Living Wage 2020... is it right?

[BuffetSlayer]

Of course they should.

The entire process of gaining qualifications and experience usually, without fail, result in more pay or a position of more responsibility. This is why they are classed as skilled or semi-skilled roles. Only the lucky few work because they love their job, everyone else does it because it pays the bills. If the pay on offer is no better than a "no experience needed" kind of role - who is going to put themselves through the hassle of qualifications and volunteering to do it? Some will - but they will be a distinct minority.

I appreciate there are many other factors, but the fundamental basis of working life is you get paid more for having more qualifications and experience. If people didn't - the economy would be in trouble.

This kind of pay structure will eventually lead to shortages in the semi-skilled roles where people on the bottom rungs of the skills ladder will gain no usable benefits from trying to climb to the next level. So they won't. People further up the ladder won't climb down either, so it creates a void.

It is very much the same as people deciding to stay on benefits because going to work would offer them no financial gain.

 

[Dis86]

It's a completely nuts idea. It creates a self perpetuating cycle of price and thus cos of living increases thus wage rises and so on.
If you're having to pay workers in low skilled jobs making a low margin item more money then the price of those items goes up. This in turn means the cost of living goes up.
When you consider that most of the farming and food industries deal with these low margin items you can start to appreciate the problems it will cause!

 

[Spacedeck]

I don't think it will affect people this much. People are always going to get qualifications over getting none. Plus this is more about self ambitions and if you feel going the extra mile is worth it. Some will decide it's not and just revert to the NLW but some will still continue to push themselves as much as they can. Those coming up through school / college, they will continue to aim for better grades and even go to college / uni.

If the workplace isn't going to give those above NLW a payrise, there isn't much that can be done. It's then up to the individual what decide if they feel it's worth it or not. NLW is rising so that people can afford to live who otherwise might struggle.

The only issue I can see is people only being employed under 25 to save money.

 

[dowie]

This kind of pay structure will eventually lead to shortages in the semi-skilled roles where people on the bottom rungs of the skills ladder will gain no usable benefits from trying to climb to the next level. So they won't. People further up the ladder won't climb down either, so it creates a void.

It is very much the same as people deciding to stay on benefits because going to work would offer them no financial gain.

that is probably rather short sighted of anyone who does that and it isn't at all a foregone conclusion that that will happen, it also isn't just a case of comparing the bottom rung of a killed career ladder with minimum wage but the career as a whole

frankly I think these arguments over the percieved 'problem' outlined in the OP are silly, just because the trolley pusher in asda is getting a better raise than normal and doesn't earn quite as little relatively speaking doesn't necessarily infer that people who'd otherwise have gone for say IT support work in schools (skilled people who are already choosing lower paid work presumably for other reasons than pay) are suddenly going to turn around after their computer science degrees etc.. and decide to go become trolley pushers in asda because the pay gap is a bit less now, there are more than just monetary incentives at play here... and frankly the monetary incentives long term between progressing in a skilled role and staying in an unskilled role are still there even if the gap is closer at entry level

 

[BuffetSlayer]

If the workplace isn't going to give those above NLW a payrise, there isn't much that can be done. It's then up to the individual what decide if they feel it's worth it or not. NLW is rising so that people can afford to live who otherwise might struggle.

The only issue I can see is people only being employed under 25 to save money.

The equilibrium will remain through rising living costs though - so it won't really help them as you suggest. Forcing employers to pay more means they have several options. Cut staff, employ <25yr olds, raise prices for their customers (or all of the above). Or close the business down. The bottom line is, well, the bottom line. It is what makes businesses work and keeps people in jobs.

Yes, I wouldn't want to be a 25+ year old trying to find a NLW job in a few years time. It will completely divide the working class. If I were an employer I would only employ people that were 22 and get rid of them within the 2 year window and start again unless they were doing work which would take time and money to train someone to do.

If I am thinking that way as a non-business owner, I am sure actual business owners are also thinking the same. Like I said in a previous post - YTS/apprenticships through the back door (in effect).

 

[dowie]

nah that is the usual right wing scaremongering that minimum wage rises have that effect, in reality they don't and you don't tend to get large scale job losses

and unless you're talking about things like a cleaning company or temp agency where it is essentially the hourly rate of the employees that is directly reflected in the cost then the cost of the service for customers doesn't necessarily have to rise too much either

 

[Spacedeck]

We can only assume the cost of living will also go up. We have nothing to actually say it will. If house rent was to stay the same and only the price of food was to slightly rise. Already they would be in a better position.

 

[dowie]

quite, the key thing here is inflation... not billy the IT worker now doesn't feel quite as superior to Bob the trolley pusher

 

[BuffetSlayer]

nah that is the usual right wing scaremongering that minimum wage rises have that effect, in reality they don't and you don't tend to get large scale job losses

I never said large scale job losses was a given, but in 2014 it was suggested redundancies would affect around 15% of low-skilled businesses due to NMW changes. Businesses will absorb the costs in other ways but they are often detrimental to working conditions. Usually by way of making you do more work in less time (if my experiences are anything to go by). These places tend to have a high turnover of staff because of this.

It will also have an impact on business growth in the short term as industries transition and balance out, which is not good for the economy. Long term, as you point out, inflation is key - but given the cost of living has been rising for a while now it is likely going to continue and introducing a NLW is not going to help it. Granted, it may not hinder it either - but it certainly won't help it.

 

[estebanrey]

nah that is the usual right wing scaremongering that minimum wage rises have that effect, in reality they don't and you don't tend to get large scale job losses

It's not black and white though. Just because the world didn't collapse when the minimum wage was introduced doesn't mean you proved there's no effect to increasing it or that any further rises won't cause problems. Obviously if you made minimum wage £1,000 per hour it wouldn't work and would result is huge job losses.

So there's a scale with a tipping point, the debate is where that tipping point is.

 

[dowie]

the main effect of raising the minimum wage is usually happier workers and not job losses, the rest is just the usual unsubstantiated scaremongering

we've got examples from the US:

http://www.dol.gov/minwage/mythbuster.htm

Myth: Increasing the minimum wage will cause people to lose their jobs.
Not true: A review of 64 studies on minimum wage increases found no discernable effect on employment. Additionally, more than 600 economists, seven of them Nobel Prize winners in economics, have signed onto a letter in support of raising the minimum wage to $10.10 by 2016.


Myth: Small business owners can't afford to pay their workers more, and therefore don't support an increase in the minimum wage.
Not true: A June 2014 survey found that more than 3 out of 5 small business owners support increasing the minimum wage to $10.10. Small business owners believe that a higher minimum wage would benefit business in important ways: 58% say raising the minimum wage would increase consumer purchasing power. 56% say raising the minimum wage would help the economy. In addition, 53% agree that with a higher minimum wage, businesses would benefit from lower employee turnover, increased productivity and customer satisfaction.

http://www.cepr.net/blogs/cepr-blog/2014-job-creation-in-states-that-raised-the-minimum-wage

When we updated the GS analysis using additional employment data from the BLS, we saw the same pattern: employment growth was higher in states where the minimum wage went up. While this kind of simple exercise can't establish causality, it does provide evidence against theoretical negative employment effects of minimum-wage increases.

 

[BuffetSlayer]

Yes and their NMW is considerably less than ours is even now. It will be massively less in a few years time.....

 

[dowie]

It's not black and white though. Just because the world didn't collapse when the minimum wage was introduced doesn't mean you proved there's no effect to increasing it or that any further rises won't cause problems. Obviously if you made minimum wage £1,000 per hour it wouldn't work and would result is huge job losses.

So there's a scale with a tipping point, the debate is where that tipping point is.

it is likely way above the current proposal... unless you can find an example of a similar economy where the minimum wage resulted in mass job losses?

 

[dowie]

Yes and their NMW is considerably less than ours is even now. It will be massively less in a few years time.....

principle is still the same... it is the relative increase in costs to businesses you're referring to, those costs increased in that market too

you are of course welcome to find a counter example - a similar economy where raising the minimum wage had a negative effect...

 

[RDM]

Good post Buffet, I reduced it to just highlight the points i was trying to say yesterday, but unfortunately I feel it will still fall on deaf ears as they seem to incalcitrant to change their point of view.

I think it is interesting though that similar arguments are used by the right when arguing against income inequality, but this time are being made by left leaning posters that tend to favour reducing income inequality.

 

[Rroff]

the main effect of raising the minimum wage is usually happier workers and not job losses, the rest is just the usual unsubstantiated scaremongering

we've got examples from the US:

http://www.dol.gov/minwage/mythbuster.htm



http://www.cepr.net/blogs/cepr-blog/2014-job-creation-in-states-that-raised-the-minimum-wage

We've got teams at work that are running severely over stretched due to the fact that after the last 2 minimum wage rises they haven't replaced the next person who leaves to offset the raise.

I'm not sure it works as happily in this country even if it works in some parts of the US.

EDIT: That myths site seems to gloss over the real effect in a lot of cases pointing out things have "stayed the same" conveniently not touching on the cost of things "staying the same" i.e. more burden on employees to perform or other areas of the business under-invested in to balance it out.

 

[dowie]

We've got teams at work that are running severely over stretched due to the fact that after the last 2 minimum wage rises they haven't replaced the next person who leaves to offset the raise.

I'm not sure it works as happily in this country even if it works in some parts of the US.

sorry but individual anecdotes are irrelevant to this really, that isn't necessarily the result of the minimum wage - it is also down to you having a naff employer... and it is an individual case which says nothing about the wider impact

 

[Haggisman]

Of course they should.

The entire process of gaining qualifications and experience usually, without fail, result in more pay or a position of more responsibility. This is why they are classed as skilled or semi-skilled roles. Only the lucky few work because they love their job, everyone else does it because it pays the bills. If the pay on offer is no better than a "no experience needed" kind of role - who is going to put themselves through the hassle of qualifications and volunteering to do it? Some will - but they will be a distinct minority.

I appreciate there are many other factors, but the fundamental basis of working life is you get paid more for having more qualifications and experience. If people didn't - the economy would be in trouble.

This kind of pay structure will eventually lead to shortages in the semi-skilled roles where people on the bottom rungs of the skills ladder will gain no usable benefits from trying to climb to the next level. So they won't. People further up the ladder won't climb down either, so it creates a void.

It is very much the same as people deciding to stay on benefits because going to work would offer them no financial gain.

This is the point I've been trying to make, and I get the impression some people are just sticking their fingers in their ears and saying "lalalala, won't happen".

Of course there are some people who gain qualifications & experience to "better themselves", however I'd wager that most people do so because better qualifications = better pay. Or at least it should do.

Say you have to spend £6k and 2 years on a college course to get a job that pays £10/hour (£3.50 above current NMW), that course will effectively pay for itself in ~43 weeks of working 40hrs. After ~5.8 years you will have earned more than someone who started working on NMW at the same time as you started your college course.

Change the NMW to £7.20, and it takes ~54 weeks to pay for the course, and ~7.2 years to actually start gaining any benefit over working NMW

Change the NMW to £9, and it takes just under 3 years (150 weeks) for the course to pay for itself, and 20 years before you will have earned the same as the person who started working on NMW at the same time as you started college.

Obviously these figures are extremely simplified, and there will be variations, but when you remove one of the major benefits of gaining qualifications (more money), it's going to reduce the number of people willing to sacrifice their time and invest money in courses which don't give that benefit.

It obviously wont affect the people who go on to gain even higher qualifications and so significantly increase their earning power, but for those on the lower tier, the value of their qualifications is essentially being wiped out - IF employers don't increase their wages in line with the increase in NMW.

We can only assume the cost of living will also go up. We have nothing to actually say it will. If house rent was to stay the same and only the price of food was to slightly rise. Already they would be in a better position.

That's unlikely, since there will probably be plenty of BTL landlords putting their rents up to try and recoup the loss of tax relief on their mortgage payments

 

[dowie]

I think it is interesting though that similar arguments are used by the right when arguing against income inequality, but this time are being made by left leaning posters that tend to favour reducing income inequality.

yup it is amusing... somehow raising the minimum wage is a bad thing (presumably because the Tories did it) and the main argument against it seems to revolve around status anxiety - the lower paid entry level skilled people supposedly not feeling there is enough of a gap

 

[dowie]

This is the point I've been trying to make, and I get the impression some people are just sticking their fingers in their ears and saying "lalalala, won't happen".

well you could cite some actual examples where the minimum wage has had a negative effect, otherwise it is just pure speculation on your part and IME a bit flawed