Excellent post Claude. Are the apprentices funded in any way by the government? It just seems to me that instead of a) trying to get lots more people into academic higher education than is necessary and b) consequently being unable to fund it through taxation and thus needing students to pay massive fees, it would make much more sense to have apprenticeships for a wide range of vocational career paths, and those who really want to study for a degree and earn less money after university than their vocational pals can be funded by taxation to do so.

It has long been recognised – believe me – that Britain has miserably provided for vocational training opportunities throughout the post-war period. The 1944 education act envisaged three kinds of secondary schools or streams: academic grammar schools, secondary moderns and technical colleges. In the event, hardly any schools were set up to fill the remit of technical colleges.

But now, we really do need to focus on the worrying fact that barely half the candidates in England for the GCSE exams achieve the benchmark of 5 subjects at A*-C grades, including maths and English. About 300 secondary schools can’t even get 30% of their pupils to the benchmark:

“In 2008, 44.4% off boys achieved five GCSEs A*-C, including maths and English – this rose to 47.1% in 2009. For girls, the figures stood at 52.4% and 54.4% respectively.”
http://news.bbc.co.uk/1/hi/education/8456466.stm

For transparently understandable reasons, apprenticeship schemes strive to attract applicants who can reach the benchmark.

I think this is important. I am not sure how easy is it to implement these sort of schemes from the top. One way would be to stop subsidising universities directly and instead give students a credit to spend on any education or training they wanted, hopefully giving an incentive for these sort of system to be setup either by public or private actors.

Worth considering a couple of other things too. Neither Denmark or Germany have overall minimum wages, and these blanket bans on paying people below a certain rate is known to have a tendency to price young people out of the job market.

Good post . We need quality vocational training . Many of our great engineers were apprenticed from the age of 16 and undertook study at evening college( RJ Mitchell, Chadwick , B Wallis). By the 70s , the unions were insisting that 16 to 19 year olds received an adults wage , whereas those in an apprenticeship received less. By the end of the 70s an apprentice earned perhaps £25wk whereas a 16-19 year old unskilled labourer could earn £50-£100( mostly not more than £75). An apprenticeship would take 5 years and a someone undertaking an apprenticeship may not earn more than a labourer for about 5 years ( until the age of 20-21 yrs).

2/3 of unions were unskilled and/or semi-skilled and these always pushed for higher incomes such that craftsmen, charge hands and foremen were only earnly slightly more than the sem-skilled . A foremen electrician once told me he was only earning 15% more than someone who was semi-skilled.
One of the problems of poor British productivity was over manning of unskilled and semi skilled personnel and a lack of craftsmen who could operate the more advanced machinery.

Part of the problem is the poor standard of many British schools. In the days of the YTS , what took a Briton 2 yrs to cover the syllabus to become a car mechanic , it took a German 6 months.

If we are going to be serious about training it has to be the most rigorous in the World, which means failing people if they are not good enough. It used to the case that if someone had passed a British apprenticeship ( say at GWR at Swindon ) , then they would be offered a similar job anywhere in the World.

Of course if we are serious about achieving high standards , then the shop stewards will have to play second fiddle to the crafstemen, charge hands and foremen. Unions will also have to accept by increasing somone’s skill thay may leave : say a steel fixer who studies civil engineering and becomes a chartered engineer.

Agree, really good article.

I think we went astray when abolishing grammar schools and trying to replicate academic performance across the whole of society.

Quite simply some people are happier and better at doing things that don’t involve extensive academic study. A healthy society is not one consisting entirely of university graduates, and nor should a degree mean anything other than “this person is good at assimilating and regurgitating written information”. Part of the problem is that a degree has come to be such a status symbol that it is preferable to be an unemployable graduate than a skilled non-graduate.

More plumbers and fewer media studies graduates.

Thanks for that Charlie2 @4 – you make many important points, all factors that are often overlooked in popular debates.

Something that you don’t mention is that university engineering departments have for decades had difficulty in attracting quality applicants for undergraduate places when much the same A-levels are required for places to read for engineering as for physics, astronomy, or mathematics degrees.

In the early 1990s, comparisons were made between the annual output of science and engineering graduates from universities in Britain and Japan. What was discovered was that the percentage of science plus engineering graduates among all graduates was virtually the same in both countries but the percentage of engineering graduates was much higher in Japan. In Britain, the percentage of science graduates was much larger.

Quite why this anti-technology ethos developed is something of a mystery but it is there and has applied even in top-rated universities. It wouldn’t be surprising if that same sentiment hasn’t percolated down so that 16 year-olds who reach the benchmark of 5 GCSEs at A*-C grades, including maths, English and the three sciences, mostly don’t envisage either apprenticeships as a career development option or aim for university places to read for engineering degrees.

This news report is from 2004: “There are more pupils taking A-level psychology than physics – and if current trends continue, the declining science subject will be overtaken by sociology.”
http://news.bbc.co.uk/1/hi/education/3580742.stm

And this from 2005: “The government must take urgent action to deal with a ‘severe shortage’ of physics teachers or the subject will die out in schools, a report has said.”
http://news.bbc.co.uk/1/hi/education/4450208.stm

Urging provision of apprenticeship places for more and better vocational training opportunities requires improving science education in schools.

Maybe I’m a bit out oftouch, but I don’t see what a graduate intern system, epsecially if many are unpaid, has to do with an apprenticeship system.

Bob B #6 – it would be useful to know if the anti-engineering trend started in the 80′soe earlier.

8 years ago I was working in sheffield, and got on ok with the cleaners at work. One had a 16 year old son who was starting to get into trouble, and completely non-motivated at school. Fortunately he found an apprenticeship with an electrical company, and I heard about how he had turned into a more useful member of society and was enjoying himself.
Remember also that many thousands of apprenticeships were started each year by industrial companies, but they were shut down in the 80′s or else got much more efficient and computerised in the 90′s with the result that the demand by them for apprentices must be significantly lower. But without these apprentices,who often became plumbers, electricians and other tradesmen after they had finished their apprenticeships and decided they didn’t want to work in industry, we have fewer sources of such necessary people. Which is of course a clear opportunity for the establishment of proper vocational schools, although I’m sure that sounds far too proletarian for new labour.

And the other point is simply that people have to be interested in a science career in the first place, or in other words it has to offer money, interesting stuff, and an actual career path. Whereas back in the real world, these are available to a very low number of people and graduate pay is pathetic outside specific highly specialised areas. The bad press scientists recieve and the poor science communication doesn’t help.

Simplified education system:

Compulsory education for all until 16
Then either:
- paid apprenticeship leading to a vocational career, or
- going on to do a-levels leading to an academic career

Those following the academic path should be able to get paid work as soon as their degrees are over. None of this unpaid internship crap.

“the bad press scientists recieve and the poor science communication doesn’t help.”

Perhaps they need a media studies grad to help them write the press releases and do the PR stuff

@7: ” it would be useful to know if the anti-engineering trend started in the 80’soe earlier. ”

No it goes back many decades – and I’ve discussed this with colleagues who had deep experience in academia and in the civil service. as well as with a few professors from Oxbridge backgrounds. The PPE rejection rate at Oxford – which my son read – is well over 70%. Rejection rates for engineering and technology places is mostly much lower.

I also recall monitoring apprenticeship recruitment issues during the early 1990s recession.

Japanese electronics companies in S Wales were offering apprenticeship places in electronic engineering – real premium grade stuff coming from Japanese electronics companies – but had recurring difficulty in filling the places because of their (entirely reasonable) insistence on applicants having the benchmark of 5 GCSEs A-C grade, including maths, English and the three (separate) sciences. Applicants there were but not applicants up to the benchmark and the companies took the view that without the benchmark the apprentices would likely struggle with the parallel college-based course work.

Industrial apprenticeships in engineering switched over in the late 1970s and early 1980s from the old time-serving stuff, when apprentices were expected to learn all they need to know from Nelly or Fred, to being roughly half work experience and half college courses – properly and belately so.

The issues here shouldn’t be just about throughput numbers but also and importantly about the quality of apprenticeship schemes.

@10: “Perhaps they need a media studies grad to help them write the press releases and do the PR stuff ”

Like folks with the stellar talents of Alastair Campbell, Charlie Whelan, Jo Moore, Derek Draper and Damian McBride perhaps.

@Bob B

Many Labourites went to Oxford and got double starred Firsts in PPE, and so on.

Just sayin’.

“Many Labourites went to Oxford and got double starred Firsts in PPE, and so on.”

That was long ago when the likes of Hugh Dalton, Douglas Jay, Hugh Gaitskell, Harold Wilson, Richard Crossman, Denis Healey, Roy Jenkins and Tony Crosland sat on the front benches.

Tony Blair got a second in law at Oxford. I’ve posted before about the declining academic standards of the front benches in the Commons.

One curious factor is that the front benchers are far more likely to have gone to Oxford than to Cambridge. I don’t know why that is.

If we are going to increase the number of high craftsmen, then many teachers will have to change their attitude. Too many teachers accept poor presentation, poor grammar, poor time keeping, poor discipline, poor knowledge of facts, poor time keeping from their pupils. Consequently too many children leave school with an attitude which makes employers reluctant to employ them. An apprentice takes several years before they are earning money for an employer. Historically the employer recieved a fee to taking on an apprentice , which was called being indentured . In the 19c the fee was often £5 and the reasoning was that until the apprenticeship was completed, the training cost the employer .

If we look at cooking programmes , working in Michelin starrred restaurants shows the attitude required to achieve excellence – a willingness to work long hours; accept criticism; learn vast amount of facts and techniques; to complete a technically difficult task to a very high level of excellence , in a stressful work place in a short period of time, day in day out. Someone with a ” Whatever ” mentality , who is slap dash, considers near enough is good enough will never become a craftsman , no matter how long the training. An apprentice needs a will to learn , to be trained , a level of mental strength which means they can cope with criticism, a high degree of patience, the determination to see a task through to a successful completion.

Its simple enough to suggest vocational training at schools but to be relevant to any future career there will have to be a large investment in facilities and some way of recruiting the right staff. Just how many scientists teach science or mathematicians, maths?

Apprenticeships are an excellent way of training people but we need to understand the extent of the change needed if this country is to pay anything other than lip service to the idea.

Before investing millions in new and bettet training infrastructures and staffing, I still consider the emphasis in the present context needs to be on getting more 16 year-olds passed the benchmark of 5 GCSEs A*-C grades, including maths and English, together with cutting the number of failing secondary schools which can’t get even 30% of their pupils up to that standard.

The legacy of poor schooling standards in earlier decades is this:

By the mid 1970s, half the adult population had no education qualifications at all – by the mid 1990s, that was down to a quarter.

“Up to 12 million working UK adults have the literacy skills expected of a primary school child, the [HoC] Public Accounts Committee says. . . The report says there are up 12 million people holding down jobs with literacy skills and up to 16 million with numeracy skills at the level expected of children leaving primary school.”
http://news.bbc.co.uk/1/hi/education/4642396.stm

Nick at 3 makes the important point.

“In Britain, 17.9% of those below the age of 25 are unemployed. True, some countries are faring even worse. The percentage is 21.5 per cent in Ireland while, in Spain, the jobless amount amongst the young has now reached a staggering 42.6 per cent.

Countries like Denmark and Germany, however, show a different picture – with the unemployment rate amongst the under-25s standing at 8.9 and 10.5 respectively.”

Economists have an explanation for this. It’s called “minimum wage”.

Yes, a minimum wage will indeed price some people out of work. And the people most likely to be priced out are the young and inexperienced.

There’s no secret to this, it’s an obvious and widely known effect of having a minimum wage that is a substantial fraction of average wages.

Don’t want the youth unemployment then lower or abolish the minimum wage.

Here’s an idea, Tim: why not reduce wages far below the minimum wage to £1 an hour, that way we can employ everyone and completely reduce unemployment to zero!

19….sure, why not?

We’d have the situation we had before the minimum wage came in. Almost everyone earning the same as they do now (for almost everyone earns more than hte minimum wage) and those currently priced out of employment by the minimum wage would be able to find employment.

Sounds like a great idea.

Great! I wonder how many more people we could employ if we reduced your wage to £1 an hour, Tim? Are you willing to reduce your own wage to that level, so less people are “priced out of employment”? Practice what you preach, after all.

I don’t get wages: I’m freelance. I get paid piece work stylee……

Do also note that I’m not suggesting lowering anyone’s wages. I’m suggesting that it should be legal for people to be able to offer their labour for less than the current minimum wage.

You think it should be legal to pay people £1 an hour? Not in a civilised country, it shouldn’t be. Try living off a wage that low, without mummy or daddy.

17. Bob B. Good point . It is not just the academic skills that is important but also the attitude; the willingness to stick at a task, no matter how tedious , until the skill has been mastered . Look at the skill of J Wedgewood . A major reason for the Industrial Revolution were the Dissenting Academies set by the Non- Conformists which aimed at providing the best preparation for industry. These academies were the first to teach science.

The problem is that education is dominated by middle class arts graduates with no experience of industry , agriculture or the armed sevices. Consequently they lack an understanding of the academic skills and character to become a good craftsman, charge hand foreman, technician, scientist or engineer. As we have moved to world dominated by electonic control systems we need craftsmen who have a far higher understanding of maths and a more developed ability to think conceptually than that which is expected from a mechanic, plumber, bricklayer, painter, carpenter etc, etc. Hence the importance of 17. Bob b regarding the obtaining of GCSE Maths . 75% of those taking A levels at Winchester College take Maths .The Headmaster of Winchester says Maths is to education what Latin was in the 19 C .

19
Excellent idea, we should abolish taxation for education, health and infrastructure too, exposing all industrial/post-industrial countries to the free-market would, in the end, improve the lot of the masses.

25 – yes, because it’s worked out really well wherever that’s been tried!

“You think it should be legal to pay people £1 an hour? Not in a civilised country, it shouldn’t be.”

Many people already work for substantially less than that.

With tax and benefit withdrawal rates as they are there are hundreds of thousands who face marginal tax rates of 80 and 90 (some even over 100) percent and some 1.5 million of over 60%.

The net benefit for these people of an extra hour’s work at minimum wage can be as little as 50 p.

That’s working for less than a pound an hour, isn’t it?

Tim @ 22

What is with you people and the weakest in society? Why is it always the people at the bottom of society that the Tory scum are needing to shit on?

You have tried to fly this kite before, but you still have to explain why unemployment existed before we had a minimum wage and Countries with no minimum wage have significantly higher unemployment than we do. In fact Countries that have people living on subsistence wages (or below) have mass unemployment too.

On the other hand, Countries that have higher wages than we do have lower unemployment as well.

What jobs are not being done because of the existence of the minimum wage? Are there millions of jobs that we could be doing if only the minimum wage was cut? Can you name them?

1) I’m not Tory, sorry. If I wasn’t in UKIP I’d probably be Orange Book Lib Dem (or even Liberal, yes, they do still exist).

2) “Countries with no minimum wage have significantly higher unemployment than we do.”

Really? Like Denmark and Sweden? Neither have a national minimum wage.

3) “On the other hand, Countries that have higher wages than we do have lower unemployment as well.”

Really? Like the US? They have higher wages than we do….

Look, going back to this thing about minimum wages.

Yes, there really is an unemployment effect. Absolutely no economist doubts this for a moment.

They might think it’s not very large, or not important at this level of minimum wage, or worth it anyway….but the effect is there.

And that effect will be concentrated among those already marginal to the labour force anyway. It will be precisely the young and untrained who feel the greatest effects.

“Why is it always the people at the bottom of society that the Tory scum are needing to shit on? ”

One reason to oppose the minimum wage is that it shits on precisely those at the bottom of society.

Tim @ 29

UKIP? Radicalised Tories.

Really? Like Denmark and Sweden? Neither have a national minimum wage.

I think you will find that both Denmark and Sweden have significantly higher wage rates than our minimum wage. It would be interesting to compare the wages of the type of people on the minimum wage here and the equivalent in Sweden and Denmark.

Absolutely no economist doubts this for a moment.

Oh, Tim, where is your natural scepticism and ruthless questioning of authority? Doesn’t this prove that economists have closed minds and are all in a huge conspiracy? Surely ‘conventional wisdom’ in these instances is to assume that they have obviously missed something?

Or is that only when we don’t actually like the answer?

It will be precisely the young and untrained who feel the greatest effects.

Why? Surely the least skilled and the least experienced are competing with those with higher skills sets, and losing out, irrespective of the price of labour? Lowering the cost of labour will not make those people more attractive, all it will do is lower the wages of those more competent.

If you require a shelf stacker, you will employ the best shelf stacker for the rate of the job. Cutting the minimum wage will not change who is the best for the job, merely the price of the labour. The unemployable youth is still unemployable when there is a surplus of labour, no matter the price of labour.

“I think you will find that both Denmark and Sweden have significantly higher wage rates than our minimum wage.”

Of course they do. So do we have significantly higher wage rates than our minimum wage. Average wages are £10-£12 an hour depending on whether you use mean or median.

“‘conventional wisdom’”…is sometimes right of course. Apples don’t fall up to trees after all….

“Surely the least skilled and the least experienced are competing with those with higher skills sets, and losing out, irrespective of the price of labour?”

Erm, are you assuming that there is some fixed number of jobs or something? Forgetting that supply and demand do meet if prices are allowed to change so that they do?

“Lowering the cost of labour will not make those people more attractive, all it will do is lower the wages of those more competent. ”

Why? Just as an example, can you point me to all those pay rises enjoyed by higher paid workers when the minimum wage came in? For such arguments obviously work both ways, don’t they?

Again, you’re making the lump of labour fallacy. that there’s only a certain amount of work to do. No, this is untrue. There’s only a certain amount of work that’s worth doing at a certain price of labour.

Make currently unused labour cheaper and more work will be worth doing.

You also seem not to know what it is that determines wages in a market. Even Marx got this one right. It’s productivity. As those currently employed will not see a fall in their productivity in the absence of a minimum wage there’s not reasono to think that their wages will fall.

Tim @ 31

Of course they do. So do we have significantly higher wage rates than our minimum wage. Average wages are £10-£12 an hour depending on whether you use mean or median.

The point being of course, that they manage to get hospitals cleaned, beer served, streets cleaned etc, yet they have higher wage rates than here.

Erm, are you assuming that there is some fixed number of jobs or something?

No, but the jobs that exist do so because there is an economic need.

There’s only a certain amount of work that’s worth doing at a certain price of labour.

Like what? What jobs are only worth doing if labour becomes cheaper than it is at the moment?

You also seem not to know what it is that determines wages in a market.

Er, it is you that is suggesting that there are millions of jobs that need doing and the only barrier to them being done is the existence of the minimum wage. Well go on then, what jobs are we missing out on by having the lowest workers on less than 6 quid and hour?

“No, but the jobs that exist do so because there is an economic need.”

No, that’s not the reason that jobs exist. Jobs exist because the output from having them done is valued more highly than the costs of having them done. So the existence of a job depends upon the price of the labour required to do the job.

“Er, it is you that is suggesting that there are millions of jobs that need doing and the only barrier to them being done is the existence of the minimum wage.”

Now now, don’t extend my argument into a parody of it. I’m not stating that the min wage is the only reason. Only that it has an effect.

There are millions (billions even) of jobs that could be done. Wouldn’t it be nice if there were a few more people out there helping little old ladies with their shopping? More street cleaning being done? The sweet shop delivering to your home? The supermarket bagging your groceries for you? The reason these jobs don’t get done is because while we’d value them a little bit we don’t value them very much. swo we’re not willing to pay the price of the labour that goes into doing those jobs.

Now, if we artificially raise the price of labour then we’ve just cut the number of those sorts of things we’re prepared to pay for, haven’t we?

Perhaps poeple should start understanding a little more where technology is leading us. On a programme recently Hammond explained the technology required to design and build an elevator which could reach the top floor of a skyscraper. The braking required in the lift was similar to that used in a sportscar. Just to pump concrete to the top floor required required an exceptionally powerful pump.

Many Scandinavian countries do not have the high percentage of poorly educated and unskilled people that we have in the UK. Until we have the sitution where 90% of the population have grade C Maths and English GCSE or better and are skilled ( have completed an apprenticeship or better ) then we will struggle to create a high value manufacturing capability which accounts for 20-25% of the economy; comparable to that of Germany.

Bob b 17 has stated a major problem which if not solved, will prevent us enalarging the high value industrial and service sectors, upon which which the UK depend’s to earn money.

Tim @ 33

So the existence of a job depends upon the price of the labour required to do the job.

No, Tim, the existence of a job depends entirely on the fact that millions of people have disposable incomes. The higher the disposable income the more jobs that exist. Mercedes Benz owes its existence to high wages, not low wages. If Europe still had pre industrial wages, we would still have a medieval economy.

Take China for example. China makes god knows how many plasma screen TVs, but they sell them to rich First World people. If we manage to get our average wage to that of China, we could make Plamsas here…
…except of course that no-one could afford them if we all earned 40 pence an hour and a bowl of rice.

Wouldn’t it be nice if there were a few more people out there helping little old ladies with their shopping? More street cleaning being done? The sweet shop delivering to your home?

I sometimes wonder about you ‘economic Darwins’. Surely ‘real life’ must impinge on your little fantasies at some point. Surely you cannot to totally blind to reality? You cannot suspend belief that much, can you?

Once the price of labour fall to that type of level, you don’t get some kind of utopia were old ladies are helped across the street and sweets are delivered to your door.

Once the economy gets to that level you get political, economic and social stagnation. The of ‘jobs’ that become available is not helping old ladies it is old ladies frightened to go out, people climbing over rubbish tips looking for scrap metal and nine year olds giving blow jobs to tourists.

“If we manage to get our average wage to that of China, we could make Plamsas here…
…except of course that no-one could afford them if we all earned 40 pence an hour and a bowl of rice.”

You’re still howling in the moonlight there. I’m not suggesting that average wages fall to Chinese levels. I’m not suggesting that average wages fall at all.

I’m suggesting that some people who currently earn nothing should be able to earn a bit. That is, that both disposable incomes and average wages rise.

@Tim, you seem to have a fundamentally different view of economics from the other contributors – you are making assertions and arguments based on this view, and presumably expecting those arguments to be persuasive. But they cannot be, because of the fundamental difference in economic ideas. Why then do you persist, in this and every other LC thread where you fundamentally disagree with the underlying logic and ideas behind each author, to try and make assertions and arguments that fail to convince each time?

Just asking – I don’t see how it is productive at all.

Tim @ 36

I’m suggesting that some people who currently earn nothing should be able to earn a bit. That is, that both disposable incomes and average wages rise.

You are suggesting cutting the wages for millions of the lowest paid people in the Country, though Tim.

Still no eviedence it would create jobs though. We had minimum wage during the last Tory Government and yet unemployment was still higher than it was today.

@37

because some of us are listening to both sides

“You are suggesting cutting the wages for millions of the lowest paid people in the Country, though Tim.”

No, I’m suggesting that those currently unemployed because their skills are not worth the current minimum wage should be able to sell their labour at a lower rate than the current minimum wage.

“Tim, you seem to have a fundamentally different view of economics from the other contributors”

No, this isn’t true. I have a very similar view of economics from a number of the contributors here. People like Paul Sagar, Chris Dillow and Luis Enriques for example. That is, people who actually have a view of economics rather than no view of it.

It is a science after all, even if a social one. It has indeed worked out some answers to some questions. Desiring that the answers be different from the real ones doesn’t make those desired answers either real or true.

Please do go read Chris Dillow’s blog, search it for the subject “minimum wage” and you’ll see that he’s made all of the same arguments I have….only rather better of course…largely for the reason that I’ve nicked most of my arguments from him.

“because some of us are listening to both sides”

GIVEN THAT I’M IN PORTUGAL, DO I HAVE TO SHOUT THEN?

You are suggesting that economics is a pure, positive science free from value judgements (i.e. not normative). There are no purely right or wrong answers in economics. To suggest that those who disagree with you are wrong because there is only one right answer and that is the one you subscribe to… well, that’s just silly and ignores the actual nature of economics.

On the other hand, if you are arguing neoclassical economics is the only valid economics, a) that is a value judgement, and b) neoclassical economics is full of value judgements.

There is no such thing as a social science – and economics is most definitely not free from value judgements.

@41

No. The ‘net works fine in Belgium.

“To suggest that those who disagree with you are wrong because there is only one right answer and that is the one you subscribe to… well, that’s just silly and ignores the actual nature of economics.”

Not at all. Certain things are indeed true in economics. People respond to incentives, there are always opportunity costs, it is not possible for there to be no comparative advantage, minimum wages reduce employment.

I agree that there are huge areas where your prior beliefs will get you to a different answer. If you’re more concerned with equity than efficiency you’ll end up going down some very different paths.

But there’s still a pretty simple list of things which simply are true: companies don’t pay taxes, people do, politicians and bureaucrats are subject to the same incentives of self-interest everyone else…..these sorts of things. They’re truths.

There are no purely right or wrong answers in economics.

What, none?

Okay, you really are a timewasting unemployed nutter who is not interested in actual debate but in flicking shit around and hoping it sticks:

minimum wages reduce employment

This is despite there being many countries with minimum wages where unemployment is lower than in Britain, and countries without minimum wages where unemployment is higher than in Britain. So there’s no causal evidence for a link.

Just because the sun rises in the sky everyday, and a plane flies over your house at the same time, does not mean the sun is attached to the plane by string and so rises because the plane pulls it up.

As to the rest of your “truths” – when you have made up your mind as to which value judgements you consider to be true, why bother debating? Because you’re a cunt, that’s why. As Charlie Brooker would say, fuck off.

@39 “both” sides literally do not see eye to eye on some things – one side says everything can be questioned, the other says it can’t. Ironic that Tim Worstall denies the science of climate change can even be valid at all, whereas most climate change campaigners accept there is room for doubt despite the massive consensus.

“Ironic that Tim Worstall denies the science of climate change can even be valid at all,”

I fear you have me confused with some other Tim Worstall. I’ve not denied the science of climate change, let alone denied that it can even be valid.

I’ve long (some 15 years or so now) made the points that there is warming, it does seem to be us and the really important question is what do we do about it?

On the subject of what we do about it my views are very close to the economists who work on the IPCC reports, people like Richard Tol, Sir Partha Dasgupta and so on. I’m actually a great deal closer to the scientific consensus than Caroline Lucas, George Monbiot or even the UK Government.

“This is despite there being many countries with minimum wages where unemployment is lower than in Britain, and countries without minimum wages where unemployment is higher than in Britain. So there’s no causal evidence for a link.”

Are you entirely sure you understand logic?

That Somalia has lots of unemployment and no minimum wage, that the US has a minimum wage and less unemployment, is not proof that minimum wages reduce unemployment. There are also, as you might note, several other things other than just the minimum wage’s existence or not which are different between the two places.

Ironic that Tim Worstall denies the science of climate change can even be valid at all,

That doesn’t seem accurate, given that he’s said he is among “those who accept that climate change is happening”.

Chris Dillow is respected around these parts: this and this may be worth reading (and for more, this.

@49 – the last line of the second of Dillow’s pieces to which you link:

“But then, New Labour’s mission is to harrass and manage the poor, not to liberate them, isn’t it?”

Spot on – except one might substitute “everyone” for “the poor”.

I see the minimum wage as more than simply economics. Its a moral statement about the values of our society.

This thread is interesting because Britain has failed to upskill its workforce so we are faced with a debate on how much street sweepers should be paid and what effect it has on unemployment. I would like to know why we failed to upskill.

So you place your moral warm feelings above the actual economic effects?

Hmmm….

If the minimum wage were done away with, people wouldn’t jump for joy that they had been “liberated”. They would claim means-tested benefits immediately, as wages of £1 or £2 per hour are not enough to live on. It would cost the government a fortune make the tax credits system look like a triumph of administration & forward planning. Plus, you’d get your pocket money workers (such as mothers whose husbands earn enough to live on but who want a bit more spare cage) leaving the workforce in droves.

Maybe in a libertopia where there as a CBI etc etc, it might work. But no such thing is on the horizon.

*spare change

My keyboard keeps randomly missing out letters. Perhaps if I earned a bit more I’d replace it, eh, readers?

“, several other things other than just the minimum wage’s existence or not which are different between the two places.”

Well yes, but I think the point is that removing the min wage would not create full employment because the employment rate is influenced by all kinds of things. However it would remove a barrier towards companies lowering wages for people who currently benefit from recieving more money than they would do so in a “natural” free labour market.

“People like Paul Sagar, Chris Dillow and Luis Enriques for example.”

I think ultimately the divide here is between those whose view of how wages are set is based on economics textbooks (or the experience of playing for Real Madrid and barcelona), and those who think the standard economics textbook is simplistic. I’m one of the latter.

Basically the standard economics textbook would say that when a firm wants a new worker they go to the labour market, walk up and down the aisles, and see a wide range of workers for sale with various price tags attached. They then look at the workers they fancy, and pick them up, take them to the checkout and pay the price tag attached. Hence imposing a minimum wage prevents the shabbily packaged, extra value no frills workers, ones about to reach their sell by date etc from being sold. The process is exactly like shopping for meat at tescos. Like the supermarket, you may occasionally buy no frills stuff – but you wouldn’t pay the same price for the no frills mechanically recovered shite as you would for the organic fresh meat.

Those with some knowledge of other social sciences like sociology, psycology etc would be able to argue to UKIP members and former spanish footballers that firms employing people do not act the same way as people shopping in supermarkets. Here the role of social networks, social and cultural norms about what a job is (9-5, wear smart clothes, get paid monthly etc), also play a role. Hence in the real world we have vacancies unfilled, employers acting irrationally, discrimination against minorities etc. Indeed it isn’t uncommon for people doing exactly the same job in the same firm to be on different salaries that reflect more the individuals confidence in the human resources office during their annual review than reflect their “productivity”. Even in economics, once you get past the 101 and 102 modules you’ll find explanations that account for this in terms of assymetrical information (spelling is appalling today sorry).

Meaning the question of whether minimum wages are a good thing cannot be totally reduced to the simplistic level that they are on internet forums. Indeed, returning to the subject, I’d argue that the problem long term unemployment has far less to do with the min wage, and far more to do with the fact that the people concerned cannot even access the labour market, and hence the wages they theoretically ask for are irrelevant. The people concerned don’t have access to social networks where they are likely to obtain jobs (isn’t it something like 80% of jobs are never advertised?), or lack the skills needed to complete application forms. Add lack of self-confidence and self esteem (plus the related health problems) that comes with long term unemployment and you are talking about problems that simply are not going to be solved through abolishing the min wage.

For the benefit of people who haven’t seen this argument in action before:

Tim W@27 – “Many people already work for substantially less than that[£1/hour].”

Tim W@36 – “I’m suggesting that some people who currently earn nothing should be able to earn a bit.”

By your own logic, scrapping the minimum wage won’t increase employment, because people will still get hit by colossal marginal tax rates on their new shiny £1 per hour jobs.

So as well as scrapping the minimum wage, you then want to scrap pretty much all of the benefits system and introduce a universal basic income, though I don’t think you’ve ever put a figure on how much this is beyond the fact that it won’t cover the costs of housing or bringing up children.

Would that be a fair summary?

“I see the minimum wage as more than simply economics. Its a moral statement about the values of our society.”

I’m absolutely fine with that. If you want to say that some number of unemployed is the necessary price of expressing your moral values then that’s just fine. All I ask is that you recognise that this is so.

Planeshift: I agree that’s it’s not quite as simple as I make out. But your examples of complexity do not change the effects of the minimum wage. For min wage is, indeed almost by definition, paid to largely undifferentiated labour. Which really does operate on the supermarket analogy.

As to this:

“Indeed, returning to the subject, I’d argue that the problem long term unemployment has far less to do with the min wage, and far more to do with the fact that the people concerned cannot even access the labour market, and hence the wages they theoretically ask for are irrelevant. The people concerned don’t have access to social networks where they are likely to obtain jobs (isn’t it something like 80% of jobs are never advertised?), or lack the skills needed to complete application forms. Add lack of self-confidence and self esteem (plus the related health problems) that comes with long term unemployment and you are talking about problems that simply are not going to be solved through abolishing the min wage.”

Richard Layard (one of the people responsible for my own misunderstandings of economics) is one of the people who has done a lot of work on this. His answer is that long term unemployment is caused by there being no time limit on benefits.

No, really:

http://cep.lse.ac.uk/pubs/download/occasional/OP015.pdf

“If you pay people to be inactive, there
will be more inactivity. So you should pay them instead for being active – for either working
or training to improve their employability.
The evidence for the first proposition is everywhere around us. For example, Europe
has a notorious unemployment problem. But if you break down unemployment into shortterm
(under a year) and long-term, you find that short-term unemployment is almost the same
in Europe as in the U.S. – around 4% of the workforce. But in Europe there are another 4%
who have been out of work for over a year, compared with almost none in the United States.
The most obvious explanation for this is that in the U.S. unemployment benefits run out after
6 months, while in most of Europe they continue for many years or indefinitely.
The position is illustrated in Figure 1. The vertical axis shows how long it is possible
to draw unemployment benefit, and the horizontal axis shows how long people are actually
unemployed, as measured by the percentage of unemployed who are out of work for over a
year. The association is close, and it remains close even when we allow statistically for all
other possible factors affecting the duration of unemployment.1
This long-term unemployment is a huge economic waste. For people who have been
out of work for a long time become very unattractive to employers and easily get excluded
from the world of work. So it often happens that employers feel a shortage of labour even
when there are many people long-term unemployed, with the result that inflation rises even in
the presence of mass unemployment.”

Don’t forget…..he’s a lefty….but he’s also an economist. So he goes where the evidence leads….

CBI….yes….I have put a figure to it, same as minimum pension guarantee. £113.50 a week (or it was when I suggested it).

Obviously, when you’ve got one of those then of course you abolish the minimum wage.

Tim @ 40

No, I’m suggesting that those currently unemployed because their skills are not worth the current minimum wage should be able to sell their labour at a lower rate than the current minimum wage.

That is assuming that a job will magically appear if the wages of the poor are slashed thus somehow creating demand for a job that at the moment does not exist or there is no economic incentive to provide. I think I read somewhere that half the jobs created in the future will need some kind industry qualification. That hardly suggests that there are going to be many gaps at the bottom of the labour market? Does it? Our economy has moved on from the low skill, low wage one we have had for the last twenty years don’t you think?

Isn’t the problem though? You are trying to argue than making millions of people worse of will create jobs for people in already dire positions in the labour market. To me, that doesn’t seem logical.

Do you really think degrading our economy even further will create jobs? I can’t see it myself because everything I have seen tells me otherwise. I am not sure that a low skill, low wage economy is the way forward from here, to be honest. I cannot believe that people would actually look at the old Eastern block Countries where people earn shirt buttons for wages would make for a better society.

What we need is not a race to the bottom looking for jobs that are not exactly abundant, we need to expand our knowledge base, not destroy it further. Hey, but that is just me.

“That is assuming that a job will magically appear if the wages of the poor are slashed thus somehow creating demand for a job that at the moment does not exist or there is no economic incentive to provide.”

There’s no magic here. You have noticed that when things decline in price people tend to buy more of them? You know, this supply and demand interacting with price thing? Lower the price of labour and people will buy more of it.

One trivial example. You’ve seen those self service check out machines in supermarkets recently? They replace someone working a till. 20 years ago we didn’t have the machines….because they were more expensive than the labour they would replace. Now we do have them….for they are cheaper than the labour they replace.

The reason there’s no economic incentive to provide low skill jobs is because you can’t earn enough money from them to the employ the labour which must be paid the minimum wage.

“I am not sure that a low skill, low wage economy is the way forward from here, to be honest.”

I don’t think it is either. Which is why I’[d rather not see millions of people unable to get a job because it’s illegal for them to sell their labour for what it’s worth.

For, how do people gain skills? By having a job, yes, that’s right.

Not necessarily, though having a job may be a start.

I still think the big question arising from this thread is why Britain cannot upskill enough of its workforce. Are there cultural reasons such as a lack of regard for qualification in some social groups?

This is important if we want to have a diverse economy producing a range of high-value products that the rest of the world want to buy or simply go back to a service economy with too much reliance on the financial sector.

“But in Europe there are another 4% who have been out of work for over a year, compared with almost none in the United States.”

That was then, let’s see what’s happening now in the USA…

“The number of long-term unemployed (those jobless for 27 weeks and over) was
6.1 million in February and has been about that level since December. About 4
in 10 unemployed persons have been unemployed for 27 weeks or more.”

“About 2.5 million persons were marginally attached to the labor force in
February, an increase of 476,000 from a year earlier. (The data are not sea-
sonally adjusted.) These individuals were not in the labor force, wanted and
were available for work, and had looked for a job sometime in the prior 12
months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.”

http://www.bls.gov/news.release/empsit.nr0.htm

61. Yurzem. Until the mid 80s , perhaps 30-40% of the population did not consider obtaining academic qualifications and completing an apprenticeship were relevant to obtaining a job. One just left left school on Friday and started a job Monday morning .

Tim @ 60

You have noticed that when things decline in price people tend to buy more of them? You know, this supply and demand interacting with price thing? Lower the price of labour and people will buy more of it.

Dropping prices usually means that there is an oversupply of goods, it not does mean that the more tins of beans are necessarily sold right across the market, it just means that the oversupply has pushed the price down of one or more brands. Same with the labour market, cutting the price of labour will just make labour cheaper, it does mean that jobs will suddenly appear out of nowhere. Companies employ the correct number of people for the job. Tesco made two billion quid profit last year, if they need an extra shelf stacker in each shop, they could easily afford it. Cutting the minimum wage will not influence that supply one iota.

for they are cheaper than the labour they replace.

But are they though? Whenever I see them there is normally at least one member of staff supervising them. Technoolgy always advances though, I am not sure lowering the price of labour can or should stop that. We have replaced many handmade crafts with mass produced goods, I think that progress, but the shoemaker would argue differently.

The reason there’s no economic incentive to provide low skill jobs is because you can’t earn enough money from them to the employ the labour which must be paid the minimum wage.

Exactly! These so called jobs you claim are out there ready to be done are simply not worth a carrot. Somebody would be exploiting the market and doing these jobs. Any job that doesn’t make enough to pay the minimum wage is worth doing, because there is no profit in it. No business is going knock on your door with your Mar’s bar no matter what price the man delivering it gets because the profit margin is simply not there. Even if the delivery man worked for free, who is going to try and turn a profit of 5p from sweets, when Tesco have them at the checkout?

On the other hand. I, like thousands of others find myself ordering pizza or Chinese food, for about a tenner and the delivery charge is about a quid. Would I order more times if the guy was only getting 50 pence? I doubt it.

I don’t think it is either. Which is why I’[d rather not see millions of people unable to get a job because it’s illegal for them to sell their labour for what it’s worth.

You have no evidence that these jobs even exist, though Tim! If you cannot make a profit from an unemployed person with no skills paying them £5.85 what makes you think you can turn a profit from that skilless person @ £3.50?

@Jim

Hmmm….say I am in the pin-making business. I can make 1000 pins per hour and make a profit of £4 per hour. I think to myself, “Hey, why not employ another person to make pins with you and double your output and make more profit?” “You are a genius” I say to myself. But then I notice the minimum wage,

2 x £4 per hour = £8 per hour, then £8 – £5.25 = £2.15

By employing someone I have cut my profit almost in half. So obviously i think screw that and my pin-making brethren will have to sit on the dole eating spaghetti hoops for all eternity, dreaming of what might have been.

However, if I was allowed to employ someone at £3.50 per hour then,

2 x £4 per hour = £8 per hour, then £8 – £3.50 = £4.50

now I am make 50p more per hour AND my new employee is make £3.50 more per hour AND more pins are being produced. Wins all round, no?

that should be £8 – £5.85 = £2.15 obviously. That’s why I can only get a job making pins.

“Dropping prices usually means that there is an oversupply of goods”

Correct. We have, as we must have because there are people unemployed, an over supply of labour. The solution to getting rid of this over supply? Chjanging the price of that labour. Good, well done, you’re beginning to grasp some basic economics.

“Cutting the minimum wage will not influence that supply one iota.”

We’re not trying to change supply. We’re trying to change demand. Demand rises when prices fall…..

“Exactly! These so called jobs you claim are out there ready to be done are simply not worth a carrot.”

Noooo, they’re worth a carrot, they’re just not worth £5.80 an hour.

“You have no evidence that these jobs even exist, though Tim!”

Of course not….for they don’t exist. But they could do…..

“If you cannot make a profit from an unemployed person with no skills paying them £5.85 what makes you think you can turn a profit from that skilless person @ £3.50?”

About £2.35 an hour.

There is a continuum here. There are jobs worth doing (or people worth hiring, or profits to be made by doing so, however you want to put it) at £25 an hour. There are those worth doing at £10 an hour….those at £5.80 and those at £3.50.

By insisting that the min wage is £5.80 an hour not £3.50 then we abolish all of those jobs where the value is between those two numbers.

This really isn’t that hard to understand….I am having terrible difficulties understanding why you don’t get it.

Andrew @ 65

So how may firms work on tight margin like that though? Can’t see too many of the FTSE 100 working on the basis of £4 an hour profit margin. I am not saying these small business are not important and indeed my be the backbone of our economy, if your company are only turning four quid an hour profit, then, although I am not knocking that, it ain’t likely to be turning us into a major manufacturing force is it?

Some of the biggest, most profitable companies on the planet pay the minimum wage in London. You are not telling me that the Grosvenor hotel are going to have mankey uncleaned rooms unless the minimum wage is cut? I am sure they will have clean rooms no matter what happens to the minimum wage.

Can’t see too many of the FTSE 100 working on the basis of £4 an hour profit margin.

There were 2.15m enterprises registered for VAT and/or PAYE in 2009. Perhaps one or two of them do?

@60: ” You have noticed that when things decline in price people tend to buy more of them? You know, this supply and demand interacting with price thing?”

Try:

- the Google lecture by Barry Schwartz: The Paradox of Choice – Why more is less:
http://video.google.co.uk/videoplay?docid=6127548813950043200&ei=8P6XS8e7Hoit-Ab98KG9Ag&q=the+paradox+of+choice&hl=en#

- Harvey Leibenstein on: Bandwagon, Snob and Veblen Effects in the Theory of Consumer Demand, in the QJE 1950
http://areadocenti.eco.unicas.it/mbianchi/LEIBENSTEIN.50.QJE.pdf

- (Nobel laureate) Gary Becker: A Note on restaurant pricing . . in JPE 1991, which focuses on an interesting topic of why fasionable restaurants, discos and the like allow queues to develop at peak times instead of just hiking prices to clear excess demand?
http://research.chicagobooth.edu/economy/research/articles/67.pdf

After all, queues at restaurants as well as for jobs are indications that markets aren’t clearing as theory predicts.

In rural labour markets, where job opportunities may be few and far between at the best of times, statutory minimum wages may prevent what could amount to blatant exploitation. It was, presumably, situations like that which prompted Winston Churchill as a minister in a Liberal government to take through Parliament the Trade Boards Act of 1909, which provided for administrative structures to determine minimum wages in particular industries.

Regarding SMEs – usually defined as employing less than 250 people – it’s often not widely appreciated that in Britain, about HALF of all employment in the business sector is in SMEs.

Tim @ 67

Correct. We have, as we must have because there are people unemployed, an over supply of labour. The solution to getting rid of this over supply? Changing the price of that labour

Changing the price of that labour doesn’t affect that demand, because those jobs are in the economy anyway. Cutting the price of labour does not create more work, how could it? This idea that there are potential jobs out there if only the minimum wage were abolished is pure fantasy. We saw when Thatcher slashed the Works Councils right up to 1998 this Country had no minimum wage and unemployment went through the roof. Since the introduction of the minimum wage the number of people in work of some kind has increased.

In fact, we see Countries that have little or no employment rights (including a minimum wage) we see unemployment at epidemic levels. Nobody is paying South American or Africans to be idle, yet unemployment in these areas is shocking. Low wages are not symptoms of a vibrant, dynamic economy; they are often very real manifestations of a stagnant economy.

Poland being the most obvious example. Poland has low wages, significantly lower than ours, but far from creating an unprecedented number of jobs the Poles are streaming out of that economy into ours! The irony is that we are losing skilled/semi-skilled jobs (NOT minimum wage jobs, BTW) to Poland, but despite that, there are still anywhere between half a million to two million (depending on whatever hysterical paper you read) Eastern Europeans here.

Their low wage/low cost economy cannot generate the standard of living that they require. Why is that? Surely Poland’s highly skilled, highly motivated workforce should be being exploited by the very entrepreneurship that you suggest should be creating jobs here? Surely your model is robust enough to cover, Poland, Latvia, Romania etc? What is the unemployment position in Eastern Europe? Have they got huge surpluses of labour too? If so, why?

Could it be that Countries with shit wages tend not to have the dynamic markets that we have? Perhaps shit wages mean less disposable incomes and therefore less economic activity?

There is a continuum here. There are jobs worth doing (or people worth hiring, or profits to be made by doing so, however you want to put it) at £25 an hour. There are those worth doing at £10 an hour….those at £5.80 and those at £3.50

The thing is the minimum wage has been at £3.60 and has picked up those grades through the years. Guess what? These jobs still get done. We still clean bedrooms in hotels, we still gather trolleys in supermarkets, we still have security guards, shelves still get stocked, paitents still get portered around, beer still gets served, hair still gets cut and litter still gets picked up. So in other words the market takes care of it. People still survive. Hair grows at the same rate as always and people still expect to get served just as quick. That room is still expected to be clean when you enter it and you still expect your lunch to be brought to your table.

Jim,

Since the introduction of the minimum wage the number of people in work of some kind has increased.

Chris Dillow:

The test of the effect of the minimum wage is not: how many jobs have been created since it began? It’s: how many jobs would have been created, had we not had a minimum wage?

Worstall & his pals have still not addressed my point, which is that in the real world, if there were no minimum wage low-paid workers would be claiming means-tested benefits in order to make ends meet, which no one would view as a good outcome. Maybe having no minimum wage would work if various other factors were in place, but no remotely electable party proposes them.

Also that those who are not in dire need of the money from their earnings might not bother to work because their jobs were just a supplement to the household income rather than a necessilty, which would of course lead to fewer workers in the workplace.

Seriously, I know you think you’re clever but.

Also that those who are not in dire need of the money from their earnings might not bother to work because their jobs were just a supplement to the household income rather than a necessilty, which would of course lead to fewer workers in the workplace.

And therefore more opportunity for the worse off.

UKLiberty @ 73

Yep, fair point. The issue being of course those jobs were still created, despite (or perhaps because of?) the minimum wage. Question Time is awash with footage of Tories attacking the proposed minimum wage from as early as the mid Eighties onwards (Hestiline and Howard spring to mind) telling us that the minimum wage would destroy jobs. Bullshit of course, but what do you expect.

If the Tories do win the election we will see the boot boys destroy the NMW out of spite. They are simply unable to resist kicking the weaker members of society, the scumbags.

@18
For the record: Spain hasn’t got a minimum wage. Look at their dole rates. They’re terrifying.

“Changing the price of that labour doesn’t affect that demand, because those jobs are in the economy anyway. Cutting the price of labour does not create more work, how could it?”

I see. So if the present statutory minimum wage was doubled or quadrupled that wouldn’t affect the number of workers who would be hired at that wage?

C’mon. That’s pure garbage.

74
Thousands of people in the service industries are already claiming means-tested benefits in order that their very poor wages are made up to a level which enables them to manage (just). All taxpayers are subsidizing the low-paid service industry, believe me, the owners are quite pleased with that outcome. It is quite a good outcome for all suppliers – the tax paid by the mainly middle earners supports the low-paid, which then enables them to purchase goods/services and finance another round of production. Now if you really want to seriously change the demand for pins, you stop subsidizing the poor,

Bob B @ 78

Oh, you are just playing now, nobody has suggested that, have they? We are talking about a realistic level in line with Average earnings.

However, what if the NMW goes to 7 quid an hour, then what? Do Tesco stop stacking shelves and collecting trolleys for example? What if I drive into an collected trolley and claim a couple of grand from their insurance? Do they bite the bullet and pay people to collect trollyes at 7 quid an hour then?

What about hair dressers? Do we all baulk at the idea of paying fifteen quid for a haircut and buy clippers and adopt buzz cuts instead? Do all the pubs close because nobody can make a profit? What about all those rich kids who are looking for a drink after a hard day collecting trolleys with the wages in their pocket? Is it worth opening a pub if everybody has 100+ quid to spend?

hmm.

Asquith makes the most relevant point here:

“Seriously, I know you think you’re clever but.”

Tim Worstall looks at an economics textbook, looks at the way the world works, then suggests ignoring the latter in favour of the former – because of course whatever textbooks say is right.

Hilarious. Anyway, Worstall is unemployed and probably wouldn’t get a job on minimum wage even if it was offered to him. I’d like to see him do a shit job for a wage lower than £5 an hour.

Jim,

The issue being of course those jobs were still created, despite (or perhaps because of?) the minimum wage.

So far as I can tell, no-one here criticising the minimum wage is dealing in absolutes, l – what is being claimed is that rises in minimum wage causes reductions in employment and decreases in minimum wage causes increases in employment, not zero or 100% employment. Also note that no-one – so far as I can tell – claims the minimum wage is the sole factor in (un)employment.

Here for example Chris Dillow attributes the fall in youth employment to a possible three factors, one of which is minimum wage.

And here Chris says a Low Pay Commission report,

contains a survey of employers who were affected by the rise in the minimum wage in 2003. It shows that: 37 per cent of them cut staffing levels, whilst only 4 per cent raised them; 31 per cent cut basic hours worked whilst 3 per cent raised them; 28 per cent cut overtime hours; 81 per cent said their profits fell; and 63 per cent said they raised prices.

This, of course, is exactly what basic economics would predict. It corroborates this research, which shows that where the minimum wage bites hard – for example in care homes – it does reduce labour demand. …

If the Tories do win the election we will see the boot boys destroy the NMW out of spite. They are simply unable to resist kicking the weaker members of society, the scumbags.

But it seems to me very unfair to include Tim W and Chris Dillow among them. Essentially Chris and Tim (and others) argue that the minimum wage is not the best way to help the poor. But because they criticise the minimum wage they are accused of attacking the “weakest in society”.

What they are arguing is that is perhaps a better way. They have both long supported a CBI. Chris claims “This would give people the choice of whether to accept low-paid jobs or not, and so genuinely empower them”. Now, asquith appears to be correct that no “remotely electable party proposes” CBI, but maybe they should. Also, if I recall correctly, Chris and Tim (among others) have argued for an increase in the personal allowance to say £10k. Why are the poor subject to income tax?

CBI? Giving (white, middle class) taxpayers’ hard earned cash to (black/asian, working class) layabouts to do no actual work? £188bn you say? But surely we need all of that to build big walls around Britain to keep the immigrants out…. cheap labour, you say?

I’m sure you’ll say it costs even more to keep people on benefits and low paid work, but since when did you make any sense?

Any cost to the (white, middle class) taxpayer = bad. Mea culpa, hail mary.

There’s an illuminating (long) entry in Wikipedia for Minimum Wage, which covers most of the issues raised here and with some clarity:
http://en.wikipedia.org/wiki/Minimum_wage

Note this section:

“One complicating factor is possible monopsony in the labor market, whereby the individual employer has some market power in determining wages paid. Thus it is at least theoretically possible that the minimum wage may boost employment. Though single employer market power is unlikely to exist in most labor markets in the sense of the traditional ‘company town,’ asymmetric information, imperfect mobility, and the ‘personal’ element of the labor transaction give some degree of wage-setting power to most firms.”

@70 above, I posted:

“In rural labour markets, where job opportunities may be few and far between at the best of times, statutory minimum wages may prevent what could amount to blatant exploitation. It was, presumably, situations like that which prompted Winston Churchill as a minister in a Liberal government to take through Parliament the Trade Boards Act of 1909, which provided for administrative structures to determine minimum wages in particular industries.”

Ergo, there is nothing especially novel in Britain about setting statutory minimum wages. It was done long ago and unwound by one of the Thatcher governments, as I recall.

rob tennant, your contributions are fascinating, but I must refer you to more competent minds than mine.

Here is Chris Dillow on CBI: Something for nothing?, which I believe addresses such concerns as you raise. And here and here is Chris again on why CBI makes us all, including the poorest, more free than with the traditional welfare state. (his other CBI articles.)

Good night.

“Now, asquith appears to be correct that no “remotely electable party proposes” CBI, but maybe they should.”

No, because in the UK, as opposed to Libertopia, the Tim Worstall basic income would absolutely hammer lower income families, and make tens of thousands of people homeless, because it involves scrapping child benefits and tax credits and housing benefits.

If you think that having children is a lifestyle choice and that poor people should move out of London and the South East, that is fine, but it is obvious why no political party is going to sign up for “give every millionaire and scrounger 130 quid a week, while at the same time increasing child poverty and homelessness and letting bosses pay people £1 per hour to work for them”.

There are left-wing versions of the basic income policy, like that of the Green Party, but the Green Party don’t know how much their basic income policy costs, except that it is probably £70 billion + in extra spending.

If anyone’s got any better suggestions for how a basic income policy could be introduced in the UK without adding tens of billions in welfare spending or making large groups of low income people poorer, then go for it. But it is really tedious to hijack every single welfare or employment debate we have here with the same unrealistic, sky fairy suggestions.

/rant

64. Jim

‘ Dropping prices usually means that there is an oversupply of goods, it not does mean that the more tins of beans are necessarily sold right across the market, it just means that the oversupply has pushed the price down of one or more brands. Same with the labour market, cutting the price of labour will just make labour cheaper, it does mean that jobs will suddenly appear out of nowhere. Companies employ the correct number of people for the job. Tesco made two billion quid profit last year, if they need an extra shelf stacker in each shop, they could easily afford it. Cutting the minimum wage will not influence that supply one iota. ‘

You have this round the wrong way in understanding how minimum wages causes unemployment for those in the low-wage labour market, Jim. The low-wage labour market operates as a supply and demand market like any other. Tesco determine the demand for employment and workers determine the supply of labour. Tesco do not supply employment as such they are on the demand side. Without a minimum wage the equilibrium wage will be where labour demand meets labour supply. If you introduce a price floor i.e. a minimum wage three things happen. Labour demand falls and labour supply increases. This opens up a gap between supply and demand creating a labour surplus i.e unemployment.

Those joining the low-wage labour market that were not there at the former equilibrium wage would be teenagers dropping out of college because wages are higher now. Moreover, parents with young children who would rather be at home but the higher wage entices them to seek paid work. Retired or near retired workers stay on in the labour market. That is how minimum wages cause unemployment for those on low-incomes. Furthermore, as others have stated the wage floor also affects employment through less jobs being created than would be the case without the wage floor. It is important to remember that the idea of one single labour market is not accurate. There are thousands of labour markets. The unemployed cleaner is in a different labour market to the unemployed architect. The minimum wage will impact the employment prospects of the cleaner by distorting the dynamics of the cleaners labour market but will not affect the dynamics of the architects labour market.

That does not mean that a minimum wage is a bad thing. Workers in employment on the minimum wage will be better off. Workers who are in the same labour market but are not in employment are worse off because they face increased competition for employment in a smaller labour demand market. Moreover, that will be the same conditions facing those in employment if they lost their job.

None of this is some right-wing stuff. Every liberal university economics dept. in the country teaches it. In fact, I was looking at some stuff my nephew is studying and his lecturer is a former TUC economist and it is all there. It really comes down to a classic trade-off, higher income for those in employment but paid for from higher unemployment.

One second.

Worstall: you are aware that citing Denmark and Sweden as your “model” on wage crashes against their massive state-propelled redistribution in the form of the highest taxation in the Western world?

All fair enough of course, but I didn’t know you were a fan of the “Scandinavian model”.

For the record, there is no State-enforced National Minimum Wage in Denmark because there was already one privately agreed nationally between the Unions and the Danish equivalent of the CBI.

It is worth noting that practically every single worker in Denmark is paid above the above mentioned rate anyway.

“It is worth noting that practically every single worker in Denmark is paid above the above mentioned rate anyway”

Sure….which is another thing about minimum wages. What is the relationship between the minimum wage and the average wage? The general consensus seems to be that when the min wage is 40% or less of the average wage the unemployment effects are small to minimal. When it’s over 45% then the effects become larger….large enough that perhaps the trade off is not to be desired.

Average wage in the UK is something like £10 – £12 an hour (depends whether you take mean or median). Which leads to the thought that at £5.80 the min wage is already at the rate where it will cause large unemployment effects…..as at the beginning of this post we saw that “something” is causing such effects among the young and untrained.

As to hte other questions UK Liberty’s been mining Chris Dillow’s archives to answer most of them.

Oh for goodness sake, Tim, take a look at the context within which you are arguing. Your precious free market has led to an astonishing amount of house price inflation. Even with the minimum wage housing costs, particularly in the South East, have to be subsidised for low paid people. Your (if you pay them here)precious taxes pay for the luxury of low paybills in some sectors of industry. A triumph of dogma! Let the markets rein! It will all turn out lovely in the end!

Fucking idiocy.

Your precious free market has led to an astonishing amount of house price inflation.

I think arguing that the UK’s planning and building sector is an example of the free market at work is as close to a basic category error as we’re likely to see, even in this thread.

“Your precious free market has led to an astonishing amount of house price inflation. ”

If you think we’ve a free market in housing you’re sadly deluded. Houses in the UK are not in fact expensive. They’re worth their rebuild cost just as they are in most other places in the world.

What’s expensive is the right to build on a particular plot….planning permission. Something which the State hugely restricts the supply of.

Free up that supply and housing prices will come down….the solution to what ails the housing market is more free market, not less.

For example, an acre of reasonable farmland in the SE is worth perhaps £4,000. (and it needn’t be good farmland either, a copse, bad soil, whatever). Get planning permission on it and it’s £500,000 minimum. That’s what makes housing expensive.

The ASI has even published a paper suggesting a way out of this. Allow marginal farmland to be built on at low densities……

Don,

But it is really tedious to hijack every single welfare or employment debate we have here with the same unrealistic, sky fairy suggestions.

Um… the first commenter in the thread to mention CBI or basic income was asquith. The second person was you, Don. Tim Worstall mentioned it in his 18th post, a response to your comment. So who hijacked the thread with talk of CBI?

Regardless, is it any less tedious for the ‘debate’ (such as it is) to be about simply giving the poor more money despite the consequences to them discussed above? Because that appears to be the standard of ‘debate’, here in and government: let’s just throw more money at the problem and turn a blind eye to the consequences (although some here seem to be unable to understand the possibility of any consequences whatsoever).

@94

I think there’s more to any wages policy than just giving money to the poor. It fits into a wider context. There are issues to be addressed, though.

@93, Tim

Land prices went up with the housing boom. You’re just moving the goal posts.

Your arguments remind me of communists trying to defend the USSR or Maoist China. Continuously narrowing your definition and contorting your argument in the face of irrefutable evidence for the utter failure of the doctrine you love so much.

“Land prices went up with the housing boom.”

Umm, no, my statement is that land prices going up was the housing boom.

RW @ 88

If you introduce a price floor i.e. a minimum wage three things happen. Labour demand falls and labour supply increases. This opens up a gap between supply and demand creating a labour surplus i.e unemployment

If I understand you correctly you are suggesting that the minimum wage has a displacement effect on the labour market, by attracting otherwise non-employed people (the groups you mentioned) into the labour market, thus competing with un-employed for jobs. Then surely that is stirring the pot rather than creating newly unemployed people?

Is there any evidence that the minimum wage removal will deter those people you mention from entering the labour market in the first place? Surely that means the same competitions takes place, but it just happens at a lower wage rate?

Take the newly ‘early retired’ 58 year old and the social drifter. Perhaps the 58 year old is looking for a job to get him out the house and to supplement his little nest egg with a little beer money. He is competing in the labour market with the social drifter at the moment, but drop the minimum wage and the competition doesn’t necessarily stop, it just moves to a different ground and they end up with fighting over less crumbs. As you say, we have a labour surplus, and we have an incoming Government (whoever wins the next election) who want to push more people into the labour market. It seems rather sad that some people here see that as an opportunity to destroy what little income the poorest earn, so that the rich enjoy the spoils.

The minimum wage can have an impact on unskilled work. The problem is that the percentage of unskilled poorly educated in the UK is probably 20-40% and probably much higher than most Scandinavian countries. Very few Scandinavian countries had a large industrial base employing large numbers of unskilled poorly educated people. Unless we educate and train the unskilled so that at least they enter the semi-skilled market ( 3 yrs of post school training) or preferably the skilled market ( successfully completed 5 yr apprenticeship) then we will continue to have this debate on the cost of the minimum wage on unskilled employment.

17. Bob b has raised a fundemental point , especially with regard to training people to enter industry dominated by electrical/electronic control and advanced mechanical engineering systems, be it car manufacture , buildings with a large building services component, energy generation , engine manufacture, music systems, TV design, etc, etc.

The former Labour MP , Eric Heffer pointed out that a major problem for Liverpool was that much of the employment was unskilled based in and around the docks: once these closed, much of the labour lacked the skills and education to enter semi and silled employment. Birmingham suffered better than Coventry because it had a much higher percentage of skilled mployment which meant people could cope and be re-trained to enter companies dominated by Computer Aided Design/Manufacture.

Jim,

… Then surely that is stirring the pot rather than creating newly unemployed people?

You seem to have missed Richard’s claim that “Labour demand falls”.

It seems rather sad that some people here see that as an opportunity to destroy what little income the poorest earn, so that the rich enjoy the spoils.

What seems sad to me is your insistence on this viewpoint when what people are really suggesting is that the minimum wage is not the best means of helping the poorest. Even if they are wrong about it is seems unfair, dishonest, even irrational, to accuse them of deliberately attempting to ruin the lives of the poorest.

UKL @ 99

You seem to have missed Richard’s claim that “Labour demand falls”.

But is there any evidence that there a significant fall in demand for labour that can ascribed to the mimimum wage?

What seems sad to me is your insistence on this viewpoint when what people are really suggesting is that the minimum wage is not the best means of helping the poorest. Even if they are wrong about it is seems unfair, dishonest, even irrational, to accuse them of deliberately attempting to ruin the lives of the poorest.

Imagine my surprise that people who normally show nothing but utter contempt for the poorest workers and the unemployed, happen to suddenly undergo deathbed conversions and are now able to see the solution to this group of unfortunate people.

Not only that, but it must be so sheer coincidence, that the ‘solution’ means taking money from the very poor and giving it to the very, very poor, the balance going to the back pockets of the richest people in the Country. Not only that, but this is backed up via economists and economic models, therefore must be true! Where is the natural scepticism that we come to expect from the ‘Right’?

Nope, we had thirty years of a minimum wageless economy to prove that and it never happened, the poor got poorer.

@96

Its still moving the goal posts. You seem to wilfully ignore the fact that house price inflation driven by deregulation and profiteering by banks, estate agents and their lackeys has caused a massive distortion in our economy that it will take decades to recover from. All due to your beloved free market.

How can reducing or removing the minimum wage be a driver for anything other than poverty when the cost of living, especially housing, has increased so much? Unless you are prepared to see more homeless people and an increase in criminality someone has to pay, and its the taxpayer through state intervention.

101. Yurzem. There are house being demolished in run down parts of the UK, largely because they are worth very little because noone wants to live there. Where there is demand for housing; a limited supply of land for construction and the ability of people to to borrow 5-6x their salaries on 100% or even 125% mortgages, then house prices will rise.

The creation of well paid , relatively secure employment in wealth creating industries in the former industrial parts of the country will help to increase house prices locally and reduce the pressure on house prices in S England . Much of the high tech high value manufacturing occurs in S England because that is where much of the skills are located- top universities ( Oxbridge, IC, UCL, LSE, Kings- medical ),Harwell, Aldermaston, Culham, National Physics Lab, Nat Inst Medical Research, many of the MRC research centres. Only training people who live in the former industrial areas, to a level such that they can enter the high value high tech industries ,can we rebalence the UK. This means educating people and training people such that they have n appropriate attitude to work such that they can be employed by Rolls Royce, JCB, Dyson etc, etc.

@102

Good points. However house prices across the UK have increased hugely, there are only a few places of the sort you describe such as those blighted by Pathfinder policies and in some very economically backward areas.

Agreed we need to replace the traditional industries in those areas. Its a given that we cannot compete with the developing world in mass-market production. We were saying decades ago that in order to have the kind of mixed economy to give this country strength in depth we would need to upskill the workforce. This appears to be central to the article that began this thread. Sadly the debate was taken over by a load of free-market willy waving.

I suspect there are social reasons in traditional working communities for the apparent resistance to improvement through education. This has led to some of the blighting you describe. I would have hoped apprenticeship schemes could have filled the gap to some extent, so why have they not been succesful? What can we learn about our own needy communities and from other countries that have managed the change?

Jim,

But is there any evidence that there a significant fall in demand for labour that can ascribed to the mimimum wage?

Chris has linked to a number of papers on his site including the Low Pay Commission (supporters of minimum wage) report I quoted earlier. He wrote in 2006,

The job losses caused by a minimum wage aren’t large enough to show up in the macroeconomic numbers that get all the newspaper headlines. This is because the minimum wage is low enough not to have a big impact on wages, and the price-elasticity of demand for labour is low. Sure, if you look carefully there is evidence of cuts in jobs and hours (pdf), as theory predicts. But it’s easy to avoid this evidence, especially if the confirmatory bias means you don’t look in the first place. And it’s easy to find people who have kept their jobs and hours, and so benefited from the minimum wage.

With regard to this,

Imagine my surprise that people who normally show nothing but utter contempt for the poorest workers and the unemployed, happen to suddenly undergo deathbed conversions and are now able to see the solution to this group of unfortunate people.

I don’t recall Chris or Tim W expressing any contempt for the poorest workers or unemployed and I find it difficult to read such contempt into their suggestions.

Not only that, but it must be so sheer coincidence, that the ‘solution’ means taking money from the very poor and giving it to the very, very poor, the balance going to the back pockets of the richest people in the Country.

In this thread Tim has argued that NMW doesn’t help youth employment and elsewhere Chris has argued that NMW in effect redistributes money to the state, hitting the poorest hardest…

Not only that, but this is backed up via economists and economic models, therefore must be true! Where is the natural scepticism that we come to expect from the ‘Right’?

… backing up their arguments with evidence (e.g. those papers Chris links to, studies of effects of NMW in the real world).

13. Too many children , especially boys from unskilled/emiskilled backgrounds stop being interested in academic education from the age of 14 or so, post puberty. The development of a trade stream in shools or separate schools where the academic training is relevant to the apprenticeship may be what is needed. The maths, physics, chemistry and english ( relevant to writing and understanding contracts, instructions manuals , site instructions ) relevant to that trade would be taught. Chemistry relevant to cement/concrete would be taught to bricklayers, whereas the chemistry for car mechanics would be based on fuel and corrosion. A bricklayer would be taught the maths and physics relevant to structures , whereas a car mechanic would be taught that relevant to movement .

The minimum wage does NOT affect unemployment figures.

Or maybe it does? Look at the Italian levels!

If the minimum wage is set at £1/hour there isn’t an effect on aggregate employment levels.

But it’s absurb to believe that there won’t be any effect on employment if the wage is set at £10/hour or more.