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M70 - Living Wage Motion

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    (Original post by TopHat)
    You assume that businesses can easily distinguish values at the bottom end of the labour market. They can't. Before hiring someone, you have no way of knowing whether their work has a marginal value of £6 an hour or £7 an hour.
    I don't think that's true at all. They don't have perfect information, but they can make an educated guess based on the information they do have, whilst acknowledging that this information is incomplete. This isn't just an issue at low wages, but at all wages. When I joined my company, did they know that my salary would be worthy remuneration for what I could gain them in business terms? Well no, of course they didn't know - but they did know that I was a recent graduate from X university, with Y degree and Z experience. Based on that, they can gauge, with some degree of accuracy, what they should offer to pay me. I used that same information to decide whether or not to take the job.

    I also think you're incorrect when you say that the minimum wage caused no unemployment ergo they'll get this right too. But that's not necessarily true. Studies have been conducted that suggest that if a minimum wage is any more than 50% of the average wage for a given demographic, it's harmful. In the UK, the minimum wage for an adult over 21 is about 50% of the average, and so there is little unemployment as a result (although this is, of course, incredibly vague - people on high salaries jack the averages up enormously, and someone whose labour is only worth a few pounds still can't get a job) but for the lower ages, it's significantly more than 50%. This is, perhaps, why we have such large (and growing) levels of youth unemployment, and have done ever since the NMW's introduction. It's been getting larger and larger ever since. This was masked somewhat by a long economic boom, but the fact that the rates of unemployment for 16-18 year olds remained more or less static during the same time as all the other demographics went up dramatically (whilst also noting that the NMW for the 16-18 demographic was and is well over 50% of the average wage for that same demographic) and yeah, you can argue that it didn't cause "unemployment", but that doesn't mean it didn't harm employment.

    Finally, you can have different definitions of equilibrium. Yours appears to be "What's the point at which employees can get the most money", but that suggests a built in bias towards the employee rather than the employer. There are, of course, alternatives. Now, you may think that this is all brilliant and lovely, but it does rather poor piss on your idea that government is somehow better suited to estimate the equilibrium point than businesses are. The reality is that they're aiming at different definitions of 'equilibrium'. In my view, it's tough to argue that increasing the costs for business won't affect 1) their long term viability or 2) hamper their growth. Most business owners, I think, would rather sacrifice growth than sacrifice their payment (because for many it's their livlihood, and what's the point in growing a business in perpetuity if you never get any return on your investment?) so the idea that it'll merely cut into their profits is naive imo (and that's even without considering the idea that it's correct to over-ride the income of someone so as to artificially inflate the cost of someone's labour).
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    Wasn't this argument made against the NMW?

    Nasty party being nasty I guess.

    I 100% support the living wage
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    (Original post by TopHat)
    I think this is quite a pessimistic view. Sometimes things have to be done in small steps.
    Sometimes. Implementing a partial solution to a problem can also leas you away from the final solution. Sometimes things must be done in big steps too. This is of course speaking in the hypothetical, since I don't see the living wage (or indeed the NMW) as partial solutions.

    I agree that ideally, you'd tackle the problem by looking at improving information, but how do you do that? A certified exam board for cleaners which grades cleaners based on how well they clean? It's very difficult to do. The reason this is limited to the lower end of the labour market is that the higher up the ladder you get, the more tools for differentiation you have - most specialist careers have an exam board which will certify as to their exact level of quality. That's why a) we can't tackle the problem at the root, and b) why this problem is specific to the lower end of the wage scale. A living wage doesn't solve the root causes of the problem, but it does help address some of the symptoms, and I would be perfectly happy with it as a stop gap.
    Well the two major ways around information asymmetries are signalling and screening.

    Signalling is the major one here, and indeed when it was first proposed as a solution, the example given was the job market (by Michael Spence). Here, workers try to signal their skills and value to the employer, thus resolving the information asymmetry. It's called a CV/Resume, and it helps to resolve the asymmetry.

    The other way around adverse selection problems is screening - whereby in this situation the employer would try to get the worker to reveal their type. Many employers do this with tests of numeracy and so forth, and also the job interview. So this is how you get around the informational problems, firms do it already because it's in their interests to do so, and the workers interest to signal their type too.

    However, what can government do? Reduce the costs of mistakes - then firms won't be so afraid of making them and will be more willing to take people on. Making it easier to fire people, as I said in my last post is the easiest way to make firms hire more people, bringing down unemployment especially youth unemployment where it is harder to signal given a lack of previous job market experience. We see the extreme opposite case in Japan where once a person has a job, they have a job for life, but in order to get a job they must use contacts already within the industry in order to. It drives down social mobility hugely as firms won't take risks on people, since they are then essentially stuck paying a lemon for life if they hire the wrong people.

    Sure, more screening and signalling happens towards the top end of the labour market, but this is precisely and only because the wages are higher, therefore the stakes are higher and it's more worth the cost of signalling/screening versus taking a punt. My solution is to reduce the labour market frictions to actually make firms want to take people on without it being a large risk for them. I don't see that a living wage solves any of the informational problems.

    Don't let the good be the enemy of the best.
    I'm not, I'm merely saying that I don't see it as a solution (partial of otherwise) to the problem, and I see it doing more harm than good and further driving up unemployment. As CyclopsRock cites, the NMW has little effect on employment when it's at such a level that it isn't disturbing the free market equilibrium to a large extent, as it rises, it does far more damage. No-one could argue that we could implement a £100/hr minimum wage and see no effect on employment, would we? I see the living wage campaign at its best as that, a campaign, not legislation. Sure, we should encourage companies to pay workers more, and perhaps with the information of who does and doesn't consumers will make choices to buy from those companies which pay the living wage, just as the Fairtrade label has had a huge effect on consumer behaviour, but it's best as a voluntary campaign, not legislation to force everyone to comply.

    Not taken into account, well, ever, is the effect on competition of wage floors (and indeed much regulation). Large companies have far more scope to soak up these extra costs (and indeed most of them pay well above the minimum wage anyway, which is why Walmart were campaigning for increases in minimum wage). It drives small and medium size enterprises, the engines of growth and low prices, out of business and is a state-sponsored monopolisation of the economy, with all the downsides that brings.
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    (Original post by TopHat)
    No - the opposite. The incentive to try and get work is increased, because you'd get paid more. There would be encouragement to leave welfare.
    What is more of an incentive is reducing the effective marginal tax rate (which includes benefit withdrawal too). Indeed, just raising the wage to a higher hourly rate doesn't necessarily create more of an incentive to work where these rates are in excess of 100%.

    With the Tax Act 2011 that we passed, we've reduced tax, so now someone earning the minimum wage on a 40 hour week would receive a gross amount of: £12646.40.

    In RL, this corresponds to an after tax wage of: £10,961.91

    After the Tax Act, the net wage received is: £12,249.44. This is not to mention that they now have no council tax to pay and VAT is 7.5% lower than in RL (thus prices around 3-4% based on the feedthrough from the previous VAT cut). Thus meaning that the effective real wage in RL prices net of tax on the minimum wage is: £12693.72 (12249.44/0.965). To get this net wage in RL, you'd need a gross wage of £15193.18 - or £7.30/hour, 10p higher than the proposed living wage.

    We already have a living wage now with the current minimum wage - we've done it by stopping government taking your wages, not by imposing huge costs on business.
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    (Original post by jesusandtequila)
    What is more of an incentive is reducing the effective marginal tax rate (which includes benefit withdrawal too). Indeed, just raising the wage to a higher hourly rate doesn't necessarily create more of an incentive to work where these rates are in excess of 100%.

    With the Tax Act 2011 that we passed, we've reduced tax, so now someone earning the minimum wage on a 40 hour week would receive a gross amount of: £12646.40.

    In RL, this corresponds to an after tax wage of: £10,961.91

    After the Tax Act, the net wage received is: £12,249.44. This is not to mention that they now have no council tax to pay and VAT is 7.5% lower than in RL (thus prices around 3-4% based on the feedthrough from the previous VAT cut). Thus meaning that the effective real wage in RL prices net of tax on the minimum wage is: £12693.72 (12249.44/0.965). To get this net wage in RL, you'd need a gross wage of £15193.18 - or £7.30/hour, 10p higher than the proposed living wage.
    Don't make the assumption that the living wage has to be higher than the minimum wage; if with the current NMW people are able to live modestly in their area, then there should be no problem with the living wage being the same rate - it's not an automatic increase.

    The principle of the living wage is not to burden companies, it's merely an improvement on the minimum wage - it makes it localised so that the difference in local/regional wealth can be taken into account in the pay low-earners receive.

    We already have a living wage now with the current minimum wage - we've done it by stopping government taking your wages, not by imposing huge costs on business.
    If we do have a living wage now that has developed organically, then why object to the government passing legislation to ensure it stays?
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    (Original post by JPKC)
    Don't make the assumption that the living wage has to be higher than the minimum wage; if with the current NMW people are able to live modestly in their area, then there should be no problem with the living wage being the same rate - it's not an automatic increase.
    What exactly is the point of introducing legislation that stipulates another wage floor that is lower than or equal to the current wage floor? It does zero.

    The principle of the living wage is not to burden companies, it's merely an improvement on the minimum wage - it makes it localised so that the difference in local/regional wealth can be taken into account in the pay low-earners receive.
    I'm sure it's not the principle, but it's the reality that increasing the minimum wage by 20+% would burden companies, especially small ones, and ultimately lead to those least able being less able to find a job.

    Whether to localise the minimum wage is entirely another matter. Much more important I'd argue is localising public sector pay (since there is labour mobility between private and public sectors, wages will somewhat equalise between the two). Centralised public sector pay means that wages in less well-off regions are too high for much of private enterprise to be profitable and ultimately help the development of those regions. It's why we see the public sector having a much larger proportion of the economy in the poorest regions.

    If we do have a living wage now that has developed organically, then why object to the government passing legislation to ensure it stays?
    Because it's a further barrier to wage adjustment to adjust to shocks. Even if it might not create huge unemployment now, it adds more friction to the labour market when wages need to adjust. So it's either harmful, or it does nothing.
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    (Original post by jesusandtequila)
    What exactly is the point of introducing legislation that stipulates another wage floor that is lower than or equal to the current wage floor? It does zero.

    I'm sure it's not the principle, but it's the reality that increasing the minimum wage by 20+% would burden companies, especially small ones, and ultimately lead to those least able being less able to find a job.
    The living wage, as the "minimum hourly income necessary for a worker to meet basic needs", does not represent any extravagant increase in the minimum wage, it just ensures that the minimum wage no longer fails to meet the basic requirements of living in a certain area - workers that have to tolerate relative poverty in order to work are less likely to make good employees.

    Whether to localise the minimum wage is entirely another matter. Much more important I'd argue is localising public sector pay (since there is labour mobility between private and public sectors, wages will somewhat equalise between the two). Centralised public sector pay means that wages in less well-off regions are too high for much of private enterprise to be profitable and ultimately help the development of those regions. It's why we see the public sector having a much larger proportion of the economy in the poorest regions.
    A localised minimum wage should be identical to a living wage. The entire point of the NMW was to make low-end work worthwile, which it isn't if people can't live on it. And I wouldn't necessarily oppose localising public sector pay bands, though it would very much depend on how it was implemented. I think that's another issue entirely though.

    Because it's a further barrier to wage adjustment to adjust to shocks. Even if it might not create huge unemployment now, it adds more friction to the labour market when wages need to adjust. So it's either harmful, or it does nothing.
    It would ensure that these shocks were not immediately translated into penalties for the wages of unskilled workers. It's also about decreasing the rate of relative poverty; even with the numbers you cited, the urban poor in London have no incentive to find work as they would remain in poverty whether they had it or not. A living wage would provide jobs for welfare recipients in areas of high living cost - also, those that are in employment would be less prone to working multiple jobs for ridiculous consecutive hours.

    As a side note, research into organisations that have voluntarily adopted the living wage show an increase in competence from the workers in those jobs.
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    If a low wage makes not-working a more viable option than working, then businesses that require employees will be forced by the labour market, not by government, to increase their wages offered. I don't like business-benefit arguments for top-down government intervention into the labour market - if it benefitted businesses to do something, they'd do it.
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    (Original post by CyclopsRock)
    If a low wage makes not-working a more viable option than working, then businesses that require employees will be forced by the labour market, not by government, to increase their wages offered. I don't like business-benefit arguments for top-down government intervention into the labour market - if it benefitted businesses to do something, they'd do it.
    We should not run our economy based on what is purely good for business. The government exists to balance interests in the economy, companies are not the be all and end all. And theoretically what you're saying is logical, but in practice that's not how the labour market works - low-paid employees will not ditch their jobs if the pay is too low, people are willing to tolerate relative poverty in order to avoid deeper poverty. Inversely, those in deeper poverty that are both unskilled and unemployed are not willing to look for jobs because they don't foresee any great improvement in their living conditions after doing so.

    Government has a mandate to reduce poverty, and this would be the easiest - proven - way of doing so.
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    (Original post by JPKC)
    We should not run our economy based on what is purely good for business. The government exists to balance interests in the economy, companies are not the be all and end all. And theoretically what you're saying is logical, but in practice that's not how the labour market works - low-paid employees will not ditch their jobs if the pay is too low, people are willing to tolerate relative poverty in order to avoid deeper poverty. Inversely, those in deeper poverty that are both unskilled and unemployed are not willing to look for jobs because they don't foresee any great improvement in their living conditions after doing so.

    Government has a mandate to reduce poverty, and this would be the easiest - proven - way of doing so.
    Well that's a perfectly valid position for a statist to hold - so I suggest you stop making arguments that apparantly even you don't believe along the lines that, actually, this is really rather good for businesses too. This was the case in your post directly above mine that you quoted.

    Needless to say, I disagree. Also, we all know 'poverty' in its quantifiable sense is utterly dog knob. It's about policies that just about tip people from from one side of an arbitrarily line to the other. Speak to them and most recipients of such policies would have no idea they've just been generously lifted out of poverty by the mighty state. Meanwhile those REALLY living in poverty are ignored because it would cost too much to actually lift then out of poverty. If you genuinely believe a policy - any policy - is the 'proven' best way of availing people of poverty, this is almost certainly what it's doing.

    PS you wanna really help people? Look into negative income systems. We passed one before the reset with universal support. Yay for proof.
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    (Original post by CyclopsRock)
    Well that's a perfectly valid position for a statist to hold - so I suggest you stop making arguments that apparantly even you don't believe along the lines that, actually, this is really rather good for businesses too. This was the case in your post directly above mine that you quoted.

    Needless to say, I disagree. Also, we all know 'poverty' in its quantifiable sense is utterly dog knob. It's about policies that just about tip people from from one side of an arbitrarily line to the other. Speak to them and most recipients of such policies would have no idea they've just been generously lifted out of poverty by the mighty state. Meanwhile those REALLY living in poverty are ignored because it would cost too much to actually lift then out of poverty. If you genuinely believe a policy - any policy - is the 'proven' best way of availing people of poverty, this is almost certainly what it's doing.

    PS you wanna really help people? Look into negative income systems. We passed one before the reset with universal support. Yay for proof.
    Uncontrolled enterprise is a greater force for oppression than a democratic state will ever be. And businesses are not some perfect unicorn rational Dagny Taggart entity that knows what's best for itself; the truth is, individuals in business serve their own interests not those of their enterprise, their capital et al. They are blind to the most effective course of action and make decisions based on prophetical immediate outcomes that can do both good and bad for societies and the people in them.

    There are very few people living in real poverty in the UK (and far less than there were back when the welfare state didn't exist). And it's silly to say that poverty is 'arbitrary' just because there's more than one definition of it. For me, poverty is when people can't afford the basic things that are necessary to live modestly - inability to pay the electricity bills, food costs too high, utilities etc. Also, the argument that we should not help those in slight poverty because we're inable to help those in even deeper poverty is fallacious.

    Regarding a negative income tax, that was one of Friedman's ideas that I didn't automatically scoff at. I would be keen to have one introduced again, if that were to happen then I reckon things like the living wage would be totally redundant. (Because a negative income tax would be such a massive reform, you can understand why proponents of egalitarian liberalism often take smaller steps in the form of policies like the living wage.)
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    I ill respond more fully when at my PC, but my 'arbitrary' mention referred to your 'proven' statement re: centrally imposed national minimum wages being the 'proven' best way to alleviate poverty. I agree there are different definitions of poverty - but to provide 'proof', you need something quantifiable (like 60% of median income etc), not something that's wholly more accurate and appropriate such as your definition. You keep trying to walk two roads, firstly with pro-business arguments, and now by claiming you have 'proof' that minimum wages are the best way of alleviating poverty whilst simultaneously having an alternative definition of poverty than that offered by the proof.

    Likewise, I never stated that an inability to help the very poor means not helping the slightly poor. That's the pathetic logic of pacifists who happily sit back and watch genocide occur. I said that any solution to poverty that has 'proof' of its success almost certainly aims its money at the people right at at the border of poverty because, well, this is politics. Then, using £20m they can say they've lifted 100,000 people out of poverty rather than help those that need it more. If politicians used your definition of poverty, that wouldn't be the case - but then, they also couldn't say that their method was 'proved' to be the best.

    You're just all full of strawman today, aren't you?!
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