In the late 1990's a minimum wage was introduced to protect the lowest paid. It set the floor price in the labour market.
The arguments for the minimum wage was that the relative bargaining power of some workers was too weak to obtain a fair wage. Therefore government would ensure they received one and so reduce in-work poverty.
The argument against the minimum wage was that it would cause wage costs to rise too far and firms would simply reduce employed numbers as workers became too expensive.
In the event there is little (if any) evidence that workers lost their jobs due to the minimum wage. It certainly meant that some workers got pay rises that allowed them a better standard of living.
However the minimum wage was introduced at a much lower level than some wanted. They argued that the minimum wage level set was still too low to allow families a reasonable standard of living. The result was the calculation of a 'Living wage'. This could be defined as:
A living wage is the minimum income necessary for a worker to meet basic needs (for an extended period of time or for a lifetime). These needs include shelter (housing) and other incidentals such as clothing and nutrition.
There are two articles linked below. One is the Daily Mirror's coverage of this weeks story. The other is the Living Wage Foundations explanation of what it means and its advantages.
Of course there is an argument against it. If wage costs rise then workers become more expensive and some may lose their jobs. So higher wages for some are paid for by no wages for others.
The economics of the Living Wage is partly about setting price floors in markets. It is also about what should be done.
The challenge for Boris Johnson and Ed Miliband on the Living Wage is that many low paid workers work in microbusinesses. One way to incentive the Living Wage would be to have lower National Insurance contributions for SMEs who pay the Living Wage as an incentive or something similar, as suggested by Miliband's former adviser: http://www.newstatesman.com/politics/2012/11/promote-living-wage-we-need-reform-tax-system
ReplyDeleteI think that it is fair enough that a new minimum wage should be introduced in proportion to a set living wage, as it has been a whil since the last major increase in minimum wage and yet prices have been rising all the time. However, I do not agree with some of the politicians who are saying that only big businesses should be forced to pay a living wage to their employees. Especially after the justified anger at the 'one rule for them, another for us' situation that some have seen, if it is defined as a living wage then every employer should be forced to pay it. The government can not be indecisive on the matter.
ReplyDeleteThe Living Wage has many qualities. I am not arguing that it is a bad thing because for firms such as KPMG or Goldman Sachs it is a moral act to pay cleaners a little more. These firms can afford it; also cleaners have to do the dirty jobs which I feel they should be paid more for. However many London businesses cannot afford a rise in wages for their employees. To pay it will slash their profit levels, damage their ability to grow and threaten their viability. If the Greater London Authority refuses to deal with firms that don’t pay the Living Wage, then the consequences could be profound. I could see an end to “bottom-rung” businesses that offer immigrants their first chance at earning a wage.
ReplyDeleteAlso I would like to point out that the labour party; Ed Miliband and Boris are all incorrect when they try to say that increasing the wage for the same job could improve productivity. Mathematically it must reduce productivity; employers will be paying more money for the same amount of work, I don’t think that cleaners, waiters, bar staff, catering assistants and launderers could be any more fruitful and productive, unless you want shinier toilets.
Jimboy Tolentino
I think the Government has already intervened in the job market far too much after introducing the Mimimum wage and I think even more "help" would just result in government failure.
ReplyDeleteEven though cleaning is a vital service. Many people don't have this job because it doesn't usually consist of a living wage, however if this is changed, many people may decide to become cleaners then to commit themselves to becoming a skilled labourer which is likely to benefit the economy as a whole.
Introducing a mimimum wage will increase the cost of production for nearly all firms as they all have to have a certain amount of hygieness. This increase in price will result in inflation, making goods and services in the country more expensive. This will make these goods too expensive for Cleaners, Waiters and Bar Staff, therefore the living wage would become too low, so would defeat its initial purpose.
Rich Amoah
Broadie Economics Editor
One will problem people will always have is choice, because of choice we have wants and because of wants we have economics. I am all for this choice though I am far from silly right wing ideals of sink or swim (or good luck unfortunates I'm high up and doing fine) despite what you may say, Mr. Russell, Mitt is only a hop skip and a jump, without the jump or skip, from Cameron. The real problem is how fair can society be without caving in. At what point does a big government become a state of control. This is where the real problems come in and why I think in politics there are very few right answers only good ideas and better options.
ReplyDeleteI would put to you not that ,firstly, a much more hard line approach to tax avoiding is taken, and by this I mean stricter rules on visas (taxation on income before international banking etc) and control of large firms with international bases. Secondly and more poignantly the future is taken into higher respect, that education is foremost in all policies for the future in order to maximise work force efficiency and increase the equality of chances. Equality of chances will always be difficult in a capitalist economy but there is very much scope for improvement. Secondly that all effort on taxation (both direct and indirect) is not focused on the rich so much as focused on alleviating the stress on the poorer of society.
Finally I have come closer to the point of this comment, wages, what can be done within reason and without detrimental effects to business. Reducing taxation on personal businesses under a certain size to allow micro businesses to take more profit and have the ability to pay their staff more. obviously this alone is not enough people are not this selfless. But you could introduce a three step plan. Reduce these taxes and increase the tax on businesses paying staff below the living wage. Step two, introduce a date to bring in a raised minimum wage. This would immediately increase the purchasing power of people. The taxing of big business would be reduced as they are forced to pay their staff more keeping the old regulations despite them going out of date. Despite the decrease in income from taxation their would be an increase in demand as people have a larger real income and more revenue is generated through indirect taxes. The third and final stage is the stabilization of the situation. As there is growth in the economy due to a more willing workforce to work in smaller jobs as minimum wage is increased the law of taxation on big companies can be abolished and replaced with a constant tax on business revenue, as is normal. On top of this The decreased tax on micro businesses would encourage a growth in local shops and other such businesses. The only real problem with this idea is the hope of equality in markets when the policies are put into place as otherwise it may not work and the initial cost of setting this up however I feel this could be a very short term cost.
I would very much like feed back as I'm sure I have overlooked things and am lacking in understanding in some areas.
(on a final note against conservatives, the reduction in spending on disabled and poor areas with government sectors running in is disgraceful when big business men are being ignored and allowed to live above everyone else. elitism is never ok especially when the pre requisites are inheritance or upbringing)
This does just sound like a measure to protect minimum wage from the effects of inflation. Minimum wage probably did more than OK a few years ago, but now it is perhaps too low an amount due to the rise in general prices, so less is bought for the same amount of money. I do not think that it needs a new name, simply and adjustment on minimum wage based on inflation.
ReplyDeleteI think that this would surely be a good idea. After all, it does seem to be a reasonable proposal, considering that the minimum wage hasn't been changed in a while, despite the constant effects of inflation. Nowadays, for example, the minimum wage will not buy as much as it would when it was set, making it more difficult for those living on it. If the proposal(which from my understanding is minimum wage tied to inflation) were to be passed, surely there could be only gain as people are capable of buying more than perhaps they do on the present minimum wage, giving a slight boost in demand to the commercial sector, increasing their profits as well as helping those on the poverty line?
ReplyDeleteOliver Cuenca, ace detective.
Maine B
This living wage would be an incentive for the unemployed who find the minimum wage lower than government benefits supplied for the unemployed and so choose no to work, also for those who find many low age jobs too demeaning or degrading to be 'worth it' for the low pay offered. Many have argued that micro businesses would struggle having to supply a higher minimum wage, however I would argue that low age workers are mostly employed by large, high profit corporations and not these micro-businesses. Smaller firms tend not to require low wage employees doing jobs like cleaning and cooking in staff kitchens.
ReplyDeleteLouis Grey-Edwards