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Samizdata quote of the day In between the torturous Brexit process, May’s government has been busy implementing her interventionist vision. Take the minimum wage, first introduced by the Blair government in 1999, which the Tory party long ago dropped opposition to. But now, Chancellor Philip Hammond, supposedly a member of the more free-market wing of the party, is considering hiking the minimum wage from 59% to 66% of median earnings, which would make it the highest in the world and mean that a quarter of British workers would be paid a government mandated wage.
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The rest of the supposedly Conservative Party has seemingly given up on these values, more concerned with virtue signalling and kowtowing to the latest politically correct fad.
– ‘Creative Destruction’ on The looming death of the Tory Party
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When the free market would allow many British workers to be paid third world wages it is probably best for the government to intervene to avoid civil unrest.
We expect our governments to maintain order.
FFS pete, so low margin businesses should just up the wages because that’s how economics works, right? Haven’t really thought this through, have you.
“and mean that a quarter of British workers would be paid a government mandated wage.”
It wouldn’t surprise me to learn that more than a quarter of British workers are employed by the government. There is the secret service, and its public face the increasingly militant Police force. There is the Civil service, there is the council workers including Social workers, there is the BBC, there are all the NGOs which are financed by the government. All the so called charities, Save the Children, Oxfam et al, the CEOs of which take home five figure sums and preside over sex abuse scandals in Haiti. Not forgetting the wonderful NHS. And the Army, Navy and Air Force.
25% of the Economy in government hands, seems something of and underestimate.
“When the free market would allow many British workers to be paid third world wages it is probably best for the government to intervene to avoid civil unrest.”
But is it best for the government to prevent workers getting such wages by getting businesses to sack all the people who would otherwise earn less than the minimum wage? Which is what they’re doing.
“The rest of the supposedly Conservative Party has seemingly given up on these values, more concerned with virtue signalling and kowtowing to the latest politically correct fad.”
I suspect it’s because it’s been so long since anyone in politics explained the utter economic illiteracy of minimum wage laws (along with any other price controls) in a public forum that even conservatives have forgotten, or grown up without ever been taught the reasons why it harms the poorest of the workers. They have come to believe the socialist propaganda, and are no longer willing to defend what even they now see as bad. The few who have tried have got mobbed in the media, and abandoned/cast out by their colleages, so the others have learned to keep their mouths shut. Judging from the lack of any attempt to defend the idea when they do, I get the strong impression they don’t know how to.
Thus, it’s not a lack of principle, it’s a lack of education.
@Bell Curve.
Yes I have thought it through.
There is no evidence from human history that an unregulated economy provides a decent standard of living for all people.
We struggle to find the right level of regulation.
Also, there is no evidence from human history that a regulated economy provides a decent standard of living for all people.
I wonder also just how various proponents of the “regulated economy” would define a “decent” standard of living.
I also wonder just who, or just what group of people, is sufficiently knowledgeable in how economies work to regulate a smoothly-running economy … or even is able to define “smoothly-running” in a meaningful way. (At least when referring to the economy of a country. In a sense I suppose that a family member could tell everybody what’s expected of them, and decide what are the needs of the group-as-a-whole that the group members themselves must work in one way or another to supply. But this doesn’t scale, and even here the householder has to take the issue of individual choice into account.)
I also wonder where the h-e-double-toothpicks people get off telling other people what prices they must pay for various goods and services, as well as telling people what goods and services they must provide, and at what prices. (“Prices” to be interpreted broadly and not restricted to money-prices; because this whole issue is either part of a very large subject, or else it’s trivial, a non-starter for people who think that people don’t get to dictate to other people what they must do.)
An increased minimum wage means fewer, better-paid jobs. Which is all to the good. There are hundreds of thousands of vacancies in the UK; a higher minimum wage will reduce the number of vacancies and make the remainder more attractive to native Britons on benefits. So we reduce the welfare bill (and in-work benefits) and reduce the need to import cheap labour. Lower immigration means less pressure on housing and public services.
Of course I am not an economist, so I might have missed the finer points of why low wages, a huge welfare state and importing 2-3 million people each decade has been such a great idea.
Everything that you buy has a labour component within its cost. If wages go up, so will the cost of everything that you buy. How much will this eat into the low earners government mandated pay rise?
The minimum wage also creates a kind of low pay cartel, businesses that would have paid slightly higher wages in order to retain staff can pay the minimum wage knowing that everyone else is paying the same.
Stony, absolutely correct as to your first point.
Have to think about the second. :>)
Pete, have you heard about a place called Hong Kong? It has an unregulated economy, but seems to be doing quite well, except when the Commies interfere.
Hammond? Free market?
haha! Haha! Hahahahahaha!
Sorry, got something stuck in my throat there.
So you’re saying that the UK has a negative unemployment rate? There are too many jobs and not enough workers?
I would think that the price of labor would have been bid up quite high if that were the case, and there would be no need for a minimum wage.
We will soon have continental levels of unemployment among the unskilled and the young, but we can boast that our productivity is up!
A government-mandated minimum wage is an interference with the free market in jobs.
Firstly, some of those previously existing jobs that are not worth the minimum wage will disappear. This will make unemployed, those that previously did those jobs. Some of those newly created unemployed will thus need to be supported by welfare – increasing the size of government spending (as a proportion of GDP) while generating no actual benefit to the nation.
Secondly, some of those previously existing jobs that are not worth the minimum wage will still need to be done. This is likely to be (in part at least) by time-sharing employees previously doing slightly more valuable jobs. Thus the value of those employees will decrease somewhat. Consequently (and eventually), the wage for many jobs slightly above the minimum wage will actually fall, as they do a mix of work worth just a bit above the minimum wage – rather than all work above the minimum wage. This will very likely have a knock-on effect (lower wages) all the way up the employment ladder.
Thirdly, some of the previously existing jobs that are not worth the minimum wage (particularly those involving manufacturing, but also for example call centres) will continue to exist but move off-shore. Those that did them will need retraining (possibly also need to be additionally educated) to do other jobs that continue to exist. This will increase government costs for education (or divert funds from existing tertiary education) – at least until such time as standard child and other young-person education catches up with actual vocational needs (and assuming it ever does, if minimum wages continue to be increased in the future).
Fourthly and on minimum wages for young workers, on-the-job training for young workers such as apprentices will continue to be weakened – by making their benefit to employers/trainers less cost-effective. This is likely to damage the work ethic of many, encouraging them to believe their opportunities are in delay through seeking full-time ‘higher education’ of the sort that we already see too much of – ‘higher education’ that has little or no vocational benefit.
Fifthly, technology will become more directed at satisfying the previously existing jobs that are not worth the minimum wage – but still need to be done. This will take resources from technology which is more directed at advancing human civilisation (ie satisfying the bottom end of function rather than the top end of function). This will weaken First-World economies more, particularly in comparison with Second-World economies that simultaneously make leading edge technical advances and provide more efficient higher levels of employment for a larger proportion of their population.
Minimum wage is, all round: paying more for less – depriving of opportunity many of those merely because they are in the lower quartile of ability – making less efficient use of available labour and available capital.
Best regards
“An increased minimum wage means fewer, better-paid jobs. Which is all to the good.”
Fewer jobs means less economic activity and also less competition for labour, with all that implies. Anyone not worth employing for state mandated minimum wages do not get their wages increased, they do not get paid anything & go on the dole.
But why not increase minimum wages to £25/hour? That will certainly mean even fewer but better paid jobs, right? Do you work for an automation company I wonder? 😆
Well in, pete.
There is only one minimum wage – zero.
Because nobody will pay more for work than what that work is worth. No matter what the government decrees.
Worth of work is determined by:
What others are willing to pay for its benefits – its added value.
How many people can do it.
Washing floors in a restaurant:
How much can the owner charge consumers for a clean environment? How much does the target market of diners value cleanliness?
How many people can wash floors? (is there a floor washing robot? Can the owner make as much money with automated drive-thrus?)
Government decrees will determine if well-cleaned restaurants can be profitably run, whether people will open or close such restaurants.
But nothing else.
I think the peculiar silliness of Government parliamentary antics in recent weeks is a side-effect of the effort to fight Brexit – not a conscious thought-out side effect, more of a which-ministers-haven’t-resigned side effect.
I also wonder if Sarah Hoyt’s “role left and die” effect could have distant relevance? If much of May’s party has nothing to say to her but “resign”, the advice they might have given her on this policy may be skipped or ignored without further specific cost. And while she’s negotiating with Labour then the contrary argument applies to their desires.
The very existence of a state-mandated minimum wage indicates that there are people who are willing to work for less. The state obviously knows what those people want better than they do themselves.
” . . . .and (would) mean that a quarter of British workers would be paid a government mandated wage. . . . . . .”
. . . . or not.
I was watching a TubesofYou video last night of Magnus the retired racing greyhound and his first encounter with a robot lawnmower on the lawns of Edinburgh Castle, and mrs llamas (who likes her some Milton Friedman too) said ‘Look! A minimum-wage employee!’
llater,
llamas
What is missing is the extension of the moral argument that is often used to push for minimum wage. It is implied the minimum wage is what a person needs to live on, with Corbyn proposing £10/hour, for a 35 hour week that’s £18,200/year. What grounds does Corbyn have for taxing that amount then, if it supposed to be a “living wage”? Without a corresponding increase in tax free limit, a minimum wage just hands more money to the government at the expense of the lower paid.
It is it is a simple enough question. If raising the minimum wage doesn’t cause unemployment, if businesses would “absorb the cost” or “consumers would be happy to pay more”, then why not raise the minimum wage to $100 an hour? If you recognize that it is obvious that $100 would cause massive unemployment, dreadful inflation, and economy destroying consequences, are we saying that raising it to $15 would only cause semi-massive unemployment, semi-dreadful inflation, and economy -semi-ruining consequences?
In the US there is a push to raise the federal minimum wage from about $7.50 to $15. I remember asking this question of someone, and they had this idea that some clever economist had done some analysis to balance the pros and cons and had come up with $15 as some sort of optimum wage. Of course the truth is that some union hack just simply doubled it and started ranting about how that is the lowest people could possibly live on.
My kids are looking to get a job to pay for the massive extra cost on my car insurance when they get to drive (pray for me people.) Their labor isn’t worth $15. So basically they are having the jobs they could do made illegal.
Reagan said that the best welfare package is a good job. As Trump’s economic miracle has been cooking the economy employers are now competing on wages. In fact, I recently heard that some employers are having job fairs in prisons to try to get the jump on getting some workers as they are getting ready to leave prison because they are having such a hard time getting employees. That, the free market solution, is how to solve the poverty problem. (It is also why the democrat’s policy of open borders and high minimum wages are completely contradictory.)
@ Fraser Orr – my local KFC is advertising $14 an hour for late-shift workers – almost 2x the Federal and State minimum wage for (essentially) mopping floors at unsocial hours. I’ve also been told (anecdotally) that local restaurants, which all used to require some level of drug testing, have now essentially abandoned that because they can’t get any help otherwise.
llater,
llamas
I sometimes listen to “Prime Minister’s Question Time” from the House of Commons – apart from LYING about British independence (what some people call “Brexit” – a silly made-up word), Prime Minister May does talk about other things.
But what Mrs May says about other subjects is horrible – the Prime Minister endlessly promises more government spending (on everything – often with the John Major style boast that the government has already “spent more than Labour even promised to spend”), and the Prime Minister also promises endless new regulations and boasts of the insane regulations already imposed.
And Chancellor Phillip Hammond? He sits with Mrs May – agreeing with every word of her Collectivist ravings.
If Phillip Hammond is a free market man – then I am Alexander the Great.
I think raising the minimum wage is an excellent idea. £9.61 per hour, according to a quick google, which would make an annual salary of just shy of £19k per year. Take-home would be £1,350 per month, which is more than enough for a 1-bed flat in London (rent approx £1450 per month. Pick your jaws up, my northern friends), food, heating, clothing etc.
Also, by doing so, we can stop talking about why rent is so high, and how it is that with a 30% increase in minimum wage vs 27% inflation since 2010 (I think), people still can’t afford to live.
Because when you stop talking about something because you’ve done something else, the problem magically goes away!
That’s right, isn’t it? Looks sound, although I’m sure the economists might spot the odd irrelevant error in my logic or mathematics, but who’s worried about such minor details?