the state the right to say to employers: “OK, you’ve had this employee on a subsidised basis for six weeks (or whatever). Now it’s make your mind up time. Either admitt the employee is in fact viable without any subsidy, in which case you can keep the employee, but you fund the whole wage (minimum wage / union wage, etc). Otherwise it’s henceforth illegal for you to continue employing the individual concerned, and we’ll try to find the employee an alternative job where he/she might be better suited, i.e. less unproductive.”

    The latter system would result in a quick labour turnover for those concerned, but that wouldn’t be entirely undesirable: it’s a good idea for those who cannot find jobs at which they are productive to try several jobs till they find something that suits them.

  3. Posted 17/09/2013 at 07:25 | Permalink

    The problem with Ralph Musgrave’s suggestion here is that it would require an enormous bureaucratic body to “police” and manage and introduces new problems into the variable – what if the worker is happy in the job and is learning valuable skills there but the government decides to “move them” to something they hate?

    Those who think that employers will pay people “much less than they are worth” are showing a lack of faith in markets. In fact, with many more jobs becoming available the worker will be in a position of strength as the employers will be competing for them – which drives wages up. Quite the opposite of the situation we have now where sixty people might apply for a single basic job putting all the power into the hands of the employers.

    The determinant of what somebody is worth is the agreement between the employer and the employee. Both parties are able to view their arrangement to decide if it suits them. The potential employee can look at perks, training, career progression, wages, terms and conditions, whatever else they value. The employer does the same. As in any other trade, both sides must feel this is a deal which benefits them or they wouldn’t do it.

    The only fly in the ointment is if a worker is negotiating a contract and does not know the value of their work in the current market. Perhaps because they are not good at negotiation for one reason or another and therefore can be taken advantage of. This is easily solved by unionisation where workers can trade information and support one another in such negotiations.

  4. Posted 17/09/2013 at 10:52 | Permalink

    Steve,

    I agree the bureaucratic costs involved could make my idea a non-starter.

    On the other hand I worked for a temporary employment agency a long time ago, and those agencies “create” very short term jobs (sometimes just “one day” jobs) without any problem. And the costs can’t have been excessive, because the relevant employers were happy to fund “one day jobs”.

    As regards what happens when a worker is “happy” at an existing job, my answer is: “tough”. The rule of the game is: employees move when they’re told to move. Moreover, while an employee may be “happy” in job X, if the job is not commercially viable, there is not a good excuse for it staying in existence too long.

    Re your point that market forces (possibly assisted by trade unions) ensures reasonable pay and that employers are not tempted to pay anyone 50p/hr, I agree that is the case with about 95% of jobs. However, my basic point is that the marginal product of labour declines as numbers employed rises. That is, the fewer unemployed there are, the more difficult it is to match members of the dole queue to vacancies. And that matching problem becomes near impossible when unemployment falls to 5% or so of the workforce – unless employers are allowed to take on relatively unsuitable labour at an ultra-low price that compensates for the unsuitability.

    So the system I’m advocating would take unemployment below the supposed “irreducible minimum” 5% or so.

  5. Posted 20/09/2013 at 15:19 | Permalink

    Ralph, just seen your responses. A bit late for a reply however better late..

    Im not suggesting the government make up wages to the minimum wage, simply that if they wish to achieve a higher take home pay for the lesser paid they should raise the tax band accordingly.

    This and the tax credit system should accommodate the issue though I personally believe the miinimum wage was yet another of Blairs opportunistic attempts to grab the headlines.

    Far better to reduce taxes to the less well off and shrink the size of government. Now, thats the way to get the economy moving not to print money and make the poor poorer.

Comments are closed.