Monday 22 September 2014

Minimum Wage - crush the weak

Caught the James O'Brien show on LBC, on Monday morning. 
Mr O'Brien, who is the voice of  the left at LBC, was overjoyed that Labour had pledged a minimum wage of £8. Really, really happy. It's something I've heard him argue for a few times. Pay people more.

He put forward this hypothesis. If your business could not stand a measly wage rise for its employers to £8 from  the current £6.50 then your business is a zombie business and should go bankrupt. There is no point hanging on trying to make a go of it. Just close up. Shut the doors..Call in the administrator.

Now, the actual Labour party announcement is £8 over the course of a parliament. So its probably only an inflation + rise anyway. £1.50 over 5 years. A real non-annoncement if ever there was one. A miliband special.
 It was £5.80 in 2009. So has risen by 70p/hour during the great recession. It will do better than that in a more profitable climate.
And it wasn't clear if Labour also want to include the £8/ph for 16+17 years olds too. That would be about a 100% payrise for them. 

So, i have no real problem with a £1.50 rise over 5 years. Except if we were in a recession in 5 years time for any number of reasons from ISIS to Putin to EU vacuum cleaner motor  type regulations running amok, it would be pretty stupid to put up wages.

However, what is a problem, is Mr O'Brien's complete disconnect from reality. He was genuinely, genuinely saying, it is better to close a business than to let people be paid below £8 per hour.

He seemed to believe that a wage rise would not affect business. He quoted his favourite enemies of banks and supermarkets and multi-nationals, making millions in profits, whilst their lowly cleaners struggle on £6.50 an hour. 
SUCK IT UP capitalists! You CAN afford it! And if you can't ..tough..

Mr O'Brien is normally a well reasoned broadcaster. Thoughtful. Witty.Clever. A keen mind that is skilled at analysing what his callers are suggesting and quickly seeking out the flaws or surprises of what they propose. All while keeping the program flowing and the news and traffic on time. 
He is a good radio host.


In this instance, he's a lefty mental. He is someone unwilling to fully examine exactly what he himself proposes. Something he would never let a caller get away with. He was seriously talking of an £8 wage - tomorrow!

For instance, the NHS. Under these proposals, the budget for the NHS has just risen by some 19%-25% The number of workers, directly employed some 1.8 million, { indirectly, 4 million? }. The wages of EVERYONE must rise under minimum wage. Its no use paying a cleaner the same as a cleaning supervisor..all must have an increase.
Taxes must rise. That £1.50 is going to be gone with a 27% minimum rate of tax again.

Every council in the land has just had a whack. So council taxes must rise

Airlines and airports with their £99 a ticket deals must take a 20% hit on the nose.

A hairdresser operates on a physical employed basis. An owner can only cut so much hair themselves. So they have to employ. Can they put up the price of a haircut by 20% to meet the increase in wages? 
if they do, and the one over the road doesn't, how will they manage?
Mr O'Brien says the owner should just earn less money. And if her business is not already making enough to meet the rise, she should close up. 
he cares not for the owner taking all the risks. The employes, whose investment in the business is usually nil, is worth more and must come first

A corner shop makes some 10% profit from cigarettes. About 4% from national lottery. 12-25% from  magazines, fresh food, chilled goods etc. There is no margin to raise. 
Its a very, very competitive business with the big boys having the upper hand. Mr JamesOB is handing the largest corporations, in every sector the entire playing field. His support, his actual demand that the smallest must quit, leaves only the biggest players. The very companies that he continually attacks, for their dodgy corporation tax funneling through low tax havens. Their zero hour contracts. Their squeezing of suppliers. Their destruction of the high street...

He's proposing that only the megacorps will be left. 
The man is creating his own Skynet.

On top of that the inflation effects of a 20% payrise for all tomorrow have been documented well enough in this country in the 70s and 80s.  The effect on employment would be catastrophic. A wage hike tomorrow means limited hiring for 2-5 years except at the most profitable companies. It probably also means redundancies. Certainly it means  less hours. The businesses that pay minimum wage are in the low skilled, high employee count sectors. An £8 min wage does nothing to the more skilled sectors, who must be paying over that now for the majority of their people already. It hits the low skilled/unskilled. The very people that James feels deserve help the most.

Labour are also promising a job guarantee for every young person. That job wil be on this same national minimum wage.
How exactly are they to do that if the smallest of small businesses are closing? And not just the smallest. DairyCrest are announcing cuts to its workforce as it announces it will close bottling plants. 

I wonder if the workers there were asked if they wanted a pay freeze or a job, what they would say?
Mr O'Brien does not believe they should be asked . Just close the business down and let the workforce take up the much better paid jobs that will be on offer elsewhere.

Quite where these jobs will be, he doesn't say. Maybe a massive increase in  artisan bakeries and bespoke furniture covering stores. Designer curtains shops and specialty food emporiums. Those who can charge £7 for a loaf or £6000 for a coffee table can afford to pay any hourly rate the government requires.

For the real high street outside of Chiswick, where budgets are not the same as in West London media sector joint incomes,  there is always Wonga, Ladbrokes, Poundland, The Heart Foundation, Brighthouse and the tattoo parlour to work in.

Oh, By the way Mr -  Ed Balls,Mr  James O'Brien. It is the low paid commission that sets minimum wage and NOT the government. If you aren't going to listen to them, then abolish them.

And add those jobs to that ever growing dole queue.


andrew said...

with you most of the way
I think you got a bit carried away from

"Airlines and airports with their £99 a ticket deals must take a 20% hit on the nose."

- only if 100% of the cost is labour,
which may be close to the truth for a cleaner,
but possibly not for people who have a fleet of jets

BE said...

At least O'Brian is acknowledging that businesses and jobs will be lost. What Ed Siliband will not have understood is that if you do a job that is worth less than £8 an hour, your job will be exported to somewhere where lower wages will allow it to be done profitably.

No doubt next week Ed will tell us that he wants lots of low-skilled manual jobs in the UK. Well you can't have a high minimum wage and low-skilled jobs.

Also, the whole thing is, as you point out, an aspiration over 5 years. If inflation is high, as it usually is under Labour governments, £8 in 2020 might be worth less than £6.50 is today.

If we must have a minimum wage (and I do appreciate the arguments in favour), it ought to be set carefully. Indeed the mechanism set up by Blair/Brown seems to have worked well. Why is Ed now planning to tear it up?

MyMondayName said...

So...... this is basically a post about what a radio DJ said....

I'd agree that there are many businesses and indeed individuals that are only just hanging on because of forbearance and low rates, that should really be put to sleep. A policy your govt continues BQ.
Perhaps quitting the corporate welfare and adminis-flation policies before pronouncing on those who actually work for a living might get a better reception. (pun intended ;) )

Bill Quango MP said...

On the airlines it's the service, handlers, counter staff, cleaning, catering, people that are on low (ish). Now a pilot won't care about minimum wage, but the operator has only two pilots for every ten cleaners. So , that's why I put it in.
But airport wages tend to be higher than the average because of the unsociable hours , large numbers of people required, and limited numbers of nearby workers who want yo live under a flight path. so probably a poor choice. Replace with the couriers who fill the airport perimeter road instead.

BE. You are absolutely correct. Higher pay means lower exports. O Brien is often keen to ridicule the tories who said minimum wage would be the death of Britain. And he is right that it did nothing of the sort.
But that was because if was set to a very cautious level. And in companies I worked in there was an initial loss of very junior people. But a recruitment freeze that went on for years and years.

And those who claim minimum wages success never explain why we exported our call centres and textiles , furniture, and electronics etc overseas. That's without including the old heavy industries into the mix.
How many jobs lost? Must be in the millions.

Mymondayname . The DJ is only reflecting a left wing mindset. Business must pay people more. And employ more. No mention of if government taxed them less, the effect would be the same.
Government can't afford to take less tax in, but business CAN afford to pay more.
Note some..but all.

I don't see why we should seek to put any business to sleep! For what purpose? If it fails, it fails. But why smack it down?
If employer x is offering to pay more than employer y, then employer y is going to find it hard to get talented people. It all sorts itself out. The meddling will only make everything worse.

DJK said...

But what about the self-employed, of whom there are a lot these days. They often pay themselves or their family starvation wages. No minimum wage there.

Steven_L said...

if we were in a recession ... it would be pretty stupid to put up wages

Would it? Then why it is sensible to slash interest rates and increase government spending?

Putting up wages in a recession - especially a debt bubble recession - might well be bad for the price of sterling, but is de-leveraging against a backdrop of price/wage inflation or deflation the better option?

Maybe you should go ask the Spanish or the Irish?

Nick Drew said...

He is a good radio host. But. In this instance, he's a lefty mental.

the whole scottish thing has been conducted in a faith-based, fact-free miasma of emotion

I suppose you could say, that's the whole of popular politics and always has been

but it seems to be getting worse, IMHO

Sebastian Weetabix said...

@ND: couldn't agree more. 'Magical thinking' has become mainstream. I even see it with young science/engineering graduates at work. Things have come to a hell of a state when a science graduate from a Russell Group university isn't capable of hard, rational, numerate, fact-based critical analysis. (Perhaps the ones who can all go to work for hedge funds?)

MyTuesdayName said...

@BQ - "Mymondayname . The DJ is only reflecting a left wing mindset. Business must pay people more."

Well, yes and no... the current govt want exactly the same thing and are trying to engineer it.
The elephant in the Tory economics room is why they want it to happen. There are two reasons

1 - they believe in this magical thinking nonsense of GDP. (An arbitrary measure dreamed up by early C20 academics and social engineers)

2 - Nobody wants to face the colossal debt problems overhanging the economy, both public and private. Your policies of QE and financial repression are deliberately inflating asset prices and forcing those on fixed or low incomes into the gutter just so those who fucked up their investments can maintain a semblance of solvency. You are promoting and defending the interests of those who demonstrably cannot invest profitably. In order to maintain this charade you are grinding the rest of the economy/country into the ground.
Now, please, dont come back here and say QE and ZIRP arent meddling in the economy. You are engineering and tinkering just as much as the other crowd.
I totally agreee with your employer X vs Y and wages but that only occurs in a free, open and un-pimped markets. You are not providing that or anything like it so your points are moot.

"And employ more. No mention of if government taxed them less, the effect would be the same."
I have said for a long time here that taxing of Labour (ie work) should be at or near 0% for those under say 25k and only 30% up to £100k. Assets should be taxed in lieu at a fixed annual rate on a self declared valuation which allows the state the first option to purchase at that price.
No corporations or non-uk tax-payers should be allowed to hold or own land or residential dwellings.

john miller said...

It's an employess mentality.

Mr O'Brien is an employee. He has no concept of onvestment or risk.

Employers only start up businesses to make a fortune by exploiting the workers. They drive Rollers and Mercs and live in 7 bedroom detached houses in suburbia.

It's the view of employees since the agricultural revolution. Especially employees educated at public schools.

But it may surprise Mr O'B to learn that when he knocks off at 1pm to slide down to Yate's for a couple of hours, the average small business owner has another 6 hours to go to ensure his house isn't reposessed.

And he didn't start at 10 am either.

dearieme said...

"hard, rational, numerate, fact-based critical analysis": as a supplier of such over a long career, I found a shortage of people who actually wanted to listen to them. Best quotation: "You are one of those clever buggers who will persuade me to do something I don't want to do."

Sebastian Weetabix said...

@dearieme: that's British management in a nutshell. Germans, on the other hand....

Electro-Kevin said...

£8 would be MAXIMUM wage, remember ?

(Quoting Farage)

In fact our minimum wage would be a lot higher than £8 already had we not tied ourselves to the EU.

Remembering also that a minimum wage is so often subsidised with taxpayer top-ups anyway.

Budgie said...

Moribund is just dribbling. He has had his long worked out soundbites ("£8 minimum wage", "save the NHS from the Tories", "we will be prudent like last time) made irrelevant by the constitutional crisis. Obviously, thinking on his feet is not one of his strong points.

Apart from the UK devolution debacle and the EU, in my view the biggest internal problem - affecting all the UK - is managerialism. Effectively it reduces ordinary people, who never had much power, further down the road to serfdom.

Managerialism has caused a split: those at the top, whether in private (corporate) industry or state agencies, who are grotesquely overpaid yet have no sense of responsibility; and those who are "managed" in their every waking moment (not all poor, or the usually cited "disadvantaged").

This is why an announced intention to increase the minimum wage to £8 has what little reverberation it has - it appears to be a smack in the face for managerialists. It actually isn't of course.

Electro-Kevin said...

I believe we'd have been a lower tax economy, quite possibly a better standard of living too. And better able to compete abroad. Better all round, in fact.

Without the false economy that is top-ups. A healthier balance between work and workers.

I hear businessmen saying all the time "My punters aren't coming anymore, they just ain't got the money."

Well their punters are, more often than not, someone's employee suffering stagflation.

Anonymous said...

I'm sure raising the minimum wage will be great news for a young person struggling in Cracow or Riga. Can one invest in Polish coach companies ?

Bill Quango MP said...

Anon: Don't get me started on that! We covered that about a year ago in a few posts. IIR £10 in London is worth £50 an hour in Warsaw and £160 in Bucharest.

So the coffee shop checkout person that manages to save £1 an hour is saving £8 a day, £40 a week.

When they take that £40 a week home, its transformed into £200 at Polish cost of living rates.

Can buy a house/farm/shop in just a few years.
This is probably very good news for the former soviet economies, as when their people return there will be a bit of wealth going around and a sort of instant pop-up western economy.

Anonymous said...

When I was a student, before the minimum wage was introduced, I could get an unskilled summer labouring job and be paid the same as the permanent (unionised) workforce. Because my cumulative holiday earnings were lower than their annual earnings, I paid less tax - and so had a higher net weekly pay, albeit only for the duration of the holidays - than they did.

Now I have student-aged children of my own, and the most they can aspire to in their holidays is minimum-wage work of the burger-flipping type. The so-called minimum wage has become the actual (maximum) wage. Was thgis ever the intention?

And with our enlightened policy of open borders, there is no shortage of applicants willing to come and work for it, so existing employees have no leverage.

Jan said...

Agree the minimum wage has become the maximum wage for low paid work. That's why raising he minimum wage could be a vote winner for Labour. The average worker doesn't care two hoots about the wider view of the business from the management/business owner point of view (who is a rich capitalist and deserves to be brought down a peg or two) and why should they on the minimum wage; they're not paid to think! But any sop to raise the standard of living is a vote winner and will take people who may have left the Labour fold for UKIP straight back to Labour. Even with wage top-ups (tax credits) psychologically having a higher minimum wage will appeal more even if the overall income hasn't changed and sometimes as in the case of students cited above it actually means more money in the end.

Anonymous said...

I actually agree with the minimum wage idea, because at the present time it is actually the taxpayer which subsidises companies which pay low wages by paying out bennies of one kind or another, which is ludicrous. Some companies are effectively reliant on this bennies being paid for their whole business case. This is part of the "fantasy land" economics which will eventually lead us to ruin.

Take education and health - both provided by the taxpayer for free to a minimum wager. A minimum wager pays only £500 in tax. As a result the employer gets a healthy, educated employee and neither the employer nor the employee has funded that education or health care. This is clearly wrong.

I would propose that we move GRADUALLY to this scenario:-

1] The minimum wage reflects a minimum living income for a single person.

2] The minimum wage is the level AFTER income tax

3] The employers pay National Insurance at a fixed level per employee to cover healthcare, education and welfare provision

4] All top-up benefits are STOPPED

5] VAT is stopped, except on luxury goods and properties.

5] Wealthier people will pay extra tax to pay for defence and some "nice-to-haves"

Yes a lot of jobs, as they exist today, will cease to exist simply because companies like MacDonalds currently can only justify their selling of god-awful pap by keeping it cheap and thus keeping wages low. But if we get rid of these non-businesses and non-jobs will we really do UKPLC any harm? In reality we will start to free up people to deploy them in places where they are really needed, like repairing roads and repairing and replacing our ageing built environment.

Electro-Kevin said...

Less obesity and ill health too, anon.

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