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.

Or maybe it does? Look at the Italian levels!

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).

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?

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.

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.

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.

… 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.

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.

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.

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

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.

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).

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……

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.

Fucking idiocy.

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.

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.

‘ 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.

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

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.

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.

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.

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?