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Upping the minimum wage puts money in the pocket of people more likely to spend it too, helping to drive consumption
So does consumption go up? Or does it stay the same because the cost base is now higher and everything they bought previously is now more expensive?
So does consumption go up? Or does it stay the same because the cost base is now higher and everything they bought previously is now more expensive?
Things would only be more expensive if you maintained dividends at the same rate. If you made the wage increase neutral, prices wouldn't need to rise.
Plus, employers tend to look at staff as an asset more when they pay them higher wages and so they might invest in increasing productivity, so prices could actually fall.
It's not a simple linear relationship.
@richmtb, there are indeed along line of students who are prepared to stack shelves for £6.50 an hour. There are also a whole range of cash in hand jobs you can do for double that rate. You can start your own business and work all hours and make far less. However my point is that within the EU there are a large number of countries with much lower wages, so those people will either travel here to do the work (and live more simply than the Brits will tolerate) of they will do the work in their home country and export the goods to the UK.
I am in favour of higher min wage and wider enforcement of a living wage which co-incidentally neither should be uniform across the country and a significant reduction in the use of zero hour contracts. However, the impact of such changes are material on employment levels.
@nickc - you need to get your head round the fact that without a vibrant economy social programmes, NHS etc are unaffordable. I have always found it interesting that a country like the US which is made up of economic migrants most who arrived with nothing is materially more right wing than the UK and the rest of Europe.
I wish both the media and politicians stopped pushing the myth that we the electorate are voting for who is in government and the Prime Minister. WE DONT
We vote for a single local MP. Once elected that MP can sit with any party or non they choose and vote however they see fit. It is each parties machine to decide who is the Prime Minister by whatever means it chooses. It is possible, though unlikely, that the Party Leader doesnt get elected as the local MP so cant be prime minister even if their party forms the next government.
Plus, employers tend to look at staff as an asset more when they pay them higher wages and so they might invest in increasing productivity, so prices could actually fall.
Though the law of unintended consequences also applies, especially in this age of technology - pushing the wage cost up may draw it nearer to the break point where it becomes economically sensible to replace staff with automation, they quite literally price themselves out of a job.
[i]I have always found it interesting that a country like the US which is made up of economic migrants most who arrived with nothing is materially more right wing than the UK and the rest of Europe.[/i]
because they worship at the feet of money, you only have to spend a small length of time to see what happens to a country that's being run by and on behalf of the wealthy white middle class folk....That's only ever been run by the white wealthy middle class white folk...You can hardly blame people for seeing only one way out of their predicament.
All the main parties corporate funders demand a constant supply of cheap labour to keep wage costs down to an absolute minimum. And open door immigration supplies this in droves.
@binners but controlled immigration could do exactly the same thing, there would still be droves of potential immigrants applying to come into the country.
@nickc - Indeed I worked there for 3 years but its the world's most successful economy, they must be doing something right ?
Depends on your criteria.. Making filthy amounts of cash for a minority isn't high on my list of national aims.
I believe I've seen two suggestions to my earlier point. Increase the MW or enhance/permit "trickle down".
The more I look at it, the more complex it becomes. I'm not convinced with TDE, but I wouldn't discount it if I could see that it would really work. Raising the MW will send ripples through the economy, not least it would have an impact on inflation. My concern with MW is it appears to have the potential to turn whichever state/economy that introduces it. Into a less attractive place to build a business, when considered in comparison with alternative places where there may be no MW at all. Even if the person who starts/owns the business has a sufficient sense of social responsibility to ensure the employees are paid correctly. Who's to say that company may not suffer from not being able to attract investment?
I'll engage with the immigration comments as far as, I don't care about where you move to. If you decide to go somewhere to participate and to contribute, why shouldn't you be welcome?
However, from an economic perspective, the law of supply and demand would appear to be in operation. So, where it might be philosophically attractive to invite the world to come live next door. Common sense would appear to dictate that your new neighbours will have the same obligation as you, to contribute on all levels, ecomonically and socially.
Not sure how we got onto the subject of MW, specifically, something to do with free fish, maybe.
Frankly there's loads to either agree with or hold against any of the political parties, besides the inescapable truth... Haters gonna hate.
[i] Junkyard - lazarus
I assume its something we all basically agree on [ bar a tiny minority] and all we are really doing is discussing at what % and where rich starts [/i]
Yes and maybe.
I worked there for 3 years but its the world's most successful economy, they must be doing something right ?
When china inevitably overtakes them will the same thing apply?
[i]but its the world's most successful economy[/i]
If by successful you mean "forcing every other country at gunpoint to use it's currency as reserve and then getting rich by printing money..." then yeah, I see what you mean...
[i]wealthy white middle class folk[/i]
Oh, ok then, I've no time for distinction based on skin colour, so I'm out.
Have fun.
Yes agreed higher taxes don't always mean less tax is collected
oh heck, we will get on to laffer curves - or taxable income elasticity as it should be called.
Raising the MW without increasing productivity increases inequality - labour markets 101 - that's the (lack-of-joined up) thinking where Miliband excels. Great soundbite, crap policy.
Oh heck 2 - migration alerts. Thank good ness there isn't a shall I forgive UKIP thread for allowing such BS to become part of the accepted narrative!!
When china inevitably overtakes them will the same thing apply?
They are both doing something right, different things in different ways. China has 1.2 billion people and low wage costs. Strictly speaking it had low wages costs, its now more expensive than many in the region.
Laffer curve - typical economist thinking - take two fixed points at 0 and 100% tax rates, and pretend you know how the complex non linear system behaves between them
What is the US doing right? Well, starting off in a huge resource-rich country with only a few poorly armed residents is a good start.
Laffer curve - typical economist thinking - take two fixed points at 0 and 100% tax rates, and pretend you know how the complex non linear system behaves between them
No they don't, that's the point. But don't let that stop you dismissing the concept and missing the crux of the issue....
Yeah, right.
So doc, please enlighten those of us in the wilderness, how do you decide where to set the marginal rate of tax?
what things need to be taken into account?
Many of ??????’s business-related proposals focus on changing the supply side of the UK economy — how its labour market, education and training system, and financial framework operate. They also emphasise the importance of increasing the level of competition within industries.
Guess which party?
And guess what comes next?
@nickc - Indeed I worked there for 3 years but its the world's most successful economy, they must be doing something right ?
That must be of great comfort to those who have no healthcare or basic welfare.
No offence THM, but given the total failure of economists (or just about anyone) to spot the 2008 crash before it happened, you're reputation for understanding how economies really work isn't looking that shiny....
Non taken, since the premise is flawed. Many (including the BOE) saw what was coming and the bright ones made a lot of money out of it.
Indeed the Deputy Chancellor was also schooled in a way which told him exactly what was happening. He, like the Gov of BOE, chose to ignore the laws of economics
Ditto, the economic destruction of S Europe is/was utterly predictable.
Politicians can overrule economics in the ST but economics wins in the end (every time).
So doc, please enlighten those of us in the wilderness, how do you decide where to set the marginal rate of tax?what things need to be taken into account?
Err .. after you Claude - you are the one claiming that economists have got the economy all figured out.
However, to get the ball rolling - the notion that there is a tax rate at which the revenue is highest is, well, self evident, but the idea that the curve defining the revenue as a function of rate can be predicted, and is a simple curve is naive at best. There is no reason why this curve should be constant over time, between countries, or have only one maximum, and indeed there is no empirical evidence that it is so.
Indeed which is why it is better to talk about taxable income elasticity rather than a simplified graphical illustration - a point I always make when this comes up.
The fact that TIE is difficult to measure does not negate its utility. Yes, its hard. Yes, it changes. But it just happens to important.....
FWIW, best estimates suggest that it is <50p but folk like round numbers. The 50p tax rate was a cheap stunt/trap that has now become part of the narrative. It should be given that status....
@grum the US does have basic healthcare and welfare, it's just struck at a very different level to the UK/most of Europe.
@tmh I think 50% is important as it's half, the concept of paying half / more than half in tax is pretty significant psychologically - our top rate of tax is 45 + 2 + 12.8 = 59.8% (including employers NI)
Economists, especially academic ones, are all about creating models and curves to demonstrate their theories. We shouldn't deride Laffer for doing just that. You can draw all the curves you like but if their is a neighboring country with lower taxes business and people will move at some point. Also once they have moved it will take an increasing incentive for them to return.
@footflaps there where plenty of economists, business people, market traders who saw 2007/8 crises coming. I personally positioned my business at the time for a crises but significantly underestimated the severity. The fact we are still feeling the consequences of 2007/8 is no surprise to me, we discussed it being a 10+ year recovery. This is one of the things shaping my political views, we are in no way shape for form ready to embark on increased spending. We are still at risk of a major slowdown in Europe which could be triggered by Greece or a major disruption caused by a collapse in China (now a major consumer of Western goods and where there are staggering levels of debt/leverage - sound familiar ?)
Economists, especially academic ones, are all about creating models and curves to demonstrate their theories. We shouldn't deride Laffer for doing just that.
I'm not deriding Laffer for doing that - I am deriding people for taking this very simple model and treating it like it has some relation to how real people in a real economy behave. This is the kind of oversimplification that was shown to be wrong decades ago. Now economists have got the message (e.g. Noble [sic] Prize for Kahnemann and Tversky).
jambalaya - Member@nickc - Indeed I worked there for 3 years but its the world's most successful economy, they must be doing something right ?
What a bizarre conclusion if you are equating size with success.
It has as much to do with the size of population as anything else.
Using your criteria Brazil has a considerably more successful economy than Australia, which must mean therefore that the Brazilians are doing something right which the Australians aren't.
Any ideas what that might be jambalaya ?
[url= http://www.independent.co.uk/news/business/news/two-thirds-of-economists-say-coalition-austerity-harmed-the-economy-10149410.html ]Two thirds of economists say Coalition austerity harmed the economy [/url]
[b][i]Of 33 economists surveyed by the Centre for Macroeconomics two thirds disagreed with the proposition that the Government’s policies since 2010 have had a “positive effect” on the economy.
“Premature austerity has damaged UK welfare and as I and others argued at the time, delaying consolidation would have left the UK in a much stronger position than it is today” said John Van Reenen of the London School of Economics.
“The only interesting question is how much GDP has been lost as a result of austerity” said Simon Wren-Lewis of the University of Oxford.
Richard Portes of the London Business School said the UK’s recovery since 2013 was a consequence of the Government’s easing of austerity. “The recovery is aborted immediately after austerity begins, then [there is] revival when it is (semi-covertly) relaxed” he noted.[/i][/b]
http://cfmsurvey.org/surveys/importance-elections-uk-economic-activity
No. They are a bunch of c unts. I don't need five pages of bletherings to explain that.
I found out yesterday that the US doesn't have statutory sick pay. Mental.
What a bizarre conclusion if you are equating size with success.
I am not equating overall size with success but things like GDP per head, quality of life.
@Lifer, many things are different there, eg 2 weeks of holiday in your first year on a job with none for the 6 months. Typical max holiday entitlement 4 weeks. Max 2 years unemployment benefit.
@ernie, we could have had less austerity and even greater debts. The unknown was whether those debts could have been sustained, we rely on investors buying our government debt, if they stop we are in a Greek type situation. This government took the view that it wasn't prepared to take that risk. France tried to avoid austerity and that's been a disaster.
http://cfmsurvey.org/surveys/importance-elections-uk-economic-activity
see recession thread, but note
Richard Portes of the London Business School said the UK’s recovery since 2013 was a consequence of the Government’s easing of austerity
Headlines, headlines.....!!
Jambas, at least Hollande "talked" about the necessary supply side reforms. Our lot prefer to tinker with the symptoms. But since they mis-diagnose the causes (Blame the [s]W[/s]Bankers) that is hardly surprising!