You appear to be having some maths problems:

http://libertarianbulldog.blogspot.com/2010/10/maths-problems.html

Well 7% more think it too low than think it about right wouldn’t make a great headline!

Frankly I don’t care what the public think on this issue, I care what effect it will have on employment.

How can you possibly say raising the rate has public backing when less than half of the people asked agrees with you.

According to your figures 48% want it higher and 45% do not, one assumes the remainder had no opinion – which does not signify agreement.

Is this an issue with maths or logic or, heaven preserve us, are you spinning

I wonder who the nasty stinges are who make up the 4pc?

Good spot Team Maths Club.

Would you be happy with “majority of those who have an opinion back higher minimum wage” and/or “plurality back higher minimum wage” ?

I should also have noted that getting the support of 4% of people for abolition of the minimum wage is a pretty good result for the Libertarians, who normally struggle to get 0.1% in most elections

You could just go for “48% of people support raising the minimum wage”. You surely don’t have to spin everything.

Also, look at the wording of the “Libertarian” option. I don’t think it’s particularly neutral.

http://libertarianbulldog.blogspot.com/2010/10/dodgy-polling-questions.html

Anyway, Don, could you explain how you came to make such an obvious mistake?

7. Anthony

Thankfully no one really cares what the Libertarian Clowns think.

So wording of poll questions is irrelevant.

“Ed Miliband has called for a “Living Wage” of more than £7 per hour”

Excellent, so raise the income tax allwance and, as we’ve shouted about endlessly, the post tax minimum wage will indeed be equivalent to that pre tax £7.60 an hour living wage.

By the very JRT definitions of poverty, the full time working poor are only poor because they pay too much in tax. So, let’s cut their tax bill.

Come on LC, pull your socks up, there have been a few really poor headlines and articles in the past couple of weeks.

Er, wrong everybody. Usual practice in UK opinion polls is to ignore “Don’t knows”, which make 48% v 45% a majority. “A majority of those holding an opinion” is implied. We all follow the same practice when we say Labour are now polling 39% or whatever.

More interestingly (what isn’t) the original question is:

The national minimum wage has been increased from
£5.80 per hour to £5.93 per hour with the age at which someone is eligible lowered from 22 to 21 year olds. Do you think the minimum wage is now…? etc

Liberal Conspiracy isn’t trying to hide the fact that the Coalition has dropped the ridiculously high age the ridiculously low minimum wage starts are they? I wonder which right-wing government set it so high. (For what it’s worth most people think it should be 18 or lower)

http://order-order.com/2010/10/08/daves-rap/ – the Cameron rap at last

You actually get the higher rate once you hit 22. I should know since I am 23. It’s ridiculous being 21 and still not earning the full minimum wage.

What Roger Mexico said. This is a (small) majority in favour of raising the minimum wage. Anyone saying otherwise is in effect trying to claim the don’t knows for their own camp, which is cheating, so they should probably think twice before bringing up words like ‘spin’.

On the other issue, I think it’s right that the minimum wage is staggered by age, but I also support the coalition dropping the final cut-off to 21.

So “Majority wants youth unemployment to be higher” would be a fair headline too.

Quick stats – the latest ONS stats (June 2010) show that overall unemployment is 8%, age 18-14 unemployment is 17.4%. A quick roll back through history shows that the last time overall unemployment was 8% 18-24 unemployment was 14.4% (Oct 1996), and the last time 18-24 unemployment was 17.4% overall unemployment was 10.4% (Nov 1993).

Both of these (and any other detailed analysis) show that since we had a minimum wage, the groups that have suffered have been the very same groups that the minimum wage was brought in to help (immigration also hasn’t helped, but that’s such a taboo I’ll probably get flamed for even mentioning it).

It’s simple. You cannot have a high minimum wage AND high employment among low skilled workers. I don’t care which side you choose, but that facts are that you can either

a) support the minimum wage, and therefore accept higher youth unemployment as a consequence, or
b) oppose the minimum wage, support lower youth unemployment but also accept there could well be some working for meagre wages.

There no other side to choose – so which is it?

@ 15 Given that minimum wage rates are even lower for under 21′s (£4.92 for 18-20; £3.64 for 16-17 are the new rates), you’ll have the figures to prove that unemployment gets higher as age increases then.

@ above – im fairly certain unemployment gets higher in younger, not older age groups, so that really defeats the jobs argument, which is utter dross anyway imo.

@ article – im not surprised, the minimum wage in the UK is shockingly low, £7 is the bare minimum that it should be, ive read good articles saying it should be as high as £10 per hour to infact.

“ive read good articles saying it should be as high as £10 per hour to infact.”

Be fascinating to see those. How can anyone argue that the minimum wage should be nearly the median wage for all workers, higher than the median wage for all female workers, higher than the median wage for all part time workers, nearly the mean wage for all part time workers….seriously, if you want to start to see the effects on unemployment of having a minimum wage set too high this would be a great way to start.

I think I’m right in saying that £10 an hour would be the highest minimum wage in the world.If it would be such a great thing worth pondering why no one else has done it yet…..

But Labour believed that the current level of the minimum wage was more than required to live on. And how do we know this? Because they taxed it. So part of the effect is a tax on jobs, taken from employers. And the easy solution is to raise personal allowances to about £10k and cut the minimum wage. And yes, the minimum wage kills jobs. Why would demand for labour behave differently from everything else in a market economy? More expensive labour = fewer jobs. Some of you may not want to believe it, but it’s true.

@16 Roger

That wouldn’t be the case though. It’s all about where you set the minimum wage versus what a person of that age/skill level could be expected to earn without the law. Skills in general get higher as age increases, and if skills improve faster than the minimum wage rate then you wouldn’t see that effect.

If you left the under 21s rates the same but raised the over 21 rate to £10 per hour then you would very likely see an increase in overall unemployment but a reduction in under 21 unemployment (because your laws have made over 21s less competitive in the jobs market).

“Ed Miliband’s policy of raising the minimum wage.”

Does Ed M *have* a policy of raising the minimum wage? (I know he thinks we should be heading in the direction of paying everyone a Living Wage, by incentivising employers etc, but that’s not the same as actually raising the minimum wage they’re legally allowed to pay people.)

I’m all for the minimum wage, don’t get me wrong. But a living wage sounds like a nice idea on paper but won’t that lead to more unemployment?

Daniel – presumably that’s why (I think?) Ed M isn’t talking about legally requiring employers to pay a Living Wage, but incentivising them to do so with tax breaks etc – and, I guess, leading by example by paying Government employees a Living Wage, hence pushing the ‘going rate’ for certain types of low-paid work over time.

@15 Mark M

“So “Majority wants youth unemployment to be higher” would be a fair headline too.”

Well, no, that wasn’t the question. But the whole thing’s about balance: you could argue down until you decided that the correct left-wing position was supporting a minimum wage ranging from £1-2/h to ensure employment was maximized. It’s not a case of “you lot don’t care about quality of life” v.s. “you lot don’t care about jobs”, it’s about trying to find a fair middle ground.

It seems to me that a living wage is what we should be aiming for (costed by region, which is vital); the argument then is deciding what defines an acceptable quality of life. So once again we need to find middle ground: this time between those who think it’s fine for people to live four to a room and live on bread and water, and those who think everyone should be entitled to two meals at a restaurant a week and an up-to-date computer.

“It seems to me that a living wage is what we should be aiming for”

How about this for an entirely radical vision?

We let the market work out what labour is worth? It is, after all, the only decent economic calculation engine we have.

Then, if we don’t like the incomes that some people get from that impartial process, we can dip our hands into our pockets and top up the true value of their wages through the tax and benefit system.

@ 25

Then, if we don’t like the incomes that some people get from that impartial process, we can dip our hands into our pockets and top up the true value of their wages through the tax and benefit system.

Problem surely is that the market, knowing that the state will do all this topping up, will tend to underpay. Then the state will load on all sorts of NI stuff to raise the cash to do the topping up, which will create new distortions. Before long that ‘true value’ is anything but again.

@ 26.

The answer to any question which contains the word “surely” is no.

Without the topping up of wages through benefits wages are what the market says they are. With the topping up of wages through benefits wages are still what the market says they are.

Think through it from the point of view of the heartless bastard capitalist hiring the labour.

I can make x profit by using this labour. If I don’t use the labour I cannot make x profit.

Now, if I’m a monoposonist (fancy economists’ word for single buyer) then I can force down the wages I pay and instead of x profit make x plus y profit.

But if I’m in a market for labour, there are other capitalists vying for the profits to be made from employing labour, I cannot do that. Because if I try to force wages down then some other capitalist bastard will make x profits while I am trying to make x plus y and failing because I’ve got no labour.

Now even Marx understood this: and if a dumbell like him can get it why is it so difficult for you? It is the competition (Yes! the market!) between employers for the profits which can be made by employing labour which means that as the productivity of labour rises, so do wages.

The provision of a tax or benefit subsidy to wages doesn’t change this market for labour. Capitalists will still be competing for the profits which can be made by employing labour: by so competing they will bring down the level of profits to be made. And labour, will be, by all these capitalists, be paid what it is worth: the market price for labour.

One of the things that markets really do tell us is what something is worth. I know that lots and lots of people want that not to be true but it is still true.

This “benefits are a subsidy to companies/capitalists” is, as I say, such a nonsense that even Marx saw through it. Why on earth is an obviously bright person like yourself still pushing it 150 years after it was shown to be nonsense?

(BTW, the one time this is true is when we really do have a monopsony: which leads to the rather hollowly amusing observation that the one time we’ve actually seen it happening was in the Soviet Union, where wages were deliberately kept down so as to increase State profits from the employment of labour. Yup, the only time we’ve seen this happen is when we stop capitalists competing to exploit the worker.)

27 Family Credit was introduced in 1986 which was replaced by tax credits in 2003, so how did capitalists manage without this intervention? Well, one answer is that if they could not attract labour by offering x (which was the maximum they could pay to make said product profitable), it wasn’t produced, yes the market would decide. However, it appears that Tim W believes that capitalists have some god-given right to make a profit regardless of whether the figures stack-up
And it’s pretty weak to quote Marx as if it legitimises tax credits, he would be staggered to observe the extent of state involvement in the economic base and so too Smith.
As I’ve said before, there is a legal entitlement to tax credits provided that the individual meets the criteria, if I was an employer who acted in my own self-interest, I would offer less wages in order to make a higher profit knowing that I could still attract labour because of tax-credits. This only needs to happen once to send a message to other employers that they, too, can use tax credits as a device to increase profits or produce goods which weren’t viable, thus pushing down labour.
Your comparison with the Soviet Union is also a nonsense, it was the state making the profit, here it’s the capitalists, and it’s myself and other taxpayers funding the profits.

“This only needs to happen once to send a message to other employers that they, too, can use tax credits as a device to increase profits or produce goods which weren’t viable, thus pushing down labour.”

But Steve, that’s not a viable equilibrium. There are hundreds of thousands of emplyers…..and it would take all of them to make such a scheme work. That’s why Marx talked about monopoly cpaitalism being such a bad thing (and I fully share that Marxist view).

Sorry, but your scheme just doesn’t work.

29
It’s not my scheme Tim, but, tax credits now cost around £20billion per year, so it’s working for quite a lot of people. The simple fact is, that when people receive certain benefits for being unemployed they will always calculate the cost of becoming employed, tax credits are a great incentive to take low paid jobs, mainly in the retail/service industry.
Capitalists, being quite good at recognizing the cheapest sources, will see that they can either pay NMW per hour or £9 per hour to attract employees, in some cases the monetory difference can decide whether it’s viable to produce. Moreover, capitalist a is unlikely to pay more than capitalist b for the same source, let’s face it, that’s the basis of economic competition, and those who do pay more are not going to get any benefits such as attracting labour easily because those on NMWper hour will end up receiving the same net pay as those on £9 per hour.
Now I am not criticizing individual capitalists, with those incentives, it would be stupid to ignore them, it’s the system which is at fault. Firstly, it hides the extent that modern capitalism cannot continue to recreate new goods and constantly fund a further round of production whilst enabling consumers to continue consuming. But, more importantly, it serves to extend the welfare state, in fact, I believe the prediction is that we are now in a position of paying out more in welfare than we will receive in tax revenue. At some stage we have to recognize that the existing economic system is no longer viable. Tax credits merely hide the fundamental flaws, although I admit they are not the only intervention to do so.

Tim W

You’re going to have to dumb this down yet further I’m afraid if this particular dimwit is going to get it.

The labour market has sellers as well as buyers – workers as well as employers. So it’s a distortion to talk as if the mechanisms through which the market establishes the value of labour are all on the employers’ side; it also matters what level of incentives workers require in order to put in a day’s work.

There’s a perfectly good sense, then, in which “the market price for labour” is not the price paid by employers to get work done, but the price charged by employees to do that work. If the employer pays part of that price and the state pays the rest, then the state is, in a perfectly good sense, subsidising the employer and is part and parcel of the “market forces” through which the value of labour is determined.

@ 31….well, sorta, except the tax credits will increase the amount of labour on offer (as is their purpose) but won’t change the amount demanded.

So the incidence of the subsidy is on the workers agreeing to supply labour, not on the employer demanding it.

31
So, please explain to this dimwit, where does the state (tax credits) start interfering with the market mechanism? And please read my post again because I made reference to both employer and employee and (I didn’t think I had to state Labour Market in order for most posters here to infer this was what I was referring to) maybe there’s more dimwittery closer to your home than you think.
32
Are you quite sure that it doesn’t interfere with the level of demand? If I calculated that the minium price which I could produce a unit was x and the market could not deliver x plus a profit, the rational decision is not to produce. But if I was subsidized in some way, which would then ensure a profit was obtained, I would go ahead. This means that demand for labour would increase because I could now produce the item.
As I’ve already pointed out, £20billion pounds per year is paid out for tax credits, any suggestions about the consequences of withdrawing them?

@27

“Without the topping up of wages through benefits wages are what the market says they are. With the topping up of wages through benefits wages are still what the market says they are.

Think through it from the point of view of the heartless bastard capitalist hiring the labour.

I can make x profit by using this labour. If I don’t use the labour I cannot make x profit.

Now, if I’m a monoposonist (fancy economists’ word for single buyer) then I can force down the wages I pay and instead of x profit make x plus y profit.

But if I’m in a market for labour, there are other capitalists vying for the profits to be made from employing labour, I cannot do that. Because if I try to force wages down then some other capitalist bastard will make x profits while I am trying to make x plus y and failing because I’ve got no labour.”

But the value of labour is set not only through competition but through what the market demands. So a load of factories in the same area that need staff with the same skills could all be paying around £3, say, which workers would accept because they know the state will top it up to £7. That would be absolutely unsustainable for the state, so inevitably these top-ups will be cut, leaving some people with barely enough money to eat. And the only people who benefit are the factory owners (likely to be pretty wealthy to begin with), not the workers at the mercy of the tax system or their better-paid counterparts who have to subsidize their wages.

steveb

I was all ready to get really offended until I spotted the honest misinterpretation of my post @31 I think you’ve made:

I didn’t mean “Tim W, please explain to dimwitted steveb why you’re right”; I meant “Tim W, please explain to dimwitted me why steveb is wrong”.

…i.e. I was sticking up for you against Tim W, not vice versa.

I’m confused by this though:

“please explain to this dimwit, where does the state (tax credits) start interfering with the market mechanism?”

I had in mind the sort of interference you pointed to yourself:

“if I was an employer who acted in my own self-interest, I would offer less wages in order to make a higher profit knowing that I could still attract labour because of tax-credits… thus pushing down labour.”

“if I was an employer who acted in my own self-interest, I would offer less wages in order to make a higher profit knowing that I could still attract labour because of tax-credits… thus pushing down labour.”

Agreed….if you were the only employer. But you’re not. You’re one of many all of whom are competing to get the labour they desire in order to garner those profits that can be gained by employing labour.

Thus labour wages will be bid up until average wages equal average productivity….and average profits are at the normal level of profit.

This isn’t, BTW, some right wing neo-liberal reading of it. It’s straight Paul Krugman stuff. Average wages will equal average productivity: whatever the subsidy to wages in the form of tax credits etc.

Two thought experiments for you:

1) What was the effect on the price of mobile phone calls from G. Browns £20 billion 3G spectrum auction?

Correct answer: none. For companies will already be charging whatever the market will bear so how that revenue is split between the company and the State makes no difference to the total amount of revenue and thus no difference to prices.

2) If the introduction of tax creidts has led to employers lowering wages as such tax credits are a subsidy to the employers, we would expect to have seen a fall in wages since the introduction of tax credits, wouldn’t we?

Correct answer: there has been no fall in real wages.

35
Sorry, I misinterpretted your meaning, I have to say I was a bit taken aback because I’ve read your posts on other threads and offensive remarks didn’t appear to be your style. My comment re; the market mechanism was really hyperbole, made because of the original misinterpretation.

36
I wouldn’t remain the only employer paying a lower rate, see my comment @30 comparing capitalist a to capitalist b.
And I’ll answer your questions when you have answered mine in @33 – what do you think the consequences would be to withdraw tax-credits? Just think, £20billion per year over the next 5 years would go a long way to paying for the economic deficit.

“what do you think the consequences would be to withdraw tax-credits?”

Low paid workers would be £20 billion poorer: wages would be the same as they are now.

What people seem to be missing here is asymmetrical information. Employers seeking labour are not some all-seeing entity. They do not know who is a good worker and who is a bad worker. However, workers seeking employment do know if they are a good worker. Therefore, employers in competition with other employers for good workers pay wages above the actual level they need to pay to attract labour.

Worker (a) is a quality worker with a reservation wage of £7 ph, which is their minimum wage.

Worker (b) is a poor quality worker with a reservation wage of £4 ph.

Employers before employing workers do not know who is a good worker and who is poor quality. If they only offer a wage of £5 ph only worker (b) will apply knowing with their asymmetric advantage that the wage is above what they are worth. Worker (a) will not apply. Therefore, the employer is certain to only attract poor quality workers. However, if they offer a wage of £7 ph they are certain to attract good and bad quality workers and have an equal chance of employing good workers. Therefore, it is asymmetric information and competition for good workers in the labour market which bids up wages and ensures they are not bid down to a subsistence level. That is why in a depressed demand economy with higher unemployment wages rise slower. Employers are not exploiting employees, it is good quality workers who are bidding down wages.

Here is the Paul Krugman article in a nice way pointing out the naivety of the living wage proponents.
http://www.pkarchive.org/cranks/LivingWage.html

Tim W

“Low paid workers would be £20 billion poorer: wages would be the same as they are now.”

So withdrawing £20 billion of incentives to work would make no difference at all to people’s willingness to work? As an employer offering (say) £200 a week, you’d be no less able to recruit and retain staff if the state suddenly ceased to top up their wages by (say) £50? Why not?

Does the same hold true if you’re paying £750 a week and the government suddenly puts your employees’ taxes up by £50, I wonder? Aren’t we constantly being told that increasing taxes is self-defeating because people just won’t bother working as hard if they’re not getting the same reward for it?

Sure, there are both income and substitution effects.

But the amount of labour demanded by employers is determined by the price they’ve got to pay for it. Not by the amount of cash potential workers are getting from somewhere else.

Woudn’t taking £20bn out of the hands of (presumably) low paid workers have an effect on demand? And surely that would have a ripple-effect upon production and consequently demand for labour, even if the remaining labour force stayed on the same pay-levels
Richard W – Woudn’t tax credits interfere with the mechanism you note ref good and bad workers, because tax credits are not based on that criteria, a good worker on tax credits will receive the same as a bad worker on tax credits.

Tim W

“But the amount of labour demanded by employers is determined by the price they’ve got to pay for it. Not by the amount of cash potential workers are getting from somewhere else.”

So you’re not denying that the price they’d have to pay for labour would go up; it’s just that you think they’d demand less labour rather than paying that price. (Is that right?)

In which case, what you said about the consequence of withdrawing tax credits is misleading; it wouldn’t be so much that wages stayed the same, as that jobs disappeared.

43. jojo

‘ Woudn’t taking £20bn out of the hands of (presumably) low paid workers have an effect on demand? And surely that would have a ripple-effect upon production and consequently demand for labour, even if the remaining labour force stayed on the same pay-levels. ‘

You have to work on the assumption that ‘ government ‘ have no use for money. Therefore, if they were taking it out of the hands of low paid workers presumably they would be putting it in the hands of others. The effect on demand would be down to whose hands they put it in. If they took benefits from the low paid and gave higher rate taxpayers a tax cut some of it would be saved and therefore depress demand. If they took benefits from the low paid and just taxed them less presumably the effect on demand would be neutral.

‘ Richard W – Woudn’t tax credits interfere with the mechanism you note ref good and bad workers, because tax credits are not based on that criteria, a good worker on tax credits will receive the same as a bad worker on tax credits. ‘

I don’t really know much about the tax credits system and how distortionary they are. How would an employer know ex-ante whether applicants were in receipt of tax credits? My point is really about why employers pay more than is necessary to attract labour. Many in the nineteenth century including Marx believed competition would lead to employers bidding down wages to subsistence levels and workers would not be able to afford the products they made and thereby depress demand leading to a fall in profits. Empirically this has not happened and wages continue to rise. Very few employers want labour at any price. They want good labour and since they are in competition with all other employers for good labour they pay more than they would have to pay just to attract labour. Even if there were no financial supports for the low paid and the economy was a totally laissez faire economy. Not that I support such a system. Employers would still pay above the labour market clearing rate.

45 Richard W
But isn’ that a big assumption, especially if we accept that means-tested benefits are usually spent (tax credits are means-tested), so where could the £20bn go?
Either back to the tax-payer (then you cannot assume that it will be spent) or to other poor people who are not in work, but then there would be a bigger net cost in unemployment benefits, so that would end-up costing more than tax credits.
Tax credits work on the basis of how much you earn, minus the maximum amount you are allowed to receive. Therefore, a worker on £4 per hour will receive more than a worker on £7 per hour, and all other things being equal, both workers will receive exactly the same weekly amount.
Employers can never know how much potential workers will receive in tax credits, but what they will know is that low wages can be topped-up by tax-credits, employers will surely pay as little as possible for raw material and labour, this gives them a competative edge.

In which case, what you said about the consequence of withdrawing tax credits is misleading; it wouldn’t be so much that wages stayed the same, as that jobs disappeared.

Well, that’s actually the argument I used about the minimum wage: those who do not produce enough to be “worth” the NMW don’t get higher wages, they juswt don’t get a job.

Jojo, it is not really a big assumption when it comes to government. The government as an entity have no use for money. If they spend less on one budget they either spend more on another budget or tax less. The best way to think of the government is as a huge macro banker taking from some and transferring to others. I certainly do not assume if they transferred less to the low paid it would be spent by taxpayers. If we are concerned with demand pretty much the best thing to do is to ensure the low paid have more income because they consume their income.

I would need to see evidence that employers were paying lower wages because they know that they can attract the same labour who will have their wages topped up by tax credits. Would every worker be entitled to tax credits? One needs to remember that employers are not competing for the lowest cost labour. They compete with each other to get the best labour. If one firm does not get the best labour their competitors will.

48
Richard, I’m sure that employers would want both the best labour and at the cheapest cost. Whether a person is entitled to tax credits (possibly because they are unskilled manual labour) says nothing about whether they are good or bad employees. Presumably, an employer will get rid of a poor employee whether they are on tax credits or not, I am certainly not suggesting that an employer would put up with shoddy work just because it comes cheap.