Why reducing employment rights won’t boost employment


12:48 pm - January 10th 2011

by Nicola Smith    


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Today’s Telegraph reports that David Cameron hopes relaxed employment laws will help to boost the private sector and encourage firms to take on thousands of new workers.

The theory appears to be that if it’s easier to sack and mistreat workers then employers will be more likely to create jobs.

But, as last year’s comprehensive TUC research (undertaken by Landman Economics) showed, this assumption is false.

Macro and micro evidence from across the globe shows that there is no significant relationship between employment levels and employment protection legislation and that countries with very different levels of regulation have equal levels of success in generating employment.

As a recent literature review concluded:

our results suggest a yawning gap between the confidence with which the case for labour market deregulation has been asseted and the evidence that the regulating institutions are the culprits. It is even less evident that further weakening of social and collective protections for workers will have significant positive impacts on employment prospects. The effect of various kinds of deregulations on unemployment are very hard to determine and may be quite negligible

Recent evidence from the UK also shows the limits of the orthodox thesis on regulation. During its last period in office the Labour Government introduced a number of measures which improved rights at work – for example providing employees with protection from unfair dismissal after a year of employment, introducing the minimum wage and introducing entitlements to more generous maternity leave.

The empirical evidence demonstrates that these measures did not have negative impacts on employment levels – indeed prior to the global recession employment rates were at their highest for decades.

The reality is that there is no ‘one size fits all’ set of policies which achieve successful employment outcomes. Relatively highly regulated Scandinavian countries have achieved success and countries with low regulation show, over comparable time periods, vastly different outcomes.

Strong employment rates are the consequence of a country’s overall economic strength, not its level of employment protection.

There is also a risk that cutting regulation could act to further dampen growth, as reduced investment in skills and less careful recruitment leads to productivity falls and social security costs increase from rising unemployment and reduced obligations on employers to pay sickness benefits.

The credit crunch provided a stark illustration of the damage that unbridled markets can cause – and if neo-liberal economists were wrong about the impacts of de-regulation in the finance markets they can also be wrong about its impact in the field of employment rights.

Instead of making life worse for working people and their families the Government should be focusing on a real strategy to support and strengthen growth now and in the future. Employment rights in the UK are already weak compared to nearly all other developed countries. There is no moral or economic case for making them worse.

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About the author
Nicola is the TUC's Senior Policy Officer working on a range of labour market and social welfare policy. She blogs mostly at ToUChstone.
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Reader comments


Are we to understand then that boosting employment rights will never have an impact on the rate of employment hiring, the split between full-time and part-time temporary jobs created or whether jobs are created mainly by SMEs or not?

2. Jennie Kermode

Further to this, simply getting more people into employment, without boosting the overall amount spent on wages, won’t help to reduce the welfare budget. Most state benefits already go to people who are employed but are earning too little to survive on. The result is effectively taxpayer subsidisation of exploitative private sector enterprises, a practice which could be ended by strengthening employment rights across all sectors.

Combine this with workfare and you have the perfect template for a society based on masters and their indentured servants.

“Relatively highly regulated Scandinavian countries have achieved success”

Sorry? Beg your pardon?

http://www.oecd.org/dataoecd/13/53/40575308.pdf

This paper provides an insight into the Danish labour market model and the political approach adopted towards
it. The first part of the paper describes the four main elements of the Danish labour market model:
1) Active labour market policies
2) High degree of job mobility due to limited employment protection legislation

So that’s the OECD telling us that Denmark has a “lightly” not “heavily” regulated set of employment rights.

Look, I know you’re working for Brendan Barber and all that but while you’re entirely entitled to your own opinions you’re really not entitled to your own facts.

Last time I looked there was more to Scandinavia than Denmark. There’s Sweden which is dismantling its welfare state and enjoying a crime boom as a result and Norway which is doing nicely out of oil and not being a full member of the EU

That well known economically illiterate fellow – Dani Rodrik, wrote last year something agreeing with the TUC – making it easier to fire workers doesn’t help unemployment. http://rodrik.typepad.com/dani_rodriks_weblog/2010/09/more-on-firing-costs-and-unemployment-during-the-crisis.html

@4
So Worstall do we agree that a model that protects the jobless and shelters them from poverty like the Danish one does is the way forward?

I’ve always been entirely happy with the idea that there’s good support and retraining for the unemployed. Along with, as in Denmark the right to fire whenever and a time limit on those generous supports.

“So that’s the OECD telling us that Denmark has a “lightly” not “heavily” regulated set of employment rights.”

The OECD index of employment protection index found that Denmark (as of 2003) had greater employment protection regulations than the UK. So relative to the UK or US, OECD says that Denmark and other Scandinavian countries have a more heavily regulated set of employment rights.

http://www.oecd.org/dataoecd/8/4/34846856.pdf

They also spend 2.5% of their GDP on passive labour market policies such as unemployment insurance, far more than the UK or US. And, from the report you cited:

“observers point to the tradition of collective bargaining and the presence of trade union representatives in all companies as significant factors that contribute to job security in Denmark. The generous unemployment benefits, together with employment security, also play a significant role.”

“Look, I know you’re working for Brendan Barber and all that but while you’re entirely entitled to your own opinions you’re really not entitled to your own facts.”

Well, indeed. It is truly devastating for the TUC’s argument that OECD research finds good outcomes resulting from union reps in every workplace, greater employment protection regulations than in the UK and vastly more generous unemployment benefits.

9 – 2003 is quite a long time ago. Australia were even good at cricket back then. Since then:
http://www.oecd.org/dataoecd/17/52/44651426.pdf

– Reduce marginal taxes on labour income (2005, 2007, 2009)
Recommendations: Cut income taxes, focus on lowering the top marginal rate or increase its threshold.
Actions taken: The Parliament adopted a major tax reform in 2009. The top marginal rate will be reduced and the income threshold from which it applies raised. The in-work tax credit will be expanded and the middle state income tax bracket abolished.
– Reform sickness leave and disability benefit schemes (2005, 2007, 2009)
Recommendations: Increase incentives for the sick and disabled with some ability to work to return to ordinary employment in the labour market, particularly by reducing remuneration in the special disabled employment programme (Fleksjob).
Actions taken: The Parliament adopted a bill in 2009 which introduced return to work plans for employees on sickness absence, a requirement for employers to conduct interviews with these employees within the first four weeks, and a new form of agreement between the employer, the employee and their doctor about work capacity. No action on Fleksjob since the maximum wage subsidy was reduced in 2006.
– Enhance the competition framework (2005, 2007, 2009)
Recommendations: Enhance competition inter alia by liberalising opening hours in retailing, removing discretion in local government planning, and continuing with privatisation and outsourcing of publicly-funded services.
Actions taken: In early 2009, the government introduced a range of measures to cut business red tape, particularly in relation to starting a new business. The government has appointed a new Public Procurement Committee to encourage public-sector competition.

10 – Sure, but unemployment is currently higher in Denmark since the 2009 reforms:

http://www.indexmundi.com/denmark/unemployment_rate.html

[This is not to argue that the reforms caused unemployment, merely that there is no evidence that those reforms have boosted employment – we won’t know that for several years.]

11 – unemployment higher in 2009 than in 2003? I wonder what might have caused that? I agree it’s too soon to tell what impact the new reforms might have had though.

“unemployment higher in 2009 than in 2003? I wonder what might have caused that?”

Labour’s deficit spending? 😉

14. Shatterface

‘The reality is that there is no ‘one size fits all’ set of policies which achieve successful employment outcomes. ‘

It depends on how you define ‘successful employment outcomes’. If a million people are sacked a week and an equal number are hired to fill their places, levels of emoloyment remain the same – but nobody except an employer wishing to drive down wages would regard this kind of ‘flexibility’ a successful outcome.

Job security is conducive to all kinds of social benefits (community cohesion, family stability, law and order) than rapid turnover of employees so its not just a question of how many are employed.

Why not bring back the good old fashion work houses and re-introduce the cat of nine tails and public flogging for slackers that do not do enough. This selfish country needs a good old fashion way of doing things and should respect the wealthy ( Glorious ) that feed the nation. Long live David Cameron ad the Tories.

“If a million people are sacked a week and an equal number are hired to fill their places, levels of emoloyment remain the same – but nobody except an employer wishing to drive down wages would regard this kind of ‘flexibility’ a successful outcome.”

Actually, most economists would consider that a very desirable sort of outcome. That workers who lose their jobs can immediately get another to their liking? That’s good.

That the workforce and economy is flexible enough that it can move labour from declining industries (presumably where the job losses occur) into (at worst,) not declining ones, where the job openings occur? Quickly and with a minimum of disruption?

No, that would be regarded as an extremely desirable state of affairs. Don’t forget, last years Nobel was awarded exactly for the study of why this desirable situation doesn’t occur: why there are dislocations and delays in hte unemployed finding other jobs (or from the other side, why it takes time for employers to find the labour they need, same thing).

This appears to be another Tory fail. No company actually ‘wants’ to employ people. In fact, the actively seek to employ less people. When you ask an employer what he needs to employ more people, he hears ‘what do you need to ensure you can pay less people and less money for those people. No-one should be suprised to find that ‘ASDA’ don’t like the minimum wage and having to treat people fairly. Hell, anyone can tell you that.

If you want to create jobs in this Country, then you are going to have to put these companies into positions where they are ‘forced’ to create jobs.

@16

That the workforce and economy is flexible enough that it can move labour from declining industries (presumably where the job losses occur) into (at worst,) not declining ones, where the job openings occur? Quickly and with a minimum of disruption?

Er, you really have no idea whatsoever about why industries with high labour turnover continue to thrive do you?

2. Jennie Kermode

“Further to this, simply getting more people into employment, without boosting the overall amount spent on wages, won’t help to reduce the welfare budget. Most state benefits already go to people who are employed but are earning too little to survive on. The result is effectively taxpayer subsidisation of exploitative private sector enterprises, a practice which could be ended by strengthening employment rights across all sectors.”

How many of the employed on benefits are single or childless couples? If it is not high and most of the employed on benefits have children. Does that not suggest it is children we are subsidising not employers? Subsidising children is perfectly acceptable as they are our future. However, it is misleading to say that the employed on benefits is a subsidy to employers.

RW @ 19

No, beause we are subsidising these people so the employer does not need to pay a living wage.

We could, in theory, decee that ALL parents recieved a wage of say 200 quid a week to look after their children. I am not suggesting we should do this or it would be desirable, just saying we could do it.

Let us suggest that the entire parent population was removed from the workforce. That would mean two things 1) the childless would have a field day or employers would then be FORCED to pay a wage higher than the 200 quid a week to entice those people back into work.

The fact that we pay tax credits means that employers have nothing to drive them to attract working parents into employment.

“No company actually ‘wants’ to employ people. In fact, the actively seek to employ less people.”

Err, yes, this is the history of the human race. We would all always, like to emply fewer people to do this job over here, so that people can go and do that job over there.

You know, we invent combine harvesters so that three people can do what 500 did before, looms so that….

Ah, no, you don’t get it, do you?

If you look at how many strikes there have been over the last decade it would indicate that industrial relations in Britain is about right would it not? There has been steady growth and high employement with wages roughly remaining constant.

Now we are in a period of austerity and the free marketeers believe that wages must decrease to make us more competative and high unemployment is the balancing factor in the economy. This in turn will lead to workers and unions becoming protective over maintaining what they already have and inevitably this will cause tensions in relations. To try to reduce workers rights at such a sensetive time is a recipe for confrontation and should be avaoided where possible.

Contrary to common belief it is actually still very easy to dismiss workers in this country, if it wasnt the ET courts would not be litterd with ET claims. An employer might have to pay a small amout of compensation if found to have unfairly dismissed an employee but they are still dismissed?

Also just look how easy it has been to lay off 500,000 public sector workers?

@22 Exactly, now add the proposed workfare to that mix, you now have a workforce which is easier to sack and then easily replaced by benefits claimants “doing training”.
Welcome to the start of the new serfdom.

Skooter,

I agree with much of what you say, but:

“the free marketeers believe that wages must decrease to make us more competative and high unemployment is the balancing factor in the economy.”

Leaving aside the fact that there are very few real free marketeers, the free market position is that unemployment is indeed caused by wages being too high, or perhaps more correctly the high cost of employing someone relative to that person’s productivity. The government would be far better cutting the taxes on employment than fiddling with employment law. The welfare state can also be blamed, for creating the ‘benefit trap’ where it’s not worth the disutility of working, when you’re not going to earn much more than you can get for not working. And, yes, the sacred minimum wage cow must be blamed.

I know such points usually cause anger, but this is economics, and you can defy exonomics no more than you can the law of gravity.

Sorry for typo at end. Should be ‘economics’.

@Tim Worstall,

so can I quote you on the fact you’d be happy to endorse a system that supports the unemployed’s living expenses and organises top-notch retraining at the cost of top tax rates that are up to 53-60% (like across Scandinavia and Denmark included)?

@ Nicola Smith: Don’t get this at all; are you really saying that making it more expensive to employ people will not increase unemployment?

There are going to be several factors that are difficult to separate out and there are trade-offs that we are willing to make to make the lives of those in employment better but the idea that they have no cost is stark staring bonkers.

Diminishing workers rights will only do these things:

1. Increase turnover of jobs, while not substantially affecting the rate of unemployment.

2. Damage the quality of jobs in addition to the above effect. (Read – in horror – about the American law of “At-Will Employment” for something Cameron & Co would love to implement.)

The only true winners will be the bosses, managers, brokers, and investors etc. It is frankly outrageous to think that “more flexible” or “less regulated” (or less facetiously, worse) employment rights will benefit the economy. We are talking about peoples lives here after all, not the dispassionate and cerebral concept of an “economy”.

@ Tim

Your “many economists” who would support a flexible economy seem to disregard the idea of a sustainable economy. The idea of flexibility is much like the idea of tolerance. That said, should the tolerant tolerate the intolerant? The answer is no.

If you were to argue that flexibility ensures sustainability, I would introduce you to the post-industrial, service-driven economies which failed terribly in the recent crash. We already have flexibility – it is a prerequisite of providing a service. We have the most flexible economies in the world at the moment – what difference did it make? What we don’t have is sustainability because the wage-theft which workers experience around the world is artificial and only exacerbates the problem/boom and bust cycles.

We need more rights for workers, not less.

@ Trooper

Defying economics is not like defying the rule of gravity because economics is based on a number of assumptions and what perspective you take. The fact that people use phrases such as “good economics” and “bad economics” infers a value judgement. There is no such thing as “good gravity” unless you fall off a skyscraper and miraculously start levitating just before impact.

“so can I quote you on the fact you’d be happy to endorse a system that supports the unemployed’s living expenses and organises top-notch retraining at the cost of top tax rates that are up to 53-60% (like across Scandinavia and Denmark included)?”

No, that would be putting words into my mouth.

“so can I quote you on the fact you’d be happy to endorse a system that supports the unemployed’s living expenses and organises top-notch retraining”

You can quote me as supporting that, yes. As long as you also point out that this goes along with the almost American “hiring at will” system in use as well. And the time limit on those benefits.

As to the tax system, the Nordic systems are a little more complex than you suggest. For example, the Danish top national income tax rate is 15%. The standard national income tax rate is 3.76%. I would certainly support those. It is the communes (which can be as small as 10,000 people) which impose the buld of taxation, levying local tax rates in the 20-30% range. Yes, I’d certainly support that idea, real localism. And I suggest that you do too: I’m convinced that people will be happier to pay higher taxes if they actually know who is levying it, know who is spending it, can see the evidence of the spending with their own eyes and perhaps most importantly, know where the bloke who spends it all has his Friday night pint.

But more than this, the Nordic systems follow some of the precepts of the classical economics of taxation. Their corporate taxes are lower than ours. Their taxes on capital are lower than ours. It’s true that their income taxes can be higher (but note that that is on earned incomes: returns to capital are taxed more lightly than ours) but their taxes on consumption are considerably higher than ours.

In total, their tax systems are *less* progressive than ours.

And yes, I support that too: not because I want to see the poor groaning under the weight of the taxes they must pay ( I would much rather a small state, one which it is possible to pay for only by taxing the rich) but because such a tax structure encourages economic growth more than our own.

So yes, I support many parts of the Scandanavian tax systems: just not the ones you probably do.

30. Furor Teutonicus

XX The theory appears to be that if it’s easier to sack and mistreat workers then employers will be more likely to create jobs. XX

No. It will just lead to “merry-go-round employment”. More people get to have a ride, but you still have to get off and go to the end of the queue for another go.

“Agency work” does it right now, they just want to spread the practice to more of the job market.

Nobody is asking what kind of jobs these deregulated, flexible ones are. If they are low-value jobs trying to compete in an open market with the likes of China and India how can they possibly be sustainable with the cost of living in Britain? We need to face the fact that in some way this kind of employment is going to need public subsidy unless we can increase the skills of the workforce doing these jobs.

Does the kind of flexibility under discussion work with the kind of upskilling we need? Indeed, would an employer want to lay off the skilled workforce they will have, in part, trained and who are intrinsic to their business?

I can’t help but feel that the Left obsesses about big business when considering its ideas about business tax and regulation when SMEs are far more important to us. It seems to me that reducing business rates would benefit this sector. The money SMEs would gain is more likely to stay in the UK economy. SMEs are also more likely to be the innovators we are told we need for the Green Economy.

If we dislike the way big corporations and banks work we should look at what makes them different. We should not tar all businesses with the same brush, we need a strong and varied economy, after all.

Tim W –

“I’m convinced that people will be happier to pay higher taxes if they… can see the evidence of the spending with their own eyes”

That always made sense to me too. Then polling day 2010 rolled around and it dawned on me just how deeply ingrained “What have the Romans ever done for us?” syndrome is. There’s a very powerful tendency to take for granted that there’s a teaching assistant in your kids’ classroom, you get to see your GP the day you phone up, you get an operation quickly if you need one, the buses run every ten minutes, etc. etc. After a while, people start to think that’s ‘just the basics’ and can’t possibly cost very much, which is why they’re so quick to believe that the amount of taxpayers’ money the Government spends on providing decent healthcare, schools, pensions etc. must be pretty trivial compared to the amount it spends on paying benefits to that family of scroungers on the front of the Daily Mail.

Tim Worsall @ 21

I didn’t suggest that this is a new phenomenon. You could try and break the habit of a lifetime and actually make the effort to read what is written and not what you would like to have written. I not actually condemning these companies for this. The point that has completely escaped you is that asking the Country’s chief executives on what they need in order create jobs is fundamentally flawed because these people are actively trying to reduce jobs. The Condems are just so blinded by their hatred of the poor, they cannot understand the motives of these people.

You follow a morally bankrupt political ideology, that is fair enough, but surely to fuck even a UKIP supporter must be able to recognise that going to the one group of people whose task it is to actively destroy jobs, were possible, and ask them to create jobs is a bit like asking an arsonist where the best place to put sprinklers in a building?

Eh? Desiring not to belong to the political organisation, the European Union, is morally bankrupt these days is it?

My, how morals have changed since I were a lad.

“going to the one group of people whose task it is to actively destroy jobs, were possible, and ask them to create jobs is a bit like asking an arsonist where the best place to put sprinklers in a building?”

What a lovely analogy. But no, not a valid one.

Sure, those who run businesses would like to be able to make their profits with less and less labour. But they’re interested in making profits, not the amount of labour they use. So asking them “what can we do to increase your profits while you increase the amount of labour you employ?” seems like a sensible question really.

Tropper @ 24

Yeah, funny how places with the highest unemployment have the lowest wages. Surely if your ‘theory’ is correct the highest unemployment blackspots should be the places with highest wages?

Not only that of course, but Countries with less wefare States would also have least unemployment too. Yet, for some reason, we find that when looking at a World’s map, those Countries with no or rubbish welfare states have mass unemployment allied with muss poverty as well.

The ‘best’ answer the Right can come up with for this is ‘although these people do not have formal jobs, they all work on the side’.

It’s a cunt when your your theory comes up against the real World isn’t it?

Tim W @ 34

So asking them “what can we do to increase your profits while you increase the amount of labour you employ?” seems like a sensible question really.

But that is not the question they want to answer, is it? They are only interested in profits and their answer is going to reflect that.

They are going to say ‘lower the minimum wage, slash maternity leave and slash holidays as well as discrimination laws’, these people are not interested ‘society’ because they find the concept repugnant, they are only interested in their own little part of the industry. Whether that is a good thing or not is a different matter, I am not saying that is a bad thing, but there it is.

Among the decent members of our society, it is clear that we do not need an underclass of permanently poor people with nothing. It is obvious we need a large number of people with a large amount of disposable income and I bet if you asked the CEO of HMV, he would say the same. Of course what he wants is ‘every other’ employer to pay decent wages, while he can pay peanuts. He wants his customers to spend money, whilst his staff earn next to nothing. When sitting across a table from Cameron, he is going to come up with a solution for society, he is going to come with the short term solution for HMV.

The wider question is ‘how can we generate enough demand for labour, irrespective what the CEO’s of the Country wants’. To put it bluntly, we need to actually ‘force’ them to create jobs against their will. That is a harder question, I grant you, but if Cameron, Osborne and Clegg had a fucking clue or even an ounce of compassion between them, they might actually come up with something.

“They are going to say ‘lower the minimum wage, slash maternity leave and slash holidays as well as discrimination laws’,”

sure. And such things would lower the cost of employing labour and thus encourage the capitalist bastards to employ more labour as they could make more profit by doing so.

That is what you want, isn’t it? More jobs being created?

“Of course what he wants is ‘every other’ employer to pay decent wages, while he can pay peanuts. He wants his customers to spend money, whilst his staff earn next to nothing.”

Sure. And we have a solution for this. It’s called “a flexible labour market”.

For wages are not determined by what any individual employer wants to pay people. They are determined by what the workers can get if they move next door to another company. And the more companies there are competing for that labour then the higher the wages of the workers will be.

Come on, this is pretty standard stuff, you can find it in Marx. It’s exactly the reason he warns against “monopoly” capitalism, because that removes the need for the capitalists to compete with each other for the profits that can be made by employing labour.

The wider question is ‘how can we generate enough demand for labour, irrespective what the CEO’s of the Country wants’.

A great way of doing this would be to abolish National Insurance for the employer. Lowers the cost of employing labour without reducing wages. I believe Labour’s employment policy is increase National Insurance, although, again, that’s based on the public statements of the shadow chancellor and so may or may not be true.

“Yeah, funny how places with the highest unemployment have the lowest wages. Surely if your ‘theory’ is correct the highest unemployment blackspots should be the places with highest wages?”

Not funny at all, totally logical outcome.

Companies in areas with low unemployment have to pay higher wages because staff become more difficult to find or replace. Workers also fear unemployment less because there are plenty of alternative jobs.

Companies in areas where there is high unemployment can offer lower wages knowing that people have little alternative but to take them.

@37 If the jobs created pay peanuts and offer no security or certainty then no, their creation is not what I want. Those jobs offer nothing to those employed in them, I fail to see why I should give two fucks about creating shite-paying jobs just for the hell of it. Jobs are to earn a living, not to sell your life away as cheaply and as conveniently for an employer as possible.
I don’t work my job as a favour to my employer, I do it to earn cash to live on, maybe that’s why unemployment continues to be high in places where treating your workforce with contempt is the norm and enabled.

Hi Tim,

Do you agree with the OECD that Denmark has greater employment protection regulations than the UK, and that its traditions of collective bargaining, trade union reps in all companies and vastly more generous unemployment benefits are all key components of its successful labour market? Have you noticed, for example, that rather than “slashing maternity leave” as you suggest, the Danes give parents the right to share 52 weeks paid parental leave?

Would you support adopting these features of the Danish model in the UK?

“Would you support adopting these features of the Danish model in the UK?”

And would you support the elements of the Danish model that I find attractive? A less progressive taxation system, a private company (for profit even!) providing more than 50% of the country’s fire and ambulance cover, very low national income tax rates, vastly greater localism and even a not national health care system (it is based again, on the communes)?

Tim W @ 37

sure. And such things would lower the cost of employing labour and thus encourage the capitalist bastards to employ more labour as they could make more profit by doing so.

How? How exactly does it ‘encourage’ these ‘capitalist bastards’ to employ anyone? The only reason they will employ anyone is if there is a job to do. You do not encourage demand by destroying families, Tim. Making people worse does not create demand, Tim. I would have thought that was pretty obivous.

If it is a case of take it in its entireity or leave it all, then I’d take any of the scandanavian countries over the UK anyday, and certainly over the americanised models our political class seems extremely keen to import.

“And would you support the elements of the Danish model that I find attractive? A less progressive taxation system, a private company (for profit even!) providing more than 50% of the country’s fire and ambulance cover, very low national income tax rates, vastly greater localism and even a not national health care system (it is based again, on the communes)?”

Some of that, yes:

– Tax system fine, providing the outcomes of tax’n’benefits reduces inequality to a greater extent than UK (makes no sense to judge the tax system on its own without considering what the money gets spent on!)

– Privatise fire and ambulance cover – no, not really. Don’t see what this has to do with labour market success, and there’s nothing wrong with the way we do it at the moment.

– Shift tax raising and spending to local authorities – yes, fine in principle.

– Localise health system – 84% of health spending in Denmark comes from the state, with most of the rest being spend on medicines and dental products, and they spend more on healthcare than the UK – I’m fine with all of that. Not sure about the effect of localising in a country the size of the UK (Denmark is about the size of a UK region). NHS also does better on preventative healthcare than the Danes, and would be foolish to abandon that.

*

What I don’t think is right is to cherrypick bits of the Danish system which happen to agree with your ideology, and assume that you would get the good outcomes without spendinf more than 4% of GDP on unemployment insurance, union rep in every company, collective bargaining, childcare subsidies and year long parental leave, greater regulations on employment protection than in the UK and all the other things which you oppose. Equally, lefties shouldn’t assume that it is possible to get the good outcomes without changing the tax system, greater flexibility for employers and other features of the Scandinavian system.

The most appalling aspect of the Tories’ proposals on employment is their pushing for a hefty fee on those workers who decide to pursue a claim. It crucially links access to justice not to whether you’re in the right or not, but to whether you can afford it.
Nice one.

I wonder why David Cameron never mentioned any of this at the election. Perhaps they know that it’s vile to millions of ordinary workers?

The Tory philosophy is that:
– you are scum if you’re unemployed and should be punished for that;
– you are scum if you find work and should be punished for that;
– if you can’t find work locally then commute using public transport. You will be punished for that;
– if you can’t find work locally then commute by car. You will also be punished for that.

It’s astonishing that, in the face of the biggest crisis in sixty years, The Great Conservative Economic Strategy amounts to the sacking of half a million public workers, even easier sacking procedures for everybody else and -of course- higher costs of living.

Here, in detail I spell out why the Tories’ new Employment Charter will be, at once, both useless and criminal .

“How exactly does it ‘encourage’ these ‘capitalist bastards’ to employ anyone? The only reason they will employ anyone is if there is a job to do.”

No. There is no such things as “a job to do”. There is a “job to do at a certain price”. Come along now, this is basic supply and demand stuff, straight neo-classical Alfred Marshall and the marginalist revolution stuff. First few pages of every textbook.

Lower the price of labour and there are more things it is worth employing labour to do.

“Tax system fine”

Excellent, so you’ll stop complaining about the VAT rise being regressive then, stop whining about reductions in corporation tax,, inheritance tax (a tax which Sweden doesn’t have at all) and so on then?

Good, glad to see a man with the courage of his convictions. For all of these changes are making our system more like their.

Worstall,
which bit of “there is no correlation whatsoever between labour regulation and employment levels” do you find difficult to grasp?

There is a massive weight of evidence across both Europe and the US to rule out COMPLETELY any link between the two.

That applies especially when you consider the minimum wage.

I also agree with donpaskini. You are cherry picking bits from Denmark (tax revenue as percentage of GDP 50.0%). Try and open a company there and come back and tell me how cheap it is.
It’s great if you want to argue in favour of what is officially a huge public sector (30% of the entire workforce on a full-time basis) and the world’s highest taxes.
What you wrote above is pap.

Fact: according to the OECD, “the top marginal tax wedge on labour is amongst the very highest in the OECD” (see here).

Then again, I maintain. You wanna argue in favour of a Danish system in Britain. Bring it on. I’m with you. Let’s form a party together.

“which bit of “there is no correlation whatsoever between labour regulation and employment levels” do you find difficult to grasp?”

The bit where people try to tell me that the statement is true.

“Try and open a company there”

http://www.heritage.org/index/country/Denmark

“The overall freedom to start, operate, and close a business is well protected under Denmark’s regulatory environment. Starting a business takes an average of six days, compared to the world average of 35 days. Obtaining a business license requires much less than the world average of 18 procedures and 218 days.”

Looks pretty good actually.

Indeed, Denmark is, on 7 out of the 10 measures used, the most economically free country in the world. The other three are marginal tax rates, government share of GP and monetary freedom (essentially, rent control and the EU’s CAP).

Which is as I keep saying,. Something which all too many UK lefties fail to understand about the Nordics is that while they do indeed have high tax rates underneath they are much, much, more classically liberal economies than we are.

Indeed, to keep having economic growth at suh high tax levels you need to be a classically liberal economy underneath.

Ok, we both agree that the Danish system is much fairer and more effective than Britain’s.

Now, I appeal to your intellectual honesty, Tim. Let’s forget about Denmark or Finland and let’s focus on the actual proposals:

Do you really think that by charging a fee to submit unfair dismissal claims and by doubling the period necessary to be entitled to a claim, UK employment rates can be boosted? Seriously now.

Will it be more beneficial to employment rates, or to rogue/unscrupulous/dodgy bosses who will have extra tons of sacking-on-a-whim opportunities no matter how wrong or unfair the circumstances were?

Do you really think that by charging a fee to submit unfair dismissal claims

Haven’t really thought about it so dunno.

and by doubling the period necessary to be entitled to a claim,

Yes.

UK employment rates can be boosted? Seriously now.

Worsall @ 51

No. There is no such things as “a job to do”. There is a “job to do at a certain price”.

Bollocks! If there is a demand for a job, there will be a job to do. The introduction of the minimum wage did not destroy millions of jobs as the the Tory vermin told us, in fact, the number of people in work actually rose. Jobs that where normally paid below the minimum wage still eed done AFTER the introduction of the minimun wage and you know it. People still get their hair cut, they still expect their food brought to their table when eating out, they still want served in shops, we still have security guards, we still have nursing homes and a whole raft of other services.

If there is a service that has gone because of the introduction of the minimum wage, you could tell us the name of it.

So what jobs and services do they get in low wage Countries that we don’t have here? What jobs do they get in say, San Paulo or Bankok that we could be doing with here?

“If there is a demand for a job, there will be a job to do.”

Look, if you want to toss the central insight of economics, supply and demand, overboard, then you go right ahead and do that. But don’t be surprised when no one wants to discuss matters economic with you.

Just think for a minute.

So, there’s a job that needs to be done. Ading up the bill in a supermarket, how much do you the shopper owe the store?

We have two different methods of doing this at the moment.

1) Person sits on a till, passes things through a scanner and then takes your money.

2) Self service checkouts. You run the items through the scanner and then pay the machine.

Both of these do the job that needs to be done.

But only one of them provides a job for a person to be paid to do.

And we would not be all that surprised if the mix of manned checkout counters and automatic ones changed if wages were £1 an hour or if they were £20 an hour, would we?

Now it’s possible to mechanise just about anything at a sufficiently high price of labour. And it’s not worth mechanising anything very much at all at a sufficiently low price of labour.

See? The price of labour will influence how many jobs there are available for people to do.

The ConDem Coalition Manifesto:

bankers bonuses taxation lowered
no action to regulate banks
no action to exert controlling stake in the banks so they provide the service they are meant to the british people
cozying up to bankers and running scared of doing anything they dont like
paving the way for slavery by another name by destroying workers rights

Tim @ 53

Yes, but there is no such thing as an ‘unmanned’ checkout, the self service checkouts still need to be ‘manned’ in case something goes wrong and in case a customer need help. They still need to be maintained and filled, money emptied etc.

Of course, it is not as simple as that in any case, because the cost is not the same. The self service checkout will need to be installed and have to be repaired etc. You also have to take into account the fact that, if you actually take time to study it, th manned checkouts have a higher throughput rate of customers, because the self service systems can and do breakdown.

@53 I’m far more concerned that you seem to think that shops form the entirety of the service economy, or that demand for essentials will fall because the staff providing such are paid a living wage.
Child care, fast food outlets, care-homes, cleaners, road maintenance; I’m sure you can think of other demands that are not simply going to fuck off just because the cost of providing them has risen, also there ain’t no machines that can look after your sick elderly grandmother either, so don’t expect innovation to get you out of that demand. Plus if those doing the essential jobs are paid more, then surely that is more people more able to contribute to the economy and perhaps to put more demand on those services themselves.

JIM @55

Nothing you say there contradicts anything Tim W said. The decision between manned and ‘unmanned’ checkouts will be made on economic grounds, and the cost of installation and continuing labour costs for ‘unmanned’ checkouts will be balanced against the costs of manned checkouts, together with other factors that must be estimated, such as what the customer wants.

If the cost of labour went shooting up, making the cost of manned checkouts considerably more expensive, then you would expect to see an increase in unmanned checkouts being installed.

Tim W is also right when he says:

‘There is no such things as “a job to do”. There is a “job to do at a certain price”’, To be pedantic there are an infinite number of jobs to do, but resources are scarce, so we must economise, and the way we do that is prioritising and making economic calculations.

Cylux @56

“if those doing the essential jobs are paid more, then surely that is more people more able to contribute to the economy and perhaps to put more demand on those services themselves.”

If you rob Peter to pay Paul, Paul will have more money to spend. Isn’t this what you’re saying? Where has the additional money come from? Surely other people, who will have less to spend on other things?

TT @ 57

Wait a minute, though. Are you suggesting that the price of labour has to be kept low, using whatever methods to keep technology at bay? If so, can you think of a single instance where we have ‘successfully’ staved off the inevitable advance in technology. You could argue that the motorcar would never have taken off if it weren’t for those greedy blacksmiths. Technology has always moved forward and both you and Tim W are living in cloud cuckoo land if you think you can stop it, merely by saying ‘sorry you people over there, you are going to have to take one for the team, so the rest of us can have a decent standard of living’? Sorry that ain’t a long term runner, at least not for those of us with any shred of humanity in our bones.

What people like you, Clegg and Cameron have got to accept is that we are talking about human beings. Our fellow Countrymen and women. To cut people adrift from the rest of humanity. You cannot keep stripping people of their dignity to feed your own selfish greed .

@58 Given that the current situation, which the Tory proposals would further entrench, is Peter robbing a hundred Pauls and keeping the proceeds in a tax haven, I don’t quite see the horror of my own suggestion.

I seem to recall Warren Buffet saying something along the lines of “Giving me a tax-rebate of a billion dollars will not help the economy at all, but giving 1000 people a million dollars…”

How much of our nations wealth is held by the top 1% again, and why is it that they are worth so much, while those who toil away for them, making them that wealth, are worth so little?

TT @ 59

If you rob Peter to pay Paul, Paul will have more money to spend. Isn’t this what you’re saying? Where has the additional money come from? Surely other people, who will have less to spend on other things?

Who is robbing Peter to pay Paul?

We can never really tell with certainty the degree of elasticity of demand for low cost labour until lengthening dole queues tells us the price of labour is out of sync with the labour demanded at that price. Moreover, different employment sectors have different elasticities depending on whether they are labour or capital insensitive. I am not sure how much we can read into the introduction of the NMW. At the level it was introduced meant it only affected 5% of the male workforce. The market was already paying 95% of the male workforce above the NMW. However, it is silly to argue that the cost of labour has no effect on the demand for labour. Retailers would love a world where price did not affect demand. They could continually raise prices without any drop-off in demand. However, we know that is not how the world works, so why imagine the market for labour works like that?

What lefties forget in this debate is it is not just a matter of what jobs need done. The crucial thing is whether capital can generate a return from labour at that price above the risk-free rate. Labour is a cost so it has to generate a return for capital employed or capital would be as well left on the sidelines and unemployment is the manifestation of that phenomenon.

I’ve never been in a union but I am not anti-union. They do the best for their members by trying to get the best deal for their members. However, I would ask this of those who think only unions and employment regulations prevent workers from falling into an abyss. Why has the real median wage continued to rise in the UK as union membership has declined? Why are employers paying workers a higher real wage now compared to when unions were in their heyday? If your ideas were correct the real median wage should have fallen as unions declined and employment regulations were loosened. What I would concede is those in the bottom 10-20 per cent of the wage scale have seen the lowest rise in their real wage over the last thirty years. However, I believe that is more to do with a structural shift to a knowledge economy with a premium on qualifications rather than the employment regulations union decline explanation. Globalisation and automation in my opinion has devalued manual labour and more often than not that is all those at the bottom of the wage scale have to offer. If we want them to have a higher income we better start taxing them less.

@59

“Wait a minute, though. Are you suggesting that the price of labour has to be kept low, using whatever methods to keep technology at bay?”

No, I’m not saying that. All I’m saying is that the decision of whether to mechanise any particular process, or upgrade a piece of equipment will take into account the cost and benefit of doing it or not doing it. Most factories could be more efficient if they installed state-of-the-art equipment, but they won’t do this and will continue with the less efficient equipment if it’s not worth the expenditure.

“You could argue that the motorcar would never have taken off if it weren’t for those greedy blacksmiths.”

I’m really not sure why you have inferred this from what I’ve said. I certainly am not saying this, or your following remarks.

“What people like you, Clegg and Cameron have got to accept is that we are talking about human beings.”

I’m not defending Clegg or Cameron, I have no time for either. Indeed you are talking about human beings, but I was trying to talk about economics, and you’re getting all emotive about it. If you want to help people, you have to understand the principles of economics, otherwise how can you be sure you’re helping?

“You cannot keep stripping people of their dignity to feed your own selfish greed .”

Again, these are economic questions. I am not in favour of people being ground into the dirt, I agree with what you want, but I’m telling you that I am convinced that the policies that you favour will not work, but will make matters worse.

@Cylax,

“How much of our nations wealth is held by the top 1% again, and why is it that they are worth so much, while those who toil away for them, making them that wealth, are worth so little?”

If think it’s got a lot to do with the monetary system and the massive expansion of money and credit, which has benefitted those top people, at the expense of the vast majority. I’m happy to expand on such matters, but won’t do so unless you would like me too!

*labour or capital insensitive.*

Should read:
labour or capital intensive.

Richard W @ 62

Labour is a cost so it has to generate a return for capital employed or capital would be as well left on the sidelines and unemployment is the manifestation of that phenomenon.

The British economy has moved from that level of involvement. Jobs come and go and so do industries for that matter. We used to be an agricultural land, but we have moved out of the farms and then into factories, to pretend we can keep people poor to keep technology at bay is both short sighted and dishonest. There is no point in clinging onto some kind of ‘golden age’ where we can keep crap jobs so we can keep people in work. We stopped having large chimmys and therefore we no longer send young boys up chimmies any more. That is nothing to be ashamed of, that is a measure of how far we have come.

What lefties forget in this debate is it is not just a matter of what jobs need done. The crucial thing is whether capital can generate a return from labour at that price above the risk-free rate.

Be fair, Richard, the NMW is not really relevant here. At the rate we are talking about (less than six quid an hour), none of Cameron’s elite ‘captains of industry’ are working business models at that rate of margins. You could argue that the Country’s paper and sweetie shops are struggling to get by, but the chairmen of British Gas, Eon, BT are not telling me they could employ extra engineers if only the minimum wage was less than six quid an hour.

Why has the real median wage continued to rise in the UK as union membership has declined? Why are employers paying workers a higher real wage now compared to when unions were in their heyday?

Is that true though? Is it fair to say that everyone’s wage rose during this time? Is it perhaps true to say there was an upswing is some people’s wages, yt more people’s wages stayed flat or even dropped, just because the ‘median’ wage rose does not mean that the wages of the de-unionised jobs rose at the same rate. Of course I would argue that the NMW helped raise that median wage. The more relevant question is has the wages of the poor kept in line with the rest of society? The clear answer to that is no. It is not so much that the cake has grown that is the problem. The real issue is that the people at the top are cutting the cake more in their favour and those at the bottom are getting the crumbs.

If we want them to have a higher income we better start taxing them less.

Taxing those on lowest incomes less will have little or no effect on their income level as we keep pushing their income levels down further. We need to be reducing indirect taxation, as that is the real driver of poverty.

@ 55 Yes, lovely. Now, do you think those capitalist profit seeking bastards who run Tesco don’t know all of that?

Good, you agree, they do.

You also know that they’re not going to invest in very expensive machines if they could do it cheaper by simply employing labour: for they are indeed capitalist profit seeking bastards.

Which is my point again. Sure, there’s a list of things that need to be done but the relative prices between machinery and labour will determine whether those jobs are done by machinery or labour.

You know, this supply and demand thing? High wages will mean fewer jobs…..

“Child care, fast food outlets, care-homes, cleaners, road maintenance; ”

We can always substitute between labour and machinery. What do you think those great ranges in McD’s are, if not substituting high skilled labour (you know, the short order cook who used to cook your hamburger just the way you wanted it, and made chips just for you) for a mixture of low skill labour and machinery?

WTF do you think a vacuum cleaner is except a machinery substitute for housemaids? A tarmac roller is a substitute for 20 paddies with hammers to flatten the road.

“Wait a minute, though. Are you suggesting that the price of labour has to be kept low, using whatever methods to keep technology at bay? If so, can you think of a single instance where we have ‘successfully’ staved off the inevitable advance in technology. You could argue that the motorcar would never have taken off if it weren’t for those greedy blacksmiths. Technology has always moved forward and both you and Tim W are living in cloud cuckoo land if you think you can stop it, merely by saying ‘sorry you people over there, you are going to have to take one for the team, so the rest of us can have a decent standard of living’?”

Nope, my argument is absolutely the opposite. Let’s keep destroying those low value added jobs for people working in higher value added jobs get paid more. I am absolutely not suggesting that wages should be kept low so as to limit out use of future technologies.

Only that the existence of unemployment is evidence that wages are too high at our current level. I *want* technology to go on destroying jobs, because it means that each further hour of labour is thus more productive and will thus be paid more.

You know, just like the existence of combine harvesters has increased the pay of those fewer people who bring in the harvest?

“Who is robbing Peter to pay Paul?”

That’s not a bad description of redistributive taxation (ie, not tax to pay for the state, but tax to deliberately take money from one to give it to another).

TT @ 63

Again, these are economic questions. I am not in favour of people being ground into the dirt, I agree with what you want, but I’m telling you that I am convinced that the policies that you favour will not work, but will make matters worse.

The problem is that you appear to be advocating grinding people into the dirt, because you appear toi be saying that the we need to keep the wages of the lowest down so that a small cadre of people can become millionaires. I am sorry, but the bottom line is, if we can afford to pay footballers millions of quid and we can afford to pay bankers double that and more, and if those bankers can pay thousands of quid for a lapdance then we, as a Country, can afford to pay a decent wage and decent holiday pay to get our toilets cleaned. Whether or not we would want is a different issue, but make no mistake, we can afford it.

@66 I noticed you swerved heavily round this one: “also there ain’t no machines that can look after your sick elderly grandmother either, so don’t expect innovation to get you out of that demand.”

Also I think you were looking for Roomba rather than vacuum cleaner, most hired cleaners these days are hired to use the vacuum cleaner, rather than the vacuum cleaner replacing them. Also, how would that vacuum clean your toilet?

Tim W @ 66

High wages will mean fewer jobs…..

Not true though is it? Look at people like Audi. They are in business because people who have very high wages, buy their cars. Same goes for Bang and Olefson or whoever. High wages creates demand and demand creates jobs.

WTF do you think a vacuum cleaner is except a machinery substitute for housemaids? A tarmac roller is a substitute for 20 paddies with hammers to flatten the road.

Look, things move on, no-one disputes that. The point is you cannot hold wages low just to stave off advancements of technology, that is just silly. If, and when, the automated service till becomes the norm then these jobs will go the same way other jobs have gone. Our economy should move onto another level. We are not an argicultral Country anymore, we have moved on, nor are we a washer woman economy any more either, we have moved on from that too. One day in the future we will stop being a Nation of shopkeepers too and so we will move on from that as well. You think the way to combat that is to cut the terms, wages and conditions of the poor, well that is destined to fail, because that will end up making labour in this Country worthless. That is the problem we have since we destroyed the value of labour thirty years ago. It became far easier to throw people onto the scrapheap than the retrain them because labour was so cheap. That is why there is unemployment in this Country. There is simply no reason for employers to look after their workforce if they can be replaced at a drop of a hat. If you have a willing workforce, who will employ the long term sick if there are millions seeking work? Who will employ a fifty year old man if there is two twenty year olds waiting for his job.

Only that the existence of unemployment is evidence that wages are too high at our current level.

Total nonsense. Unemployment exists because we have more than enough people in work at the moment. You are STILL unable to tell us the name of a single industry that we have closed down because wages are too high. What jobs exist in Cape Town and Bankok that we are missing out on?

What jobs exist in Cape Town and Bankok that we are missing out on?

I don’t know about these two but have you ever been to India.
Middle class families will employ cleaners, cooks, car cleaners, drivers, even full time servants. These are jobs that in Britain we alrgely do ourselves by using more automation & prepared food.
Equally there has been a change where you used to see people manually mixing tarmac together before doing a manual patch job. This took lots of people to do the job. Nowadays you see automatic mixers & JCB’S; i.e. less people doing the same amount of work.

Jim, I have no idea why you would think I would want to keep people poor to hold technology at bay. The innovations of technology makes us all including those on low wages richer so it is a net good even though it displaces some. My point about labour having to generate a return for capital applies to every profit maximising firm. A little one man band shop might have work for someone but if they can’t generate more revenue than the cost of the wage they will lose money. That dynamic applies to all firms large and small. The only way the real wage can rise in the long-run is through gains in productivity. The level of the nominal wage is irrelevant. Wages only matter in terms of what we can exchange them for. For example, in 1971 the average family spent 21% of their income on food and non-alcoholic drink. They now spend around 10%. The real wage in terms of purchasing power rose because the real price of food fell. Since those at the bottom of the wage scale spend a higher proportion of their income on food they enjoyed the biggest gains. That is productivity making everyone better off.

I don’t have strong views on the NMW, as I think it is only a minor factor in the macro economy. However, I do think it might be a factor in the level of youth unemployment. At the moment there is a premium on experience and it is youth who are suffering throughout Europe and North America. Who knows maybe it is a coincidence.

We can only really consider wages at the macro level rather than the micro. Maybe the real wage for some people is lower than thirty years ago but for the vast majority it is higher. Every wage level has seen a rise in their real wage. As previously stated the bottom 10-20% has enjoyed the lowest rise so that s not disputed. Interestingly, the US median wage has been stagnant for thirty years and in Britain it grew 25% 1979-1998. I don’t have the numbers to hand but the growth is probably around 35% now. So why did British workers manage to achieve higher real wages for themselves in an era of declining union membership? The answer is the higher productivity of the British economy compared to former years.

Tory scum up to their old back door tricks again.

It makes me sick.

Worstall, those lovely days when people where offered 1.50 an hour to scrub a crapper were just great werent they? Wealth-creating or waht…Oh hang on…but the unemployment rate back then was way higher than post-minimum wage. How does that work? Bizarre, eh?

I wish some people stopped thinking of WORKERS (real human beings with bills to pay and families to feed) as simple economic variables.

But in a nutshell, to me, fundamentally, thats what makes you a right-whinger.

“What jobs exist in Cape Town and Bankok that we are missing out on?”

The entire textiles industry?

75. just really bored

Huhuh I thought this was Liberal Conspiracy, not Libertarian Conspiracy….somebody kill me.

Tw @ 74

The textile industry requires skilled workers and skilled people earn far more than the minimum wage commands, even today. The textile industry was in decline far longer than the minimum wage and long before today. The wages we are talking about are really at the margins, really we are talking about service jobs.

77. Prince Hamlet

If an employer doesn’t give a decent wage & decent working conditions they don’t deserve to employ people. It is then the duty of the state to make sure that these people a) have a decent standard of living and b) do find a decent employer.

Er, that’s it. Everything else is just noise.

“Excellent, so you’ll stop complaining about the VAT rise being regressive then, stop whining about reductions in corporation tax,, inheritance tax (a tax which Sweden doesn’t have at all) and so on then?

Good, glad to see a man with the courage of his convictions. For all of these changes are making our system more like their.”

On aggregate, the Coalition government is obviously not making the UK more like Denmark. Denmark has a larger public sector, more employment protection regulations, greater childcare subsidies, and higher unemployment benefits than the UK, and these are all key reasons for its labour market performance. On every single one of these measures, the Coalition government is going in exactly the opposite direction to Denmark.

It is absolute nonsense to cherry pick specific policies around individual taxes and claim that these will result in the UK’s labour market being more like Scandinavia’s.

79. Luis Enrique

Acknowledging the relationship between wages and unemployment has nothing to do with being `libertarian’ or right-wing but advocating a policy in which the floor under wages is removed does. The same goes for the relationship between other labour regulations and employment. Unfair dismissal laws probably have very little effect in practice, but if you imagine varying regulatory costs like “how many months salary do you have to pay in redundancy settlements” you are dreaming if you think increasing that has nothing to do with employment decisions.

We have two objectives: the number of people who are unemployed/employed and the wages/conditions at which they are employed. There is a trade-off here.

If you care more about unemployment than you do wages, then removing wages supports will probably work. There are countries with close to zero unemployment – those with no welfare state, no labor regulations, where you starve if you don’t work. These countries are amongst the most miserable on earth – this shows us that the “let wages fall” approach to cutting unemployment isn’t necessarily a good choice.

Those who are arguing that wages have nothing to do with employment are, I think, missing the fact that production involves labour and capital. In a world of pure labour it would make sense to say higher wages generate higher demand, but in what world higher wages would mean higher prices, so the real wage W/P would be set by efficiency because higher W would just mean higher P.

Once you add capital, you should expect increasing the real cost of labour relative to capital to reduce employment. This is why Germany decided to deliberately push down its labour costs about a decade ago – look what happened next (investment and employment growth).

Of course that’s `holding all else constant’ and the real world has so much else going on that you might find times when labour costs rise and employment rises too. You may even be able to engineer such circumstance with the right policies (perhaps via government led ‘demand creation’).

The debate we should be having is 1. whether the current employment situation is so serious that even left-wingers need to think about letting real wages falls 2. whether we have policies at our disposal that will increase employment without sacrificing wages or doing too much damage elsewhere (such as bankrupting the country).

Personally I think Tim if you really care about welfare maximization (the core objective of a mainstream economist) you’d be giving more thought to whether there are better policies than ‘let wages fall’, which obviously reduces the welfare of the employed.

Are the commenters disagreeing with Tim W, Richard W and Trooper Thomson really claiming there are no trade-offs associated with minimum wages?

UKL @ 80

Come on and look at this for a second. At what level are we talking about? Less than six quid an hour? Sure you couild argue the toss all day about that, but Cameron is going to some of the biggest companies in the World who make huge profits and asking them what would create jobs. Tescos made a couple of billion profits. Are you telling me a wage of six quid an hour is stopping them employing a person? Are you or anyone else telling me that the ‘back door man’ at my local store cannot get a relief worker simply because they guy would need a uniform and safety shoes as well as six fucking quid?

LE @ 79

Let us think about this for a second, though. Suppose that instead of giving blow jobs to everyone in a suit you thinks they can create jobs, why not DEMAND that all the banks and insurance companies relocate their call centres back in the UK? Lt us say he can rush a bill through both houses in time for June.

That would have a few effects:

1) English speakers would be at an advantage.
2) Disabled people would be able to work there.
3) You get have creshes for single parents.

Everybody wins…
…except the banks would lose some profit.

And that is the bottom line. When we talk about creating jobs, THEY hear more jobs, but not more wages! In short these bastards do not care about ‘society’ they care only about big payouts.

82. Luis Enrique

Jim,

why not think about things for a little longer than a second?

Jim, I am claiming that,

1. It seems reasonable to hypothesise there are trade-offs associated with minimum wage; and,

2. This hypothesis appears to be supported by the literature, going by the result of a cursory search I did last night.

It might very well be the case that we say some trade-offs are acceptable and other trade-offs unacceptable and I’m sure there is lots of discussion to be had about that*, but to claim that there are no trade-offs seems ludicrous. If you (and others) are not saying there are no trade-offs then I apologise for misunderstanding and mischaracterising your position.

* And further to such discussion, what is the minimum wage intended to achieve and are there better ways of achieving that?

Jim, earlier you asked, “So what jobs and services do they get in low wage Countries that we don’t have here? What jobs do they get in say, San Paulo or Bankok that we could be doing with here?”

Why do you think many call centre jobs have moved to foreign countries?

@80 I’m arguing that the trade offs are better than the alternative. Luis makes the point far better with his examination of those primarily concerned with unemployment.
I fail to see why having absolutely everyone employed in any job, at any level of pay, is a desirable or even possible outcome. Given that the world’s population is showing no signs of slowing down or dropping in growth. Better to just admit that some will be forever unemployed under our current economic system no matter how many sticks and carrots we bring to bear. The question is, once you have admitted that, what then?

UKL @ 83

I am sure that there IS trade offs, but I cannot of a position where a whole section of the service industry will slide into the ether, just because of the introduction of a minimum wage. Sure there will be positions where people will go out of business, but people go out of business every single day of the week and nobody bothers too much when the local record shop goes bust because of outside competition from a channel island supplier or your local shoe shop goes bust because of VAT increases either. In fact, thousands of businesses go bust every month, but other business start up and yet more are strengthened. So what is the problem?

If you actually look at the minimum wage, we often hear the sob stories that go round regarding the local papershop that has to lay of the staff because of the minimum wage, but look at some of the biggest hotels in Britain pay the minimum wage and so does the Country’s best restaurants (and more than a few shitty ones as well). Are we given to understand that the North British Hotel in Edinburgh is going down, merely because it is forced to a six quid to get its rooms cleaned?

@Luis Enrique and everyone

I think Jim @81 was being deliberately provocative, but he has a point.

The same we’re asking “the Left” to think thoroughly about possible trade-offs between wages and employment levels, we also need “Everybody” to think carefully about possible trade-offs between profit margins, wages and employment levels.

Undisputable fact number 1:
the introduction of the minimum wage in the UK did NOT cause a rise in unemployment rates. That is a fact.

To Luis Enrique in particular: if anyone on the left starts even budging on this, then we’re up shit creek indeed. It will mean lowering the bar even more. In turn, cart blanche for the pasdaran of free marketeerism to implement their wet dreams to the extreme.

We had no minimum wage until the late 90s. We didn’t have lower employment rates. Firms were not employing any more. They were just taking advantage. The NMW came and the profit margins and salaries at the top still went up at UNPRECEDENTED rates.
There is a large body of evidence to back this.

Undisputable fact number 2: a mass of people on incredibly low wages will
a) have extreme social consequences (somebody above highlighted those countries with zero employment protection a-la Bangladesh);
b) depress the economy.
Part of the problem in the UK was that the perceived “growth” of the last 10/15 years was fuelled by credit and its actual use as a wage supplement for millions of people on low and even the unemployed.
I can’t remember who it was who said in circa 2005/6 that is all UK credit cards were magically wiped out in one go the entire economy would have collapsed within a day.

UK @ 84

Why do you think many call centre jobs have moved to foreign countries?

But wait a minute though. These jobs started being exported long before the minimum wage got to present levels, or anyrhing like present levels. Call centres around here pay far more than minimum wage jobs do and they have far better benefits packages too. The jobs we are talking about are

The other thing is that many call centre staff in India are graduates. If you are arguing that we need to retool our labour market to the extent that graduates earn the same as an Indian call centre worker, then batter on.

The other aspect to this being that the greedy banks require their Indian call centre staff are servicing people on Western wages. Once the banks have driven us all down to Third World wages, these jobs do not exist. Those call centres are parasites (NOT THE WORKFORCE), they rely on the First World, but they do not want to be part of it.

The jobs we are talking about are service type jobs that are not able to be shifted around the World’s poor.

“Undisputable fact number 1:
the introduction of the minimum wage in the UK did NOT cause a rise in unemployment rates. That is a fact. ”

No, it’s not a fact. In fact, it’s untrue.

It caused a very small change, this is true, one that’s very hard indeed to pick out from the general churn of the job market, but even the Low Pay Commission, which sets the minimum wage, told us in its report on the matter than jobs had indeed been lost as a result of the NMW. Search around in Chris Dillow for the quotes from the report.

Jim, my call centre point was about your earlier claim of “bollocks” to there being a price on jobs.

“here are countries with close to zero unemployment – those with no welfare state, no labor regulations, where you starve if you don’t work.”

Actually Luis I don’t think this is true. The unemployment rates in developing countries without the above are staggeringly high. Yes, a lot of people work in the informal economy in those areas, but there is also another option; criminality.

Generally people without jobs don’t just sit there and starve, unless they are disabled, ill or face violence for stepping outside the home. The lucky ones rely on families, others join criminal gangs, militias, terrorist groups, go begging on the street etc.

This is also the reason why the labour market will never clear simply through removing welfare states and employment regulations so that the price of labour falls to a market clearing rate. Crimiality, martydom, being a soldier for whatever cause will always offer far more lucrative rewards – both psychological and financial – than cleaning toilets, or working in a sweatshop for long shifts for pennies whilst being treated like a slave.

Ever considered why western foreign policy post war in Afghanistan and Iraq is a total utter failure? I’d say the fact all we are essentially promising is 20-30 years of a sweatshop economy because our toolkit for economic development tells us this is the best way may have something to do with it. The taliban offer glory in martydom, we offer 16 hour shifts in factories.

Applaude Jim @89 and Planeshift @92

Tim Worstall @90 is wrong.
Look at the statistics. Thats all I’m asking you to do. Unemployment went DOWN and stayed DOWN from the mid-90s on and continued to do so until the crisis kicked in. In March 2001 it reached the lowest rates since 1975 exceot with much higher immigration levels. Even if you accept the Tory fable that “the Labour government had been left a “golden economic legacy”, the introduction and successive rises of the minimum wage did not affect that at all.

It ensured however, that I could scrub a toilet in 1999 for £3-60 instead of £2 an hour and my manager did not have to sell his Mercedes. Very little, but a touch more just.

I also would like to make 1 point (which is what I said at mine where there’s another debate going on about this):

We already experienced the ideal “unregulated” society.

We have. It was tried and tested and for a long time too. Until way into the 20th century. Look at the Victorian era.
Yes, production rates were sound, even amazing. Yes, the economy was “expanding”. Yes, some people were making a load of money. Yes, Britain felt big and powerful.

But the price for that was abject mass poverty. Britain had, literally, masses of incredibly poor people.

As work was unregulated, there was no protection whatsoever for anybody (including children).
No sick pay, no health & safety, no maternity guarantees, no unfair dismissal, no right to strike, no holiday pay, no min wage. Those people were so immensely poor that even their children had to work. They had to live amassed in rotting slums. And as housing was also, that’s right unregulated, there were serious sanitation problems.
I heard the other day on TV that in Victorian London 1 woman in 16 was working as a prozza.
That society was tried. It was barbaric. It was a nightmare. Let’s not revert back to that.

“Look at the statistics. Thats all I’m asking you to do. Unemployment went DOWN and stayed DOWN from the mid-90s on and continued to do so until the crisis kicked in.”

Please, try to get a grip. The economy is a huge and complicated thing. We want to talk about what was the effect of the minimum wage on employment: not about the effect of millions and millions of things upon employment.

As to your example of Victoriana: same mistake. You’re thinking that it’s the regulations which caused the wealth: rather than the wealth creation which allowde us to affor dhte regulations.

claude,

That society was tried. It was barbaric. It was a nightmare. Let’s not revert back to that.

Why do people think criticism of the minimum wage always entails badly treating the poor? It’s a bit of a stretch to read that into criticism. You might think the consequences of getting rid of the things being criticised may lead to that society, but at the same time you ignore a history, in Tim Worstall’s case for example, of consistent support for a Citizen’s Basic Income and taking the poor out of income tax and national insurance. God, he has an awful attitude to the poor doesn’t he?!

I don’t see how these discussions can be advanced if people think criticism of something always entails support of some other thing.

But it’s not just the minimum wage. Don’t conveniently cling on to “one thing”. I’m on about excessive deregulation across the board.

I have always agreed with Worstall that lifting all the low paid out of taxation would be a main prioruty and it should be a fight for the left to embrace hook line and sinker and it pisses me off that they don’t (or do half-heartedly).

Worstall:
“Please, try to get a grip. The economy is a huge and complicated thing. We want to talk about what was the effect of the minimum wage on employment: not about the effect of millions and millions of things upon employment.

Don’t patronise me. You just can’t refute the evidence. And the evidence is there, staring at you in the face. Even David Cameron conceded that the Tories were wrong to shout against the minimum wage and liken it to the Apocalyose when it was first brought in.

@96

http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2005/02/tony_blair_toda.html

Tony Blair today announced plans to cut the jobs and hours of low-paid workers.

He’s going to raise the minimum wage, from £4.85 an hour to £5.05 in October. This as the Low Pay Commission recommends in its report today; it also recommends a rise to £5.35 in 2006.

The first rule of economics, of course, says that if you raise the price of something, you’ll reduce demand. And this means shorter hours and job losses for some of the low paid.

The Low Pay Commission pretends this won’t happen. Its chairman Adair Turner says: “Our analysis suggests that previous upratings [to the minimum wage] have largely been absorbed without adverse effects.”

Can I give Mr Turner some advice? Try reading your own report matey.

In particular, appendix 3, which starts on page 213 of this pdf. It 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.

Which raises the question: how could anyone ever have thought otherwise? For example, TUC general secretary Brendan Barber: “Employers and politicians who said that [the minimum wage] would cause job losses have been proved wrong year in, year out.””

As ever, you’re allowed your own opinions but not your own facts. Minimum wages reduce employment: maybe not by much, maybe they’re worth it, but they do reduce employment.

Worstall: “You’re thinking that it’s the regulations which caused the wealth: rather than the wealth creation which allowde us to affor dhte regulations.

If it had been for the welath creators we’d still have the old Corn Laws!

Every single bit that took this country away from social barbarism, was fought tooth and nail by the Tories and their ancestors.

Anybody old enough here to remember one of the early proposals of the first Thatcher government (circa 1980) to scrap the automatic right for mothers to return to to their jobs after their maternity leave?

Jim,

I am sure that there IS trade offs,OK

but I cannot of a position where a whole section of the service industry will slide into the ether, just because of the introduction of a minimum wage.

But who has suggested “whole sections” will disappear?

You seem to be talking in terms of absolutes but your opponents are talking in terms of degrees, inclinations, risks and suchlike.

So what is the problem?

Well, as I said (and you agree) there are trade-offs. Here is an example from the LPC:

5.36 In a wide-ranging cross-country review of the impact of minimum wages, Neumark and Wascher (2008) concluded that on balance the evidence showed that minimum wages reduced the employment of low-skilled workers, particularly teenagers. They did note, however, that any employment loss among young people as a result of a minimum wage was reduced in countries with separate (and lower) rates for young people.

To be fair,
In contrast, other research from the United States, such as Card and Krueger (1995 and 2000), had found zero or positive effects of the minimum wage on youth employment. The evidence from the UK is more ambiguous with no study finding conclusive negative effects of the minimum wage on youth employment.

So,
5.37 Given that young people have continued to do less well in the labour market than older workers, we believe that lower National Minimum Wage rates for these young people are still justified in order to protect employment and at the same time reflect the training element attached to younger workers.

We all agree there are trade-offs, but that is ‘a problem’ is it not? It may well be a problem you think is outweighed by the benefit but it is still a problem.

Are we given to understand that the North British Hotel in Edinburgh is going down, merely because it is forced to a six quid to get its rooms cleaned?

I doubt it. What you may find instead is that less than minimum wage is paid (iow minimum wage is simply ignored / circumvented), and/or that people may move from formal to informal work, as various studies have shown*, and/or the hotel might begin to prefer employing under 21s because they can legitimately be paid less, hence there are the same amount of jobs but the low-skilled adult from a poor family may be disproportionately affected. Or the hotel might absorb the costs.

* studies of other countries, to be clear; I’m not aware of UK studies related to this.

@97
1.You obviously failed to quote the research that says otherwise and that, suprise surprise, was quoted and linked, straight after the bit that you cut and pasted.
2. While respectable and authoritative and a nice chap, Chris Dillow is a person with his own opinion and not the gospel. The same way B.Barber isn’t.

101. Luis Enrique

claude

I’m not suggesting getting rid of the minimum wage, or abandoning trying to improve wages and conditions for the badly paid. I guess during a downturn especially there might be some measure that could do more harm than good, but hard to generalize.

The inflation-rate calculators say that, if the Conservatives were still in power and the NMW had never been introduced, a typical low-paid worker would now earn £1-60 instead of £5-80 an hour.

Would that satisfy Worstall and ukliberty? Would it be worth it, given that even Worstall concedes that the impact of the NMW on employment rates is small (which I dispute anyway)?

Your theory was, again, tried and tested in the US under Reagan. They applied exactly what you believed in. Between 1981 and 1990 Reagan and Bush Sr both allowed inflation to erode the value of the federally mandated minimum wage. And guess what…? If you compare the joblessness figures of 1979 (5,8%) with 1990 (5.6%), it is obvious that the structural reduction in unemployment simply failed to happen”.

If anything (see this), US unemployment peaked in the 1980s and went down consistently throughout the 1990s, when the minimum wage was raised repeatedly for the first time since the 1970s.

I hate major cutting and pasting on debates, but here’s a good response to Worstall’s own cutting and pasting of Dillow’s article from 2005. It’s from an article by US economist Robert E. Prasch; Journal of Economic Issues, Vol. 30, 1996, in which he argues that :

Generally overlooked in discussions of the minimum wage is that an increase in the minimum wage will transfer purchasing power from profits, perks, and overheads to those who earn low wages. Post Keynesian economists have long maintained that when income is more evenly distributed, there is an increase in the total quantity of spending [Lavoie 1992, 89-92]. It follows that the total demand for goods, business volume, and business revenue all rise as a result. Moreover, business volume is directly related to an increase in business investment [Fazzari and Mott 1986-87]. This investment leads to higher productivity, more jobs, and further economic growth.

By ignoring these connections, the “common sense” understanding of the minimum wage does not account for feedback effects from the larger economy. In this orthodox view, the minimum wage affects only business costs. Aggregate demand, and therefore business revenues, are implicitly assumed to be a fixed quantity despite changes in the overall wage structure and consequent changes in the distribution of income. This assumption of a fixed level of effective demand, once known as “Say’s Law,” has not been demonstrated; rather it simply follows from the structure of the general equilibrium model.

According to accepted, and acceptable, microeconomic theory, low wages are a result of the poor character or low skills of specific individuals. They are not an unfortunate side effect of either: (1) slow economic growth, or (2) a low level of economic power. Since the median wage is clearly falling, our neoclassical colleagues deduce that it must be that labor productivity somehow fell over the course of the 1980s.

For the purpose of clarity, what i wrote @98 should read like this instead:

“Every single bit that took this country away from social barbarism, was opposed tooth and nail by the Tories and their ancestors”.

104. Planeshift

Tim, thats selective quoting at its best. The entire low pay commission report concludes otherwise.

“Its introduction benefited about one million low-paid workers and
had no measurable adverse effects on employment or inflation.”

“This report analyses the impact of the significant upratings over the last two
years and considers the appropriate path of the minimum wage over the next
two. Our analysis suggests that the upratings have largely been absorbed
without adverse effects. Employment continues to grow in most low-paying
sectors and the impact on wage bills and profitability appears sustainable.
We have therefore concluded that it is safe to propose a further two year
period of increase above average earnings.”

You can, of course, conclude that the low pay comission are lying or have mis-interpreted the evidence, but given that the comission at the time included represenatives of the CBI, whitbread group plc, the food trade association, the vice chair meryl lynch holdings as well as two academics I think it is extremely unlikely this is the case. The Trade unionists possibly, but not the others.

They probably looked at the survey mentioned in the appendix and concluded its results weren’t significant, and not supported by the macro data.

claude,.

The inflation-rate calculators say that, if the Conservatives were still in power and the NMW had never been introduced, a typical low-paid worker would now earn £1-60 instead of £5-80 an hour. Would that satisfy Worstall and ukliberty?

I’ve no idea what the minimum wage should be. What I was concerned about is a ludicrous position that appeared to be held (Jim has made clear he doesn’t hold this position) and @95 criticism of people for holding positions others have imagined.

Your theory was, again, tried and tested in the US under Reagan. They applied exactly what you believed in.

It isn’t clear to me who you are talking to here.

@105
Maybe I wasn’t clear. I was talking to Tim Worstall.

Similarly, I don’t quite understand: what’s the “ludicrous position that appeared to be held”, as you put it?

“To date we’ve not seen great job losses (we saw some job loses) due to the national minimum wage”

Fascinating point they make there on that page you send us to, eh Claude?

“measurable”…that’s the important word in that LPC thing. I agree the results were small, very difficult to pick out from the usual noise. I even said so above. But “small” is not the same as “none”. Because as soon as certain numpties (no, no one here) gets ahold of “none” then they’ll be clamouring to raise the NMW to £15 an hour or something, won’t they? See, no effects!

As to that wage calculator, blimey, shitting with numbers or what? Wages (over time at least) increase faster than the RPI anyway.

http://www.measuringworth.com/ukcompare/result.php

So, £1 in 1971 would have been £7.77 by RPI by 1997. But by average earnings it would have been £12.

Wonder how that could have happened without omniscient bureaucrats determining how much everyone should be paid?

claude,

what’s the “ludicrous position that appeared to be held”, as you put it?

That there are no trade-offs.

There are always trade-offs! The problem is spotting the right ones instead of dropping monumental clangers.

#107
Because as soon as certain numpties (no, no one here) gets ahold of “none” then they’ll be clamouring to raise the NMW to £15 an hour or something, won’t they? See, no effects!

Strawman alert.

Strawman?

But Sunny uses the NMW having no effect to argue that there should be a living wage of £7.60, doesn’t he?

£7.60 is half £15.

113. Planeshift

““measurable”…that’s the important word in that LPC thing. I agree the results were small, very difficult to pick out from the usual noise. I even said so above. But “small” is not the same as “none””

It also isn’t the same as the millions of job losses the conservatives and free market economists were claiming. Also if it is difficult to pick out results from the noise, I don’t see how you can claim with certainty that the NMW causes the small results reported.

But lets concede the point that the introduction of NMW, whilst not leading to significant job losses, does lead to a small reduction in hours offered and overtime available, plus some inflation. We have to balance that against the positives; (1) those in work get a pay rise – and even if you lose hours you can still benefit (25 hours at £4 an hour is less than 20 hours at £5.01 an hour, plus the worker gets an extra 5 hours), (2) an increasing in purchasing power for low paid workers leading to increased demand – possibly enough to offset the negatives, (3) an increase in demand for technology to replace the work of low paid unskilled workers (thus increasing employment in those industries, and driving the search for new technologies), (4) it creates the incentive for firms to increase productivity of its workforce through upskilling, (5) provides legal protection against workers being short changed and exploited.

Given that we can also mitigate the negative effects through other means (provision of adult education and retraining to upskill workers, subsidised training for those in employment, etc), I think it is fair conclusion that the approach adopted over the past decade of incremental increases towards the living wage followed by increases in line with earnings is the way to go, with and far preferable to the alternatives of complete abolition or welfare state subsidy of low pay.

114. LC Prestes

Reducing employment rights, smashing unions and reducing the minimum wage will create thousands of well-paid, skilled jobs that will imbue feckless chavs with an enormous sense of self-worth, of well being and will help to ingrain a natural sense of order and of knowing one’s place based on the foolproof science of eugenics. Workers, if they work hard enough will have Sundays off and they can spend their day of leisure looking after poor folks, cleaning up the local park and doing jolly good things for jolly good causes.

Prestes, Planet Cameron

“We have to balance that against the positives”

Sure: my argument is only against those who insist that there are no tradeoffs. As long as we all agree that there are tradeoffs then we can gho on todisagree about whether they’re worth it or not: but that’s opinion, not blatant untruths like insisting that there are no trade offs.

“(3) an increase in demand for technology to replace the work of low paid unskilled workers (thus increasing employment in those industries, and driving the search for new technologies), ”

Although I’d say that ‘s rather on my side of the argument there. Further mecjhanisation of low skilled labour doesn’t sound like increasing employment to me….

116. Planeshift

“Although I’d say that ‘s rather on my side of the argument there. Further mecjhanisation of low skilled labour doesn’t sound like increasing employment to me….”

It increases employment in the sector of making machines, as well as maintenance, repair and general techie stuff that spins off from it. It’s a positive for the min wage, provided you have decent systems to upskill and retrain staff who get replaced.

Plus I hardly think “slows down technological progress by reducing the incentive to mechanise the work of unskilled staff” counts as a decent argument for abolishing the min wage 🙂

“If you care more about unemployment than you do wages, then removing wages supports will probably work. There are countries with close to zero unemployment – those with no welfare state, no labor regulations, where you starve if you don’t work.”

Interestingly, this isn’t actually the case.

According to CIA World Factbook, the following countries (excluding small islands) have <2% unemployment – Qatar, Belarus, Uzbekistan and Cuba. Between 2 and 3%, you get Laos, Mongolia, Kuwait, Singapore and Tajikistan. So that is 6 current or ex-Communist countries which have extensive labour regulations and welfare states, 2 Gulf states with expansive welfare states and Singapore (where the economy is dominated by government-owned corporations).

Norway has an unemployment rate of 3.2%, lower than any country in Africa. There are countries with virtually no government intervention in the labour market or welfare state, but they all have higher unemployment rates.

https://www.cia.gov/library/publications/the-world-factbook/rankorder/2129rank.html

I think it is a mistake to get diverted with discussions about the NMW. Reading the thread one could be mistaken for believing huge swathes of the British workforce were given a pay rise. Only 5% of the male workforce were and 95% were unaffected. Moreover, it is a category A fallacy of composition to talk about a MW and infer evidence for or against in terms of the macro headline unemployment rate. One would need to look at the micro effects on those chasing low wage jobs. The headline macro unemployment rate tells us very little about the NMW. There is an unemployment rate for those chasing £20 ph jobs, a different one for those chasing £10 ph jobs and a separate unemployment rate for those in the labour market for MW jobs. So it is that type of data that needs to be analysed. Moreover, the dynamic effects in say 2000 in a booming economy will be different in a depressed demand economy.

It is another fallacy of composition to imagine the effects to be the same for a labour intensive firm and a capital intensive firm. A hotel needs rooms to be cleaned by human beings so they are labour intensive. No matter what the NMW is, they still need the room cleaned. So what theory would predict in the face of increased labour costs, they will look for other efficiency savings and in the absence of none, they will raise prices. Raised prices will reduce hotel room demand. Reduced hotel room demand will reduce the demand for labour to clean hotel rooms. Again the effects will be quite different depending on whether the macro economy has booming demand or has lots of spare capacity through a fall in demand. In the latter lots of hotels have spare capacity so in the face of competition they can’t raise prices. They either operate at a loss or reduce their workforce.

Another classic error is imagining that firms opening up overseas operations in developing nations will drive wages in this country down to developing countries level. Market wages are set in an amoral labour market and determined by the national productivity rate. Think about it like this. Cutting hair is labour intensive. So a barber in 2010 has no higher personal productivity than a barber in 1900. How then can the real wage of the barber have risen? The national productivity of the British economy has risen so workers with their higher real wage can pay the barber an increased cost and thus raising his real wage as well. Even though he is no more productive than his ancestor. Now why does a barber in Birmingham get a higher real wage than one in Beijing with the same productivity? Because the British economy is more productive than the Chinese economy. As the Chinese economy gets more productive, it will get richer and the real wage of the Chinese barber will rise with everyone else. Firms opening up operations in developing economies will raise their productivity rate. Far from developed countries falling to developing countries levels, the opposite will happen as their wages increase in line with their productivity levels moving towards the same productivity levels in the developed world.

Another thing to consider about 19th century Britain. Absolutely no one would deny that the conditions were appalling to 2011 eyes. Yet, British agricultural wages were the highest in Europe. Despite those high agricultural wages people still moved from the country to the ‘dark satanic mills’ because those wages in appalling conditions were even higher. That is what happens in the developing world where people are working for what we consider derisory wages. The alternative is even lower wages in their agricultural sector. Just the very same dynamic that we went through. Sure, Acts of Parliament made a difference but at heart it was our gains in productivity that allowed our higher wages.

119. Planeshift

“. So a barber in 2010 has no higher personal productivity than a barber in 1900.”

Mrs Planeshift runs a salon, and assures me this is untrue. Technology and new techniques means you can do far more with hair now than in 1900.

120. Luis Enrique

donpanski

well, I am surprised by that. I often hear development economists say it doesn’t even make sense to talk about unemployment in many African countries, for example, in the same way we do in rich countries. You can’t go and count people claiming unemployment benefits, because there aren’t any. I wonder what that 19% of the workforce the CIA thinks are unemployed in Sudan are doing to survive? I would be interested to know how they treat informal employment in these countries. When I wrote there is close to zero unemployment in may poor countries, I was including occupations like begging, hanging around outside tourist hotels to carry bags for tips, and all the other thing you need to do to survive without a welfare state, as employment. So we may be talking at cross purpsoses.

Meanwhile, I’d also have some reservations about taking employment data from Belarus at face value.

@120 What’s the welfare status of Somalia? If there isn’t one does “pirate” count as being employed? Generally if there’s no opportunity for work, and no welfare safety net, then the next obvious step is for the have nots to take from the haves. Therefore I imagine crime might also help keep that 19% from starving to death, as well as your suggestions.

The long term effects of job insecurity.
Have a read.


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