[Closed] "Living Wage" = Inflation?

Cant read the article but there will be a link between sale price increases and cost increases, doesnt have to result in interest rate increases as you would assume the cost would be a one time step increase? Who knows what will actually happen, no doubt some places will put the prices up disproportionately to the cost. Of course the main issue as mentioned on the travel cost thread is the affect this will have on the lower wages roles such as care.

Well if people have more cash they will spend more in the shops and the forces of competition should self-regulate prices and keep inflation under control. But your point about a businesses cost rates going up is a valid one. The living wage is more likely to increase unemployment as most companies won't have the luxury of being able to pass additional costs onto customers so will have to cut costs i.e. make people redundant.

Wonder how much Lord Wolfson's "wage" has gone up compared to his workers?

The concern in my place of work is that the lowest workers are going to get a pay rise where everyone else is being held stagnant.

Have seen this throughout the lifetime of the minimum wage (which I agree with). If person A is on the minimum and person B is on A+10% for taking on extra duties then as A has risen B has not kept up until the extra duties aren't worth the pay increase.

Something tells me the consequences of this haven't been fully analysed.

Time for the low paid to close the gap with those at the top. The pay differential between workers and the top is morally unjustifiable. The imbalance is at a historical all time high both here and US

STATO, take your point on being a one-time increase. Except of course, that the living wage is due to increase to £9 by 2020.

I briefly thought that it may give rise to a lot more people becoming self-employed (I'm thinking particularly in industries like cleaning), as companies seek to drive down costs and take advantage of the fact that IR35 is so loosely regulated - but is this likely in reality?

I don't disagree that in some companies those at the top earn ridiculous salaries far beyond their worth, but they are a small % of workers so cutting their salaries and redistributing them will not solve the pay gap problem - not even a drop in the ocean. Similarly loading up businesses with additional costs pushed down from government won't work either - it'll just increase redundancies and businesses going under.

The problem in the UK is a lack of those middle earning skilled jobs that we used to have like, jobs in manufacturing. All we're left with is a 2 tier economy of the unskilled menial low paid jobs at one end of the scale, and high skilled/high value jobs at the top. You aint going to solve that situation easily.

Pawsey is right, but milkys point is valid. Public sector pay restraint has meant that in our agency those at the bottom have received bigger rises than those of us in the middle, the differential for quite big differences in responsibilities has narrowed markedly.

Those at the top, of course.....

rj2dj - Member

STATO, take your point on being a one-time increase. Except of course, that the living wage is due to increase to £9 by 2020.

That's more or less 2.8% per year from the current living wage. CPI is low right now but in most years, it's been higher than that. There's a real chance that the £9 ends up being below CPI.

hey are a small % of workers so cutting their salaries and redistributing them will not solve the pay gap problem - not even a drop in the ocean.

IT really will as it is a gap between the highest paid and the worst paid. If you lower the top pay you close the gap. I think you mean to say it wont make the poor better off [ which is true]

Similarly loading up businesses with additional costs pushed down from government won't work either - it'll just increase redundancies and businesses going under.

this always gets said they probably said it for the six day week in the 18 th century and ever since right up to the equal pay act and the minimum wage.

It never actually happens

The payrise thing is a little bit of a red herring. A large % of a small wage isn't necessarily a big payrise in terms of £, whereas a better paid person getting a smaller % payrise would still probably receive a larger payrise in terms of £ than those on the lowest wages.

I'm sure those on £40k per year receiving a 2% payrise are not going want to trade places with their toilet cleaner on £12k per year who might be getting a 10% payrise. But unfortunately if it came to redundancies the toilet cleaner is more likely to be in the firing line.

But if the CEO of the company I work for who's on a £6.5M 'package' (though is salary is a paltry £900k) redistributed his package across all the global employees then we'd net less than £200 per year on our salaries. That's not going to make much of a difference to many peoples lives in reality - and it would only be a one-off payrise. The answer is not to bash the bosses. Our economy needs more of those middle paid jobs that it's lost over the last 30 years or so.

It depends if you're happy to subsidise "big business" by topping up the low-paid with state benefits.

Junkyard - it sort of did in the '80's. Not for the same reasons, but large chunks of entire industries practically disappeared overnight putting millions of people on half decent middle salaries onto lower paid lesser skilled work as they didn't have the skills to move up the scale. unfortunately those industries and jobs were not replaced with similar quantities of similarly paid jobs. Instead they were replaced with an increasing number of low paid, low skilled 'service sector' jobs at the bottom and high skilled highly paid jobs at the top thereby increasing the pay gap.

Our economy is not balanced. That is the cause of the pay gap. Only a re-balancing of the economy will fix it.

You have confused "de industrialisation/ the decline of the staple industries/manufacturing with government red tape/legislation/social contracts causing unemployment

I dont believe reasonable legislation, to improve working conditions, cause the negative effects that they always say it will.
Its a red herring

The pay gap is not caused by a mis matched economy[ it is real and does cause problems] but by unregulated avarice for the well paid matched with weaker unions and legislative rights for the poor/many

They could just reduce their dividends a bit and swallow the cost increase.....

De-industialisation of industries that were not viable and being propped up by taxpayers. But anyway, the effect of that was to cause the two tier economy which is the cause of the pay gap.

In the area of economics there are no experts and we're all guessing, so it is ultimately a big gamble. You can squeeze businesses only so much, you never know how far away from bursting they are. Big businesses will be fine, they can absorb these costs or move the jobs abroad (what my company is doing), its the small to medium companies that employ the vast majority of people that are under the most threat.

Stuff costs too much, that's the problem.

Footflaps, Not sure that would impress the shareholders much.

Using Next as the example, given that a number of people's pension pots are probably at least partly invested with Fidelity and Blackrock (who own 22% of Next between them), that might cause slightly more widespread issues too.

the effect of that was to cause the two tier economy which is the cause of the pay gap.

Repeating it wont make it true - though clearly this happening had many effects but it was not the cause of the rising pay inequality as it happened across multiple sectors as well as across time.

Bosses wages escalated massively as workers wages stagnated/did not keep pace..

[img] [/img]

Footflaps, Not sure that would impress the shareholders much.

Tough titty is all I can say to that (and before you ask, I have over £500k of shares in my funds).

I'd much rather live in a more equitable society and be a bit less well off than live in a massively divided one.

prices will go up? well i never! 😆

a wee hint, inflation for yer average punter has never stopped through this recession, most every day things are more expensive.

We desperately need some inflation. If we go Japanese and fall into 20 years of deflation then our already-unaffordable levels of personal debt will get even larger in real terms.

In which case expect some serious standard of living issues and some really very serious problems for people who've gorged on credit on the assumption their salaries would go up over time/inflation would reduce the debt in real terms...

With so many of us having been brought up in a time of ever-increasing affluence I'm not sure too many people will know how to cope in a time of falling living standards brought about by deflation...

I would seriously love to take part in this debate but fear that if I did then a ban would be inevitable.

As junkyard said, this is the same cobblers that came out before the minimum wage was introduced (and every time it's raised), and before numerous other improvements to workers' conditions, and it never happens.

Inflation has never been lower and interest rates are so low because the Bank of England wants to encourage spending. Equally, the less shitty wages are subsidised by social security and the more they're paid for by employers, the lower everyone's tax bills will be. Right now it's corporate welfare to low paying employers.

Inflation is absolutely not a problem right now.

The big companies trot this line out every time there is a change that will help their low paid workers. When it comes to Board renumeration then it all goes out of the window and we get the claptrap about having to attract the best, when its clear they are not even close to the best. Etc etc

[i]But if the CEO of the company I work for who's on a £6.5M 'package' (though is salary is a paltry £900k) redistributed his package across all the global employees then we'd net less than £200 per year on our salaries. That's not going to make much of a difference to many peoples lives in reality - and it would only be a one-off payrise.[/i]

But you are missing that the top layer and the two layers below have all had multi-percentage rises over the last 30 years - while driving down the pay of the employees at the bottom, and the Govt helped them by paying out subsidies (Tax Credits) to those employees.

Paying the crowd at the bottom an extra £1 per hour will make bu99er all difference at the end of the day, especially as the majority of those jobs are not in competition with anyone else but other UK companies who will also increase their costs.

Cost increases for the Public Sector will just mean more money been spent by those employees, as folk at the bottom spend pretty much all their cash.

the Govt helped them by paying out subsidies (Tax Credits) to those employees.

Conservatives prefer to use the term "taxpayers". As in wobbliscott's comment above : "[i]De-industialisation of industries that were not viable and being propped up by taxpayers[/i]".

So nonviable private companies are being propped up by taxpayers through subsidies to their low-paid employees. Or even worse, perfectly viable private companies are being propped up by taxpayers through subsidies to their low-paid employees.

It all depends on the level set. One certainty it will be wrong by defintion as cant be one figure and gov's are crap and working these things out. Double fail.

Increasing wages without increasing productivity less to higher salaries for fewer people - labour economics 101 - what does that do for inequality?

I doubt that there will be inflation for those on the higher "minimum wage" (It's not the living wage however many times the chancellor ministers name it as such). The IFS has all ready stated that the drop in subsidy to those on low pay with families will be larger than the pay rise.
Net result business will start to pay it's own way but there will be a bit less cash in the economy from all those lower paid, zero hours hard-working folk to spend.
History graduates should not run economies, economics "scientists" have a hard enough time deciding on what is the correct course of action.

Increasing wages without increasing productivity less to higher salaries for fewer people - labour economics 101 - what does that do for inequality?

what does that do for inequality?

Its an interesting policy from this government

Of course it will have some negative effects. But we can't carry on with a world where people in work can only get by with state help. That has negative consequences for economy as well. The living wage may well boost the economy as well. More wages in the pockets of the low paid means more spending. More money o the rich often just means more saving

Of course the thing I find offensive is that low pay and working benefits effectively subsidises Tescos (and other low pay employers).

A decent minimum / living wage and a consequential reduction in working benefits (and therefore overall taxation - divvy the reduction up as you see fit) feels better, but I'm not sure how it actually pans out.

The purpose of state support should not be to support low pay employers.

IFS has all ready stated that the drop in subsidy to those on low pay with families will be larger than the pay rise.

Does that take into account behaviour changes. At the moment many people choose not to work more than 16 hrs per week because they lose tax credits. So if they lose tax credits but work more hours at a higher pay rate they may not lose out.

A living wage in a capitalist society always seems like a non starter to me. Prices go up, the living wage is no longer enough to live on, up it goes again, and around we go.

If we are to have people who earn more than others, there will always be people who aren't well off and struggling.

Solution though? Pie in the sky Corbynism? How about communism? Everyone is equal, work for the state and society, not yourself. End result, state can't afford the social guff and everyone is poor.

Solution though?

Everyone who earns more than the national mean average could give to those who earn less.

Simple.

Paypal details are in my profile. 🙂

A living wage in a capitalist society always seems like a non starter to me. Prices go up, the living wage is no longer enough to live on, up it goes again, and around we go.

State support of private companies (through tax credits) in a capitalist society is an acceptable solution?

This is not a living wage its an increase in the minimum wage being called a living wage, big difference especially as we dont know what the cost of living will be in 2020. (more than £1200 a month I suspect).

Also, the age criteria will skew the market and proliferate shit contracts for under 25's.

Not paying a living wage is either a) an abuse or b) corperate theft.

http://www.theguardian.com/politics/2015/jul/07/corporate-welfare-a-93bn-handshake

Theft?

So where does the money come from?

Higher prices?
Lower profits?
Shift of activity overseas?
Replace workers with machines?
Increased employment of ineligible staff?

Some/all of the above?

There are a lot of groups that are finding themselves rather peeved by the living wage concept for their own reasons - Nurses unions for example are irate that the starting salary for a nurse (with the responsibility and qualification associated with the role) will be pennies an hour higher than a shelf stacker with the government committed to keeping their pay rises capped so they will feel even less valued than they do now for the foreseeable.

Increasing wages without increasing productivity less[sic] to higher salaries for fewer people - labour economics 101

Other things being equal, which they ain't. I sometimes think it's a pity you stopped your studies at Economics 101. There is a whole world of complexity beyond that.

A living wage in a capitalist society always seems like a non starter to me. Prices go up, the living wage is no longer enough to live on, up it goes again, and around we go.

So you you'd rather pop up Tescos wage bill by paying tax (or borrowing money)

Its time mankind evolved beyond capitalism.

You mean something as dynamic and as inherently unstable as capitalism isn't the pinnacle of human development?

We haven't reached the end of history?

This is not a living wage.

Indeed Dr, the world is very complex and if you ignore the basics (truisms) you make it even more so. The € project being one of the most obvious examples. Labour markets come a close second.

THM if you just get the SNP into this debate I can call HOUSE

Sweaty references are acceptable [ and deniable]as we all know.

Footflaps - lend us a tenner?

Increasing wages without increasing productivity less[sic] to higher salaries for fewer people - labour economics 101

Increasing wages for the poor benefits the rich through an increase in demand since they operate with a high marginal propensity to consume. Increasing incomes for the rich is much less economically productive as they have a low mpc and a high marginal propensity to import. Keynes dealt with these arguments a long time ago. Anyone seriously interested in the contemporary consequences of rising or falling inequality should check out people like Michael Marmot, Richard Wilkinson, George Davey-Smith, Danny Dorling, Thomas Piketty.

Yes thanks and a 100% A*/A hit rate with tutees. Why?

Assuming (?) that we still want consumption to be the main driver of aggregate demand (doubtful?), there are better ways of achieving this than the blunt tool of fixed minimum wages. That's one thing old Cleggie (remember him?)was good at.

Do you actually have an economics degree, teamhurtmore?

Maybe. But he can only remember the bit that got taught in Economics 101.

Assuming (?) that we still want consumption to be the main driver of aggregate demand (doubtful?), there are better ways of achieving this than the blunt tool of fixed minimum wages.

We want decent minimum wages so people can have a proper life. Humanity 101.

Economics 101:
'Today class we are going to practice talking about the recent past as though we had a prophetic foreknowledge despite having got it completely wrong'

Indeed we do but there is "a whole world of complexity beyond that" (apparently) which suggests that fixed minimum wages are a blunt tool for achieving the objective.

Of course for politicians and headline writers they offer a easy solution (false panacea). Guess which solution gets chosen? And the results...(clue is in the basics)

Nurses unions for example are irate that the starting salary for a nurse (with the responsibility and qualification associated with the role) will be pennies an hour higher than a shelf stacker

My heart bleeds. £9 an hour is 18720 for a 40 hr week.

A nurse starts at 21692. So, yes, only 150 pennies an hour more. But it is a Starting salary. Will many nurses not get unsocial hours top ups as well. I predict no £9 an hour shelf stacker will get an unsocial hours payment. Average basic pay for a nurse is £30713. Some earn much more with overtime.

http://www.telegraph.co.uk/news/health/news/3536757/NHS-nurse-takes-home-100000-salary-thanks-to-overtime.html

http://www.independent.co.uk/life-style/health-and-families/health-news/nhs-nurses-see-their-wages-fall-over-the-past-year--while-senior-managers-enjoy-a-pay-rise-10268012.html

Yes thanks and a 100% A*/A hit rate with tutees. Why?

I can only assume you use a different pedagogical style than hinting, in a patronising manner, at the answer whilst talking down to them.

Yes thanks and a 100% A*/A hit rate with tutees. Why?

Indeed like simple questions KB such as

So where does the money come from?

Higher prices?
Lower profits?
Shift of activity overseas?
Replace workers with machines?
Increased employment of ineligible staff?

Some/all of the above?

Or what happens when you increase wages without increasing productivity. Fortunately students have the ability/willingness to address the questions not the person setting them (except those who cannot answer them of course - they need a diversion)

Those who cannot answer them are the ones you need to teach the most IME as a teacher. Last time I checked letting them know[ its a bit pointless teaching folk who already know the answers] they are stupid and did not know was neither helpful nor best practice.
Its pretty clear that STW has some knowledgeable folk in almost every area imaginable. What folk do when they have this knowledge is either impart it on the hive mind or just pose question they know the majority cannot answer then call them [ politely obvs] thick. Whilst chuckling at their own wit and wisdom.
Why not just explain the answers, rather than pose questions, as we are not studying for A level economics?
Peterfile did a wonderful thread on PPI funding recently as an example
Its just how you like to roll to be smart and smarmy rather than helpful.

Unbelievably I have both an O level and an A level in the dismal science. My teacher was not to your standard so I have an A and a B respectively. Amazing what you get without effort sometimes eh

You clearly know a lot in this area why not impart it rather than do this?

Yes, in a simple world, some/all of the above. None of which is an argument for not doing it.

ok - so who would rising prices affect most (since studies show this is where the impact if felt most) - relating to earlier point on MPC?

The lower paid or the higher paid?

who loses when labour is replaced by machines?
who loses when jobs are relocated?
who losed when jobs are offered to those ineligible for the minimum wage?

All perfectly valid reasons for not jumping on the easy bandwagon.

And those cheap pints in 'Spoons????

In a world of multinationals where it is increasingly difficult to get them to pay taxes, anything that increases direct pay and reduces state wage subsidy (which are paid for out of taxation) is going to benefit individuals and small business to the detriment of big business surely - assuming no more money in or out of the system.

Now individuals and small businesses will tend to spend in your economy, while multinationals will tend to send funds to CEOs and shareholders (possibly even your pension fund) - these folks seem less likely to spend in your economy.

So it may increase the money working in the economy slightly - at the margins.

Where did I get that wrong? The multinationals might shut up shop? Not convinced.

Enlighten me.

PS a bit of inflation might assist my mortgage - so long as interest rates stay below 2.5% (which they won't for ever)

Mixed evidence on job creation but the HM Treasury analysis for one points to reduced levels of employment. But that (in theory and practice) [b]depends on what happens to productivity [/b]- again mixed evidence supporting the idea that there is "a whole world of complexity out there!"

On inflation that would be good for reducing debt and better than financial repression (theft from savers) but again not good for international competitiveness - more complexity 😉

Good job we have a historian making these decisions - lets hope he gets the basics and avoids political stunts. Opps, too late

Hmmm. Poverty is not just stopping people having a few more cheap pints in the middle class pub. It prevents people having healthy housing, having education, having security, keeping out of debt to pay day lenders, not being a financial burden on relatives'' pensions. None of which figure in your simple linear models. There's been plenty of chance to solve the problem with non-blunt tools. It's time to do something new.

Nothing new about blunt instruments of policy - either in terms of ideas or results. That's where history may be relevant as long as the lessons are learned.

As old Cleggie said, the best way out of those problems is work itself ie employment. So you decide whether that is the result of the policy or not. Which oddly enough comes back to the basic notion of productivity - how strange! May be the world isn't really that complex after all - especially if we can avoid MPs muddying the waters.

Britain is rapidly becoming a low-wage low-productivity economy. Higher pay eg in Germany produces 20 odd per cent more productivity. Pay peanuts, get monkeys.

With inflation at all but zero and about as much headroom on interest rates as possible we can afford a bit of inflation.

I lean to the left when it comes to finance / economy but this idea that Jeremy Corbin idea that the minimum wage should be £10 per hour is just silly - we shouldn't dismiss the value of 'crap jobs'.

£10 a hours is £20k a year full-time (give or take), when you're straight out of school and starting out in your career, even more so these days if you're not wading into battle with a fancy degree from a good Uni you're going to need a 'crap job' on your CV to show someone that you can be trusted to turn up in the morning and not set fire to the place. Who the hell is going to open a Call Centre, Warehouse, factory or other low-skilled working place if you've got to pay John "two Fs and a D at GCSE" Smith straight out of school £20k a year to stuff grommets in a bag.

It's very commendable to declare that John works hard, why shouldn't he be paid £20k a year - this is after all what someone has worked out what you need to have a decent lifestyle these days - well Dave "10 years work experience and a glowing references" Jones his Supervisor - thinks if John gets £20k, Dave wants and deserves £25k because otherwise what's the point of working hard and furthering your skills so there will be an escalation of wages throughout the ranks - yes employers like to keep salaries confidential but with something and headline grabbing as this, it's pretty clear.

Okay, so the theory and hope is that employers will absorb the extra cost, thus reducing their own income, closing the gap between rich and poor and making life more fair again - unfortunately life isn't fair - they will increase prices, and why not - because if the likes of John is earning £20k a year these days, he can afford to pay 10% more for his food, goods and services - hence the inflation, on the plus side it means that our national debt and personal debt effectively decreases as the value of our currency decreases - but the down side is our currency grows ever stronger against the rest of the world and the trade deficit grows ever wider - it's very difficult to manufacture in the UK already - lets not make it impossible because whilst it might be nice to think that John should earn £20k a year, I'm sure he'd take £15k a year and a secure job, than £20k on the off chance someone will employ him, which counts for nothing when in a short amount of years inflation will make £20k worth what £15k is now.

The £10 a hour minimum wage is just another artificial stimulus to the economic system and just as dangerous as the one that caused the low-income problem in the first place, namely allowing for a housing market to boom during growth periods, but not correct during recessions - we're not poor because we all work for Evil Dickensian Factory owners, we're poor because whilst in (slightly wealthier) Germany the average rent for a family home is £400 a month, that wouldn't get you a 1 bed flat in most of the UK, never mind actually buy a place. If we built more homes and stopped protecting the people who over-borrowed in the 2000s prices would fall and disposable income would rise. the actual amount of money doesn't matter, it's the value of it.

The employment market is the same as any other market, supply and demand dictate price - during the 'great recession' with high unemployment and a lack of confidence between suppliers (aka employees) prices are kept low, they is no incentive for employers to offer good wages, when people will queue around the block to apply for crap ones. That is now changing, as employment goes down and opportunity increases skilled labour becomes harder to find and employers will have to compete to get the best workers, wages go up, inflation rises, but it's a natural progression and things improve.

Maybe that is the problem, since the end result of that thinking is that wages go down until they meet India/China levels.

 

DrJ - Member

The employment market is the same as any other market, supply and demand dictate price

Maybe that is the problem, since the end result of that thinking is that wages go down until they meet India/China levels.

What would be the problem with that? We devalue the £ until it reaches global levels, or at least to the point where is viable to make stuff here, we re-balance the economy and the trade deficit so we're not reliant on Financial Alchemy and Debt to pay for things, we have an industry that allows the working class to work, we could still have a nice lifestyle, we could still work hard and improve that lifestyle it's just we couldn't buy a cheap plastic toaster in ASDA for £3 and grow again from there?

China's unit labour cost is rocketing - major problem for them.

If you have no skills, then that is exactly what will happen. We need to educate and train people properly not put fingers in dykes - but that's a little too long term for most MPs

The government intends to reduce in work benefits as the minimum wage increases so it is not automatic that there will be a notable increase in inflation as there is an element of offsetting. There is an argument (which I support) that we are paying too little for many things with prices held down via low wages and phenomenums like "offshore internet shopping". We should be paying more for food produced locally and sold in smaller independtly run shops, same for bike stuff. Increasing sales tax is inflationary but it doesn't mean it's the wrong thing to do in certain circumstances

What would be the problem with that?

I can't imagine.

[img] [/img]

P-Jay - Member

we have an industry that allows the working class to work

And if we are in direct competition in manufacturing with India, as you suggest, it might give kids an opportunity to earn a living too.

[img] http://www.zoriah.net/.a/6a00e55188bf7a8834011570198751970b-pi [/img]

.

P-Jay - Member

I lean to the left when it comes to finance / economy ...

You ol' leftie.

If you have no skills, then that is exactly what will happen.

No. If you have no skills that cannot be replicated by someone in India then that is what will happen. So, call centre workers, plastic toy workers, engineers, economists, will all be seeing a change in their standard of living under that scenario.

I really, really resent the fact that people are referring to all low paid jobs as unskilled.

They are not.

Thank you.

The government intends to reduce in work benefits as the minimum wage increases so it is not automatic that there will be a notable increase in inflation as there is an element of offsetting.

That's a good point.