Report: paying a Living Wage could save UK billions


12:01 am - December 29th 2012

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The analysis from the Resolution Foundation and the IPPR think tanks to be published early in the new year is the most detailed examination of the potential impact of the living wage on the public finances yet.

The living wage is a pay level calculated as the minimum hourly rate for a basic but acceptable standard of living and currently set at £7.45 outside London and £8.55 in the capital.

The new analysis suggests that its introduction nationally would add around £6.5 billion to the gross annual earnings of the country’s employees.

However, the report shows that the Treasury would collect more than half of the initial financial gains from a living wage – around £3.6 billion – in the form of higher income tax payments and national insurance contributions, as well as lower spending on benefits and tax credits.

But the study also examines the extra costs to the public purse of paying a living wage to all public sector workers. It suggests that wage costs would increase by more than £1.3 billion – leaving an overall public saving of more than £2 billion.

As a start, the report will recommend, all Whitehall departments and London boroughs should pay their staff at least the living wage by April 2015 and explore the costs of paying sub-contracted staff the same rate.

The London weighting means that most public sector workers already earn at or above the London living wage, so introducing the living wage for all staff would cost relatively little in the capital but would set a precedent for others to consider following. Only six London boroughs currently are accredited living wage employers -Lewisham, Islington, Camden, Lambeth, Hounslow, and Southwark.

Five million people are paid less than the living wage, three million of whom are women. Yet more than 85 per cent have permanent contracts. More than 3 million households (13 per cent) contain at least one adult earning less than the living wage.

Fewer than 45,000 workers have achieved a living wage as a result of recent campaigns.

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It’d be nice to compile a list on every council’s stance towards the Living Wage. Which ones are accredited, which ones are working towards it, which ones are against it.

If we institute the ‘living’ wage, employers’ costs (public and private) will rise while government will benefit in a higher tax take and reduced benefit payments.

Overall, this is a tax on employers – with all that implies for enterprise and job-creation.

The other option would be to take the low paid out of the tax bracket altogether by making the (say) first £15000 of income tax-free (a 40 hour week on the NMW comes to just under £13K). This would benefit the rich as well as the poor, so tax-rates above £15K would probably need to be increased slightly in the interests of fairness and deficit-reduction, but I would gladly pay more tax to take the low paid out of tax altogether.

Overall, this is a reduction in one of the government’s revenue streams (but need not require a reduction in the tax take), and would probably have fewer deleterious effects on the economy as a whole.

Judging by the post at the thread header, the higher the “living wage” is set, the more that will be saved. If so, there is obviously a strong case for doubling or trebling the “living wage” or even more. Of course, there will be no effect on jobs.

All of that is nonsense.

3

I doubt if imposing a living wage would have that much affect on people who are currently employed and currently on a low wage, instead of getting their wages topped-up by benefits such as tax credits and HB, employers will then have to pay. It would certainly benefit those who cannot claim said benefits, young people in particular, and perhaps address the very high unemployment levels of that demographic.

4
‘Overall, this is a tax on employers’, I think it’s pushing it describing wages as a tax on employers, certainly the current system of topping-up of wages is a tax on the rest of us, including those on low wages/incomes.

for the naysayers arent you ignoring the benefits of increased consumption and the jobs that will inevitably create

So wages are a tax on employers but shareholder profits aren’t? The convolutions people force their minds to go through just to justify the excesses of capitalism.

” It suggests that wage costs would increase by more than £1.3 billion – leaving an overall public saving of more than £2 billion. ”

It is this type of delusional magical thinking that is utterly depressing. If people really believed as opposed to pretending to believe that you can save money by decreeing higher wages by fiat, why stop at £7.45 outside London and £8.55 in the capital? Why not make them higher and save even more money? We could eliminate our entire deficit through all the higher tax receipts collected by the Treasury and lower work benefits paid out by just raising wages high enough. It is BS economics believed only by those that Nigerian salesmen are always looking for to give them a great deal.

We can decree that public sector workers should have higher wages and other people have lower incomes because the two amount to the same thing. Higher incomes for public sector workers are just a transfer from taxpayers. Strangely few people emphasise the latter when they advocate the former. However, it is magical tooth fairy economics to imagine that it saves money. Sure, one budget line changes but so do all the rest because public finance budgets are dynamic. Transfers from one to another is how to think about public finances.

Calling things ‘ living wage ‘ is just the politics of deception. It is just a backdoor way to try and raise the minimum wage by pretending to be something different. An honest campaign would just argue for a higher minimum wage. In my opinion such a campaign would do more harm than good but it would be honest.

Here is lefty economist Paul Krugman fourteen years ago calling the bluff on this type of magical thinking.

” Economics textbooks enthuse about the virtues of a price system. In a market economy, nobody needs to order people to economize on a scarce commodity or make extra efforts to produce it: Scarcity leads to a high price, and sheer self-interest does the rest. Conversely, nobody needs special persuasion to take advantage of an underemployed resource: Abundance will make it cheap, and again self-interest will take it from there.

And yet there is a problem with markets: They are absolutely and relentlessly amoral. Labor, in a market system, is just another commodity; the wage a man or woman can command has nothing to do with how much he or she needs to make to support a family or to feel part of the broader society. Some conservatives have managed to convince themselves that this poses no moral dilemma, that whatever is, is just. And one supposes that there are still unrepentant socialists who believe that one can do away with market determination of incomes altogether. But after a century marked by both the Great Depression–which basically ended unalloyed faith in markets–and the fall of communism, most people support some version of the welfare state: a system that is based on markets, but in which the government tries to prevent too unequal a distribution of income.

But how is that to be accomplished? The standard economist’s solution, which is also the main way the U.S. welfare state operates, involves “after-market” intervention: Let the markets rip, but then use progressive taxes and redistributive transfers to make the end result fairer. However, many liberals have always felt that this solution is unsatisfactory. Instead, they want to increase “market” wages, notably through support of collective bargaining, and through the imposition of minimum wage standards.

The “living wage” movement, which has attracted considerable support in several major U.S. cities, is a variant on this tradition. As described in Robert Pollin and Stephanie Luce’s new book Living Wage, it essentially involves putting a floor on wages not through a conventional minimum wage law, but by requiring minimum wage standards of firms that do business with a local government. Aside from novel enforcement issues (I know this lawyer who will explain to you about creating dummy companies for the contract work, leaving the rest of the business unregulated), this is basically a distinction without a difference: The living wage movement is simply a move to raise minimum wages through local action.

So what are the effects of increasing minimum wages? Any Econ 101 student can tell you the answer: The higher wage reduces the quantity of labor demanded, and hence leads to unemployment. This theoretical prediction has, however, been hard to confirm with actual data. Indeed, much-cited studies by two well-regarded labor economists, David Card and Alan Krueger, find that where there have been more or less controlled experiments, for example when New Jersey raised minimum wages but Pennsylvania did not, the effects of the increase on employment have been negligible or even positive. Exactly what to make of this result is a source of great dispute. Card and Krueger offered some complex theoretical rationales, but most of their colleagues are unconvinced; the centrist view is probably that minimum wages “do,” in fact, reduce employment, but that the effects are small and swamped by other forces.

What is remarkable, however, is how this rather iffy result has been seized upon by some liberals as a rationale for making large minimum wage increases a core component of the liberal agenda–for arguing that living wages “can play an important role in reversing the 25-year decline in wages experienced by most working people in America” (as this book’s back cover has it). Clearly these advocates very much want to believe that the price of labor–unlike that of gasoline, or Manhattan apartments–can be set based on considerations of justice, not supply and demand, without unpleasant side effects. This will to believe is obvious in this book: The authors not only take the Card-Krueger results as gospel, but advance a number of other arguments that just do not hold up under examination.

For example, the authors argue at length that because only a fraction of the work force in the firms affected by living wage proposals will be affected, total costs will be increased by only 1 or 2 percent–and that as a result, not only will there be no significant reduction in employment, but the extra cost will be absorbed out of profits rather than passed on in higher prices. This latter claim is wishful thinking of the first order: Since when do we think that cost increases are not passed on to customers if they are small enough? And the idea that employment “of the affected workers” will not suffer because the affected wages are only a small part of costs is a non sequitur at best. Imagine that a new local law required supermarkets to sell milk at, say, 25 cents a gallon. The loss in revenue would be only a small fraction of each supermarket’s total sales–but do you really think that milk would be just as available as before?

They also argue that because there are cases in which companies paying above-market wages reap offsetting gains in the form of lower turnover and greater worker loyalty, raising minimum wages will lead to similar gains. The obvious economist’s reply is, if paying higher wages is such a good idea, why aren’t companies doing it voluntarily? But in any case there is a fundamental flaw in the argument: Surely the benefits of low turnover and high morale in your work force come not from paying a high wage, but from paying a high wage “compared with other companies” — and that is precisely what mandating an increase in the minimum wage for all companies cannot accomplish. What makes this an odd oversight is that the book contains a lengthy and rather well-done critique of attempts by local governments to create jobs through investment incentives, arguing that they mainly end up in a zero-sum poaching war; how could the authors have failed to notice the parallel?

But while there is much that is silly in their book, Pollin and Luce are diligent and honest–and as a result the book carries lessons and implications they may not have intended. The most interesting section is their estimates of the impact of living-wage proposals on the budgets of hypothetical families–estimates that perhaps give us the clue to what all this is really about.

Consider, for example, the effects of “Plan Y” (never mind) on the hypothetical head of a household, currently making $5.43 an hour. According to their estimates, as long as he or she remained fully employed, the living-wage law would raise earned income from $10,860 to $14,500–and also mandate $2,500 in health coverage. (This is, incidentally, a 57 percent increase in the cost to employers; you have to have a lot of faith in Card-Krueger not to worry that some jobs might be lost.) According to their numbers, that family would currently pay less than $900 in taxes while receiving some $9,700 in benefits such as food stamps, Earned Income Tax Credit, and health care. Their calculations also show that most of the gains from the living wage proposal would be offset by reductions in these other redistributive programs. Indeed, only about one-fifth of the mandated increase in wages and benefits actually gets manifested in disposable income; the rest is taken away as benefits decline.

Now to me, at least, the obvious question is, why take this route? Why increase the cost of labor to employers so sharply, which–Card/Krueger notwithstanding–must pose a significant risk of pricing some workers out of the market, in order to give those workers so little extra income? Why not give them the money directly, say, via an increase in the tax credit?

One answer is political: What a shift from income supports to living wage legislation does is to move the costs of income redistribution off-budget. And this may be a smart move if you believe that America should do more for its working poor, but that if it comes down to spending money on-budget it won’t. Indeed, this is a popular view among economists who favor national minimum-wage increases: They will admit to their colleagues that such increases are not the best way to help the poor, but argue that it is the only politically feasible option.

But I suspect there is another, deeper issue here–namely, that even without political constraints, advocates of a living wage would not be satisfied with any plan that relies on after-market redistribution. They don’t want people to “have” a decent income, they want them to “earn” it, not be dependent on demeaning handouts. Indeed, Pollin and Luce proudly display their estimates of the increase in the share of disposable income that is earned, not granted.

In short, what the living wage is really about is not living standards, or even economics, but morality. Its advocates are basically opposed to the idea that wages are a market price–determined by supply and demand, the same as the price of apples or coal. And it is for that reason, rather than the practical details, that the broader political movement of which the demand for a living wage is the leading edge is ultimately doomed to failure: For the amorality of the market economy is part of its essence, and cannot be legislated away. ”

Originally published, 9.98

” But I suspect there is another, deeper issue here–namely, that even without political constraints, advocates of a living wage would not be satisfied with any plan that relies on after-market redistribution. They don’t want people to “have” a decent income, they want them to “earn” it, not be dependent on demeaning handouts. ”

See that neo-puritanism that I am always on about that seems to be at the heart of the contemporary left.

8. Witchsmeller Pursuivant

As TONE correctly states, an insistence by the State that employers pay a “living wage” to alleviate the poverty of the same workers that the State continues to tax, is indeed a tax on employers.

As a self-employed businessman who can just about make ends meet employing others at minimum wage, the introduction of a higher, compulsory “living” wage would mean one of three things;

– I could continue to employ the same amount of people I currently do and see my own recompense fall below the current minimum wage, let alone a “living” wage.

– I could employ fewer workers and hope that I can push them harder than I currently do (this will be a bit of a stretch, to be fair).

– I could call it a day and write the business off as an unprofitable concern. No wages at all for my current employees and benefit claims all round, including one from myself.

If the Govt are convinced that there is indeed a wage level that nobody should fall below, their moral choices include instituting a Citizen’s Income or raising the tax threshold to lift workers out of poverty.

Increasing wage costs by nearly 20% whilst the economy languishes in stagnant depression appears to me to be a folly so ludicrous as to be almost insane.

Cherub @ 6:

“So wages are a tax on employers but shareholder profits aren’t? The convolutions people force their minds to go through just to justify the excesses of capitalism.”

No. I didn’t say that all wages are a tax on employers. I said that compelling employers by law to pay a “living wage” while the state continues to tax those people on the “living wage” is a tax on employers. Can’t you see the difference?

In general, I find it faintly nauseating that left-wing statists like Polly Toynbee and the RF/IPPR are arguing that employers should be coerced into paying their staff more so that the state can get more in tax revenue. If you care about those on the NMW – and I do – then don’t tax them at all, even if that means that the rest of us have to pay a little more.

@ 7 Richard W
you have to be kidding right?
it is a comments section, a short comment and perhaps a link would have worked.

In the news and really worth reading IMO:

The Chartered Institute of Personnel and Development (CIPD) has issued its latest analysis of the UK jobs market and it says there is a high possibility that the number of people in work in the UK will reach 30 million by 2015.

It says that low wage increases and attempts by firms to retain skilled worlers has helped to keep unemployment down. . .

The CIPD says that a combination of factors have helped keep the labour market resilient; lower labour costs as a result of below-inflation pay rises, “labour hoarding” whereby firms are holding on to their most skilled staff to use for the recovery and to keep training costs down and the growth in the overall supply of the labour market that is making job-seekers become more efficient and competitive in their search for work.
http://www.myfinances.co.uk/pensions/2012/12/29/cipd-predicts-uk-employment-to-hit-30-million-by-2015

Also worth reading are these sober and provocative reflections in the FT on future growth prospects:

In an economy not so far, far away By Izabella Kaminska
http://www.ft.com/cms/s/0/09949e00-4a18-11e2-a7b1-00144feab49a.html?ftcamp=published_links%2Frss%2Fworld_europe_brussels_economy%2Ffeed%2F%2Fproduct#axzz2GUi0zxCw

For starters: “Robert Gordon of Northwestern University argues that the technological progress of the past 250 years could be a unique historical episode. He cites falling productivity levels and rising inequality as evidence that living standards are no longer improving as quickly. ”

As the author argues, there are credible market forces at work to account for lower growth prospects without blaming it all on President Obama, in particular growing monopoly power.

7

Markets are indeed amoral but the real test should be ‘are they efficient’, they are not. And neither has the massive amount of state intervention to attempt to address the inefficiency worked. It’s time to reassess the situation, either, let markets function on their own or give up on market capitalism.

14. gastro george

Far from me to argue with Krugman, who is more often correct, but:

“The obvious economist’s reply is, if paying higher wages is such a good idea, why aren’t companies doing it voluntarily?”

That might be dependent on what the incentives are for management. If they get a bigger bonus for short-term profits, rather than long-term company prosperity, then suppressing wages is a good idea.

“Surely the benefits of low turnover and high morale in your work force come not from paying a high wage, but from paying a high wage “compared with other companies” — and that is precisely what mandating an increase in the minimum wage for all companies cannot accomplish.”

That’s not the argument at all. The argument is not about comparative wages, but about earning enough so that you don’t have to have 2 or 3 jobs to feed your family. An employee with a decent wage and a supportive employer, irrespective of the the wages of other employers, is more likely to be a committed and valuable employee.

It`s very amusing to see TONE, Richard W, Bob B etc. try to justify low wages (i.e. less than a living wage) on the grounds that higher wages will mean fewer jobs. They all know full well that the state intervenes in the so-called “market” (on behalf of the capitalist class) to ensure there are never enough jobs. This is because every government since the mid 1970s (regardless of which party/parties are in power) has followed the doctrine first stated by Milton Friedman in 1968, namely that we have to maintain unemployment at or above a level known as the “natural rate of unemployment”. Nowadays this is more often known by the clumsy term the “Non-Accelerating Inflation Rate of Unemployment” or NAIRU for short.
During the last boom the ruling class became very nervous about falling unemployment – a Financial Times editorial published on September 11, 1998 told its readers that unemployment would have to rise, “perhaps by 500,000″! Three months earlier the Bank of England`s Monetary Policy Committee (MPC) had raised interest rates to 7.5% after concluding that “it was probable that unemployment would have to rise to hit the inflation target”.
Source: http://www.bankofengland.co.uk/publications/minutes/Documents/mpc/pdf/1998/Mpc9806.pdf
Higher interest rates are used to increase unemployment during booms by reducing consumption and new investment.
The economists on the MPC not only want “enough” unemployment, they also want the “right type” of unemployment. Six months after Chancellor Gordon Brown created the MPC, in its December 1997 meeting the Committee asked itself “did short-term unemployment exert more downward pressure on earnings than long-term unemployment?”. They concluded that “short-term unemployment was more important”, on the grounds that “when the proportion of long-term jobless was high…..workers would probably realise that they could not be replaced so easily, and hence that their bargaining strength was higher”.
Source: http://www.bankofengland.co.uk/publications/minutes/Documents/mpc/pdf/1997/mpc9712.pdf

Conclusion: TONE, Richard W, Bob B etc. are fake libertarians (they`re really radical statists) who conceal the role of the state in imposing the will of the 1% on the 99%!

Further reading: The Bank of England is licenced to rig the labour market
http://thetruthaboutunemployment.wordpress.com/2012/09/17/the-bank-of-england-is-licenced-to-rig-the-labour-market-2/

13

“Markets are indeed amoral but the real test should be ‘are they efficient’, they are not.”

That’s true enough but then the question is whether there is a better way than markets with intervention of allocating scarce resources between alternate uses.

The attempts at Socialism haven’t been much of an advertisement for that cause.

17. gastro george

@Bob B

“The attempts at Socialism haven’t been much of an advertisement for that cause.”

This kind of statement should become the subject of an equivalent to Godwin’s Law, or rather Reductio ad Hitlerum.

“Markets with intervention” is an interesting concept to use in such a black-and-white manner. Just how much intervention?

Gastro: “’Markets with intervention’ is an interesting concept to use in such a black-and-white manner. Just how much intervention?”

The professional economics literature on market failure and remedial intervention is vast and I’ve often posted links and citations to personal selections as many seminal papers are posted on the web, although those tend to be challenging for folks without priors.

A recent book is: John Cassidy: How Markets Fail (Penguin Books). Here’s a review of that from Business Week:
http://www.businessweek.com/magazine/content/09_47/b4156079791251.htm

Keynes focused on the problem where a market economy got stuck and continued to maintain a persisting high level of unemployment.

Market concentration leading to monopoly power is one of many potential causes of market failure – hence the EU Commission’s fines imposed on Microsoft.

It’s widely recognised now that bankers were ripping off both the shareholders of banks and the customers of banks so the issues are not the simple ones of capitalists (shareholders) exploiting consumers.

Avowed lefties tend to be a bit uninformed about market failure. For instance, it is seldom appreciated that the late Alan Walters, Mrs T’s personal economic adviser, pioneered the theoretical under-pinning for road pricing and wrote a manual on the subject for the World Bank. Yet road pricing is what John Prescott once called: A poll tax on wheels. And Prescott went to Ruskin College, Oxford.

And there’s a fundamental issue of whether we might prefer a situation where there is market failure but greater equality of income distribution to another situation where markets are more or less efficient but where income is distributed more unequally. There is nothing inherently “irrational” in expressing that as a social preference. Btw its entirely orthodox to say that according to the mainstream academic literature.

“Overall, this is a tax on employers”

Or a removal of a subsidy. An employee at present either receives the necessities of life from his employer or from the state. I find it odd how many on the right appear to be advocating the latter.

15

I am going to assume for the sake of argument that when you allude to ‘socialism’ you mean central state planning. But there is a massive amount of planning in markets and there’s already massive amounts of government intervention, what with working benefits such as tax credits and HB, unemployment benefits and state employment in the area of health, education, law, defence and the massive bureaucracy for administration, it’s not surprising that the UK is often referred to as a socialist country.

So, to what extent should governments intervene in markets, quoting economist’s views on failing markets does not answer the question, what is your opinion?

21. gastro george

@Bob B

Didn’t anybody ever tell you that brevity is a virtue.

My point was that dismissing “Socialism” while proposing that the alternative is “markets with intervention” is as nonsensical as dismissing “Capitalism” while proposing that the alternative is “planning with freedom”, or some such.

“Avowed lefties tend to be a bit uninformed about market failure.”

Really? Not short on generalisations, are we.

19: “So, to what extent should governments intervene in markets, quoting economist’s views on failing markets does not answer the question, what is your opinion?”

That question is unanswerable. As there are potentially many differing causes of market failure each has to be assessed and dealt according to the context and according to the consequences for income distribution. The recent decision of the French government to hike the top rate of income tax to 75pc has been shown to have unintended and unwelcome consequences.

As posted before, this is where mainstream economists were 50 years ago: Francis Bator: The Anatomy of Market Failure
http://instruct1.cit.cornell.edu/courses/econ335/out/bator_qje.pdf

20: “Didn’t anybody ever tell you that brevity is a virtue.”

As HL Mencken used to say: For every complex problem there is an answer that is clear, simple, and wrong

The problem I have with this kind of report is that it leaves a massive unanswered question.

Let’s set out the assumptions. Let’s assume the report is correct and that increasing the wage of anyone on less than the living wage is a good thing. Next, let’s take a common sense position and assume that raising the rate, to say £10,000 per hour, would be a bad thing (hopefully no-one would disagree with that).

What that then implies is that there is a point, somewhere between the current rate of £6.19 and £10k, where the benefit to the public finances is maximised. And that is the unanswered point. What is the ideal rate?

If the research doesn’t provide that ideal rate, then people are always going to ask “why not raise wages more and get more benefit?”

24. gastro george

@Bob B
“As HL Mencken used to say: For every complex problem there is an answer that is clear, simple, and wrong”

And another that is long, rambling and fails to deliver any clear point, causing the reader to lose the will to live. Discussing things with you is rather like arguing with a filing cabinet. I suggest you look up the definition of the word analysis.

22

That’s an honest reply and I suspect that most economists and informed others are all too aware of the failure of governments to temper markets, and further, to address the current situation. On the one hand, nobody really believes that free markets can fulfill social needs but on the other, few economists would speak out in favour of state socialism, with few exceptions such as Schumpeter.

Of course, previous attempts at state socialism have been problematic, not least because of the base/foundation of which it was built from. Further, technological advances in information gathering is a tool that historical state socialist countries did not possess. Of course, the advances in technology over the past 30 years or so have not only proved to be labour saving, it is clear that anywhere near full employment cannot be attained. This is exacerbated by the increase in the extension of the working lives of existing workers on the basis that state pensions are now a massive drain on the welfare state.

It’s time to do something drastic but it will not happen any time soon, we are cursed to live in interesting times

@Mark M – the ideal rate is apparently about £7.45 an hour outside London and £8.55 in London…

jobseeker @ 15:

Bob B and Richard W know more about economics than you or I ever will. As for you, I cannot see what – if anything – you are proposing. In anywhere other than socialist fantasy land, full employment is unattainable without causing other problems (like inflation, productivity and competitiveness loss, etc). This is because in the real world, as in personal life, not all goals are commensurable and trade-offs are inevitable.

gastro george @ 21:

“My point was that dismissing “Socialism” while proposing that the alternative is “markets with intervention” is as nonsensical as dismissing “Capitalism” while proposing that the alternative is “planning with freedom”, or some such.”

No, it’s not, as planning, freedom, markets and intervention all admit of degree. All markets, even the most free, require some regulation and intervention. “Markets with intervention” is what we have in the West; “planning with some [market] freedom” is more or less what they have in China. What’s your problem?

“And another that is long, rambling and fails to deliver any clear point, causing the reader to lose the will to live. Discussing things with you is rather like arguing with a filing cabinet.”

I think that’s more than a little unfair. Bob B prefers a conversation rather than a debate, and his posts tend to be discursive rather than pointed and analytical. Sure, he rides his hobby horses, but so do many others. I, for one, find his posts often enlightening.

steveb @ 25:

“nobody really believes that free markets can fulfill social needs”

But they can help. For one thing, they generate the wealth to pay for social protection. For another, they are often a better way of delivering state-funded services.

“previous attempts at state socialism have been problematic”

Yes, that’s one way of glossing over tens of millions of murders and deaths by starvation….

“technological advances in information gathering is a tool that historical state socialist countries did not possess.”

How exactly would IT systems make socialism any less oppressive?

“the advances in technology over the past 30 years or so have not only proved to be labour saving, it is clear that anywhere near full employment cannot be attained”

What is wrong with not having full employment, given the trade-offs I mention above? I have been made redundant three times, but I’ve always found work within 12 months. Besides, very few people need to be unemployed long-term if they are willing to retrain.

Or even get out of bed in the morning! Listen to this:
http://audioboo.fm/boos/1122850-unemployed-man-who-refused-a-job-because-he-didn-t-want-to-get-up-at-8am

“This is exacerbated by the increase in the extension of the working lives of existing workers on the basis that state pensions are now a massive drain on the welfare state.”

All the while, free-ish markets continue to make society wealthier. As for pensions, we had the best private sector pension provision in the EU, until Gordon Brown wrecked it. And governments of all colours have shamelessly squandered NIC’s by using them as a funding stream rather than investing them for future pensions.

“It’s time to do something drastic but it will not happen any time soon.”

Yes, we need to have a balanced budget. With borrowing confined to major infrastructure investment.

28. gastro george

@TONE
““Markets with intervention” is what we have in the West; “planning with some [market] freedom” is more or less what they have in China. What’s your problem?”

That was actually my point, and I was also about to bring up China as an example. There is a spectrum here and all countries, and “markets” within countries, can be widely spaced across it. But his implication (typically not explicit) was very black-and-white – damning “Socialism” (whatever he means by that), and opposing that with “markets-with-regulation” which, as your examples show, is an entirely nebulous concept.

But my subsequent post was intemperate and unwarranted, so I apologise for that.

But in riposte:

“Avowed lefties tend to be a bit uninformed about market failure.”

Do you not think that’s a bit patronising? And staggeringly untrue?

27

One of the main problems (according to most economists) with state socialism, I am using the term to mean central planning, has been the absence of information to guide production needs, Hayek calls it price signals, Smith ‘the invisible hand’. Of course looking at countries as vast as China and the Soviet Union and the conditions in which central planning emerged and the absence of IT, we can’t now dismiss out of hand. And I am at loss as to who the tens of millions are who would be murdered and by whom. Surely, 21st century UK is nothing like the political and social instability of most countries at the initial inception of state socialism.

Anyway, BobB hasn’t yet responded, so I will await his input.

29

In response to the concerted attack by economists of the Austrian school on the absence of essential price signals in socialist economies , Abba Lerner and Oskar Lange, two top ranking economists, independently devised models of socialist market economies. Abba Lerner: The Economics of Control (1946) is available online in PDF format. Oskar Lange returned to Poland from America after WW2 and eventually became Deputy Chairman of Poland’s Council of State (1961-65). His book: On the economic theory of socialism (1936) is available online but with a steep price barrier and also on sale by Amazon. Lerner’s The Economics of Control is very lucidly written and much mainstream economics can be learned from the discussion.

These contributions led to a lively debate among British economists after WW2 on whether marginal cost pricing by the newly nationalised industries would lead to optimal resource allocations.

Herbert Morrison, who was largely responsible for the Public Corporation model for managing nationalised industries, ruled out this option and had inserted in the relevant nationalising statutes requirements that the Corporations should price so that revenues would cover costs. The Corporations were also charged to have regard to the public interest, although this was nowhere defined, and ministers were empowered to issue directions.

TONE,

Well, you`ve acknowledged that capitalism needs mass unemployment, albeit in a typically superficial way – though I noticed you included a gratuitous and dodgy example of someone who was allegedly unwilling to take a job because it required an 8am start. More divide & rule propaganda from the right-wingers! An example of the millions who would take such a job would have been more representative of the “real world” you claim to be familiar with wouldn`t it? How disingenous of you!
But you haven`t acknowledged that unemployment is used to push wages down – and from the point of view of the capitalist – “the lower the better” – which is why the idea of a floor on wage levels (whether it be a minimum wage or a living wage) is unacceptable to the 1%. Unemployment is used to deliver cheap labour to employers.
The reluctance you authoritarian right-wingers demonstrate to volunteer the truth about the need for very low wages delivered through mass unemployment suggests that you don`t have the courage of your convictions. Instead, all the right-wing shysters try to blame unemployment on the unemployed, or the welfare state. Other alleged causes of unemployment include trade unions, employment protection legislation, the minimum wage, health and safety legislation etc. – THE REAL CAUSE IS CAPITALISM.
Instead of your anecdotal guff about how many times you`ve been made redundant, why don`t you tell us how many marriage break-ups, how much mental illness, how many suicides etc. resulting from mass unemployment & consequent insecurity/poverty are an acceptable price to pay so that the 1% can continue to have their wicked way with the 99%?
I look forward to your response!

http://thetruthaboutunemployment.wordpress.com

The latest official unemployment news from 12 December:

The number of people out of work fell by 82,000 between August and October, to 2.51 million, official figures have shown.

It was the biggest quarterly fall in unemployment since 2001.

The unemployment rate was 7.8%, down 0.2 percentage points from the previous three months.
http://www.bbc.co.uk/news/business-20691842

Try the puzzles about what’s been happening to unemployment as posted @11. The expectation is that with the slow growth of the economy unemployment ought to be higher than it is so some analysts have been looking into what’s been happening. One explanation is that employers have been hanging in to skilled workers for fear they won’t be able to recruit those scarce skills again if they let them go.

The fact is that by the final quarter of 1995, Britain’s standardised unemployment rate was lower than that of France, Germany or Italy and our employment rate of working age people was higher.

Reality is rather more complicated than the claim that capitalism can only run with mass unemployment.

@Bob b – as I’ve told you many times before, you cannot trust official stats on ‘falling unemployment’ because they have been narrowing down the meaning of unemployment to exclude a great many people who don’t have a waged job. Only if you claim JSA without any of the measures they’ve concocted to fudge you off the unemployment figures will you be counted as one of the unemployed.

Cylux

There are two series of official stats on unemployment: (a) the monthly claimant count – with data available by regions and by Parliamentary constitutencies; (b) quarterly data based on random sample surveys according to ILO procedures – the so-called ILO standardised definition of unemployment.

The claimant count excludes many who are looking for work but who are ineligible to claim benefit for any of several reasons, such as husbands/wives when the spouse is in employment.

Economists usually regard the ILO data, based on quarterly sample surveys, as the more reliable indicator of the state of the labour market but we need to look also at the employment data for working age people while remembering to distinguish between full-time and part-time jobs.

Another series to take special note of is what is happening to those who have been on unemployment benefit for one or two years. The good news about rising employment has to be compared with bad news about a rise in the rate of long-term unemployment. All that said, it’s worth reading the analysis of employment trends in the link @11.

The latest official ONS stats on the labour market, as released on 12 December, can be found here:
http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/december-2012/statistical-bulletin.html

According to that source:

“The employment rate for those aged from 16 to 64 was 71.2 per cent, up 0.1 on May to July 2012 and up 0.9 on a year earlier. There were 29.60 million people in employment aged 16 and over, up 40,000 on May to July 2012 and up 499,000 on a year earlier.”

For a sobering assessment of economic prospects in the year ahead, try this in the Telegraph:

UK faces another ‘hard grind’ in 2013, economists warn
http://www.telegraph.co.uk/finance/economics/9772905/UK-faces-another-hard-grind-in-2013-economists-warn.html

gastro george @ 28:

Sorry, I misunderstood you. We largely agree.

“But my subsequent post was intemperate and unwarranted, so I apologise for that.”

That’s very decent of you, indeed.

“Do you not think that’s a bit patronising? And staggeringly untrue?”

I didn’t detect Bob B being patronising there, but perhaps I’m missing something. As for staggeringly untrue, I don’t agree; but then I think it’s true of righties, too.

Anyway, Happy New Year!

Jobseeker @ 31:

“Well, you`ve acknowledged that capitalism needs mass unemployment,…”

No, I didn’t. Mass unemployment is not the same as full employment being unattainable.

“you haven`t acknowledged that unemployment is used to push wages down – and from the point of view of the capitalist – “the lower the better” – which is why the idea of a floor on wage levels (whether it be a minimum wage or a living wage) is unacceptable to the 1%. Unemployment is used to deliver cheap labour to employers.”

Yes, unemployment has some downward pressure on labour costs, but skill shortages, immigration, rates of corporation tax etc have a role too. Moreover, research shows that the higher a company’s profits the higher the wages the workers receive. (And also in the long-run, 92% of any rise in corporation tax falls upon wages.) See:

http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2010/04/corporate-tax-incidence-some-evidence.html

“all the right-wing shysters try to blame unemployment on the unemployed, or the welfare state.”

Some unemployment is unavoidable. However, it does not have to be long-term, if benefit levels encourage returning to work and the unemployed take full advantage of the retraining options available.

“THE REAL CAUSE IS CAPITALISM.”

Oh dear, capital letters. Do you use green ink? Capitalism is the only game in town: there is no alternative, as socialism does not work and wherever it has been tried, it has had horrific consequences.

Here is another reason why employment figures are unexpectedly high, given the slow growth of the economy:

Survival of the zombies is bad news
http://www.ft.com/cms/s/0/911ac966-4ad7-11e2-9650-00144feab49a.html#axzz2GjrzUxvw

cylux @ 37:

You cite johnnyvoid @ The Void blog; Bob B cites the FT and the ONS. Is that the best you can do? Because the voidoid’s arguments are…er…slender.

TONE,

I hate to keep wiping away the turd polish you apply so diligently, but since you`re such a fan of the Financial Times (might is right and all that), you`ll be interested in what the FT`s foray into the National Archives revealed about Thatcher’s manipulation of unemployment figures – here`s the published text in full from a year ago:

Unemployment: Figures massaged to ensure forecast did not exceed 3m

Source: The Financial Times. (Dec. 30, 2011): News: p3.

Byline: Sally Gainsbury

Margaret Thatcher’s government massaged unemployment forecasts to keep the figure below 3m as jobless levels soared, the archives reveal. In a series of exchanges with the prime minister, Geoffrey Howe, chancellor, proposed 2.9m as the jobless forecast for 1982-3, while admitting Treasury figures pointed to 3.1m-3.2m.

“Obviously we should prefer to avoid publishing . . . a figure of over 3m,” he said, pinpointing 2.9m as the limit for the government to remain “credible”.

He exercised similar creativity with the inflation forecast, proposing 10 per cent, even though that was “at the bottom end” of internal forecasts.

A note from Mrs Thatcher proposed publishing even lower figures than those Mr Howe suggested.

The prime minister’s team also considered manipulating public opinion to garner support for curbing trade union power. Writing at the time of riots, John Hoskyns, head of the PM’s policy unit, said: “We should try – implicitly and subtly, not very obviously – to link in people’s minds the moral similarity between high pay claims demanded with menaces and other forms of anti-social behaviour, including rioting and looting.”
Source:
http://go.galegroup.com/ps/i.do?id=GALE|A275957454&v=2.1&u=mlin_b_suffuniv&it=r&inPS=true&prodId=AONE&userGroupName=mlin_b_suffuniv&p=AONE&digest=312a4da5cfc8b7154a350370c1681c28&rssr=rss

http://thetruthaboutunemployment.wordpress.com

@39 And Jonny Void cites the ONS, Guardian, Telegraph various other groups working in workfare, and FOI requests from the DWP. Why should I write a wall of text when I can just link to a couple of blog posts?
Perhaps you could point out where you believe the arguments to be slender?

Controversies over unemployment figures go back decades, which is why we should look at what is happening to employment numbers and employment rates of working-age people while noting the extent to which increased jobs are full-time or part-time.

It is feasible for the figures to show both an increase in employment and an increase in unemployment. We attach importance to the standardised ILO unemployment rate because this is the only hope of making comparable cross-country comparisons due to the wide cross-country variations in eligibility for unemployment benefits and also because the ILO rate reflects the numbers who aren’t actually in work and want work.

As can be seen from the link to the Telegraph @35, economists are making a rather gloomy assessments of prospects for the year ahead so they can hardly be accused of wearing rose-tinted spectacles. This assessment also comes across in a piece in Wednesday’s FT:

Pessimism casts cloud over forecasts
http://www.ft.com/cms/s/0/eddfa85e-5402-11e2-bb50-00144feab49a.html#axzz2GojN2JsJ

Admitting controversies over unemployment figures, economists probably pay more attention to the different partisan policy prescriptions for getting more growth in the economy – because growth generates new jobs and sustains existing jobs. Economists with right-wing tendencies look to supply-side remedies while those with opposite sentiments see unemployment as the result of demand deficiency – hence the paper I’ve mentioned before by Bill Martin and Robert Rowthorn on: Is the British economy supply-constrained?

IMO those issues are of greater fundamental significance than arguing over small-print in unemployment definitions or about the size of the minimum wage.

I work for the government at the Department of Health in central London. I am an EO grade employee (which is not the lowest civil service grade) employed through an agency. I DO NOT GET THE LONDON LIVING WAGE. This means I cannot afford to live in London and have to spend 2 hours communting each way to get to work. Just to get to work costs me £103 per week which is more than half of my take home pay. If I didn’t work I would be able to claim carers allowance, income support and get a carer and disability premium. I am therefore worse off working for a government department than I wold be out of work :(……. good for the cleaners that have managed to get paid a living wage unfortunately it is not the case for all whitehall employees :(

Well, it appears that 2013 has started the same way 2012 ended; well meaning Lefties without a clue about the real World. I do not doubt your sincerity, nor your motivation, but all this talk about ‘living wages’ is Tosh until you can tackle the underlying problem regarding wages. None of this matters until you legislate to actually enforce the living wage. Talk of a living/minimum wages is meaningless until you can force employers to actually pay it.

Can you stop zero hour contracts? Can you force employers to eliminate unpaid overtime? Can you stop employers from enforcing stoppages in wages?

A couple of examples: One ex colleague of mine works for a large a chain of multi National tax dodgers who stop any shoplifting losses out the pay of their employers pro rata per quarter. Another stops losses acquired when diners leave without paying. Someone we have all heard off and a few us have dined in. So a thirty quid meal could, if the customers do a runner, cost that waitress a days pay.

So , what does it matter what the hourly minimum wage is unless you are willing to actually outlaw that employer from ‘forcing’ someone to work five hour shifts unpaid?

Focus on what matters and not the fluff.

@43

Whether you intended it or not – BEST argument for the Living Wage ever.

Low pay is strangling you, it’s unsustainable. Giving your pay grade the London Living Wage would be a boon for the economy.

Jobseeker @ 40:

“since you`re such a fan of the Financial Times (might is right and all that)”

I’m no great fan of the the FT. And many of their journalists – eg John Lloyd, one time editor of the New Statesman – are/were left of centre…

“Thatcher’s manipulation of unemployment figures”

*sigh* Mrs T (pbuh) left power 23 years ago! Most governments try to re-categorise ‘the unemployed’. There is nowt wrong with that per se. And Bob B’s point is that on the current measure unemployment is falling…

Now…please could you answer my points @ 36? Namely:

1.Mass unemployment is not the same as full employment being unattainable. And, though unemployment has some downward pressure on labour costs, skill availability, immigration, rates of corporation tax etc have a role too. Moreover, research shows that the higher a company’s profits the higher the wages the workers receive! (And also in the long-run, 92% of any rise in corporation tax falls upon wages.) See:

http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2010/04/corporate-tax-incidence-some-evidence.html

How do you answer such evidence? Particularly from a Marxist economist like Chris Dillow?

Cylux @ 41:
Sunny’s site is not the place to discuss another blog, but The Void’s interpretation of the facts is highly questionable. You cite an interpretation (from an obviously biased source); Bob B cites reports from acknowledged authorities. If you want to argue against Bob B, then do so yourself, citing sources and using The Voids (threadbare?) arguments if you wish. But you will not convince anyone by linking to The Void!

Anonymous @ 43:

Your circumstances are apparently very challenging. I would suggest that you look for a job with a local authority near you. It may take time; but, if you regularly improve your skills and training, and work on your application and interview skills, you will succeed….As for paying the ‘living wage’ in the civil service, we taxpayers will have to fund this when the government (thanks to Labour’s incompetence) is running a huge deficit. So what do you think should be NOW cut to fund the ‘living wage’ for civil servants?

47. Chaise Guevara

@ 44 Jim

I agree with you in principle – ending this sort of thing would be a greater victory than mandating the living wage. But the problem is that it’s hard to legislate on. It’s like internships: I think we should get rid of them, but if there’s no contract, how do you define what counts as an internship and what isn’t? Some of it could be legislated on, like docking pay (I can’t quite believe that isn’t already illegal), but other things are trickier.

In the meantime, wouldn’t the living wage be a step in the right direction? Better an inadequate improvement than nothing at all?

CG 47

In the meantime, wouldn’t the living wage be a step in the right direction? Better an inadequate improvement than nothing at all?

I accept that people mean well, but a living wage is useless unless you can deliver and enforce it.

Imagine you have people living in a drought. You can pass any amount of by laws stating ‘all shall have access to clean drinking water’, but until you supply the water it is a meaningless law.

If you pay peanuts you get monkeys. You also lose a lot of staff and they repay the employers kind offer of minimum wages with disdain and no commitment. We are talking about an extra £40 a week per worker which most companies can afford. The benefits are a better workforce and reduced or no recruitment costs which save money.
What is wrong with everyone sharing wealth? If people have more to spend it will get spent.

50. Chaise Guevara

@ 48 Jim

“I accept that people mean well, but a living wage is useless unless you can deliver and enforce it.

Imagine you have people living in a drought. You can pass any amount of by laws stating ‘all shall have access to clean drinking water’, but until you supply the water it is a meaningless law.”

Yes, but this is more akin to a drought where some regions can’t/won’t supply water, some already supply clean water, and some supply dirty water but would change if legally required.

In other words, if we mandated a living wage tomorrow, some people would get pay rises.

CG @ 50

Yes, perhaps a few people working for decent companies would get a slight pay rise. That would take away the incentive of further action. People would see an extra couple of quid in their wage packet and announce that ‘The Left’ had achieved something. The ‘Left’ would take that as evidence that they have achieved something as well. The voiceless (who suffer a real ‘no platform’ ban) of course, would receive nothing as their newfound wages were swallowed up with ‘Admin charges’ or even this ‘living wage’ would be ignored.

When we complained that people where living in poverty, we would be told ‘but the living wage…’. The British Left are pretty naïve and blinkered when it comes to employment and poverty suffered by those on the bottom rungs of British society. They tend to imagine that because their terms and conditions are nicely written and scrupulously upheld, that is true of everyone. I know of people who were sacked for having been diagnosed with cancer or attending the funeral of a grandson. I know of a guy working for a huge international mobile phone company via an agency who was terminated because he required a size 11 ½ safety shoe, but there were none in store.

As I said before, I know of someone who lost a day’s wages when a couple walked out of a well-known pizza restaurant and I know of a guy who has had nearly a thousand pound taken from his wages in all kinds of infringements including a relief agency driver employed to cover his holiday losing a fuel card.

These issues are often ignored by the Left, often citing some kind of ‘code of practice’ or ‘voluntary agreement’ to tackle this thing. This type of story is swept under the carpet, but women in the boardroom? All talk of voluntary agreements stops because that requires action. As I said before, the Sunny’s and the other contributors here mean well and I truly believe their hearts are in the right place, but they do not have a clue the conditions that millions of the lower paid in society are forced to endure. This is not through ill will or that they do not care, they just do not understand.

The Labour Party are more likely to be chasing the big bucks rather than grass roots and big business have the ear of the Party, with disastrous consequences:

http://www.dailymail.co.uk/news/article-2258146/Poorest-gamblers-spend-5bn-crack-cocaine-betting-machines.html?ito=feeds-newsxml

Look at this gang rape in India. Tragic case as it is with far reaching implications. Seven pieces this year already and I bet another three or four in the pipeline. However, the zero hours contract person who sits by the phone? Not this week, I am afraid because we did the living wage thing last month.

Yes, perhaps a few people working for decent companies would get a slight pay rise. That would take away the incentive of further action. People would see an extra couple of quid in their wage packet and announce that ‘The Left’ had achieved something. The ‘Left’ would take that as evidence that they have achieved something as well. The voiceless (who suffer a real ‘no platform’ ban) of course, would receive nothing as their newfound wages were swallowed up with ‘Admin charges’ or even this ‘living wage’ would be ignored.

When we complained that people where living in poverty, we would be told ‘but the living wage…’. The British Left are pretty naïve and blinkered when it comes to employment and poverty suffered by those on the bottom rungs of British society. They tend to imagine that because their terms and conditions are nicely written and scrupulously upheld, that is true of everyone. I know of people who were sacked for having been diagnosed with cancer or attending the funeral of a grandson. I know of a guy working for a huge international mobile phone company via an agency who was terminated because he required a size 11 ½ safety shoe, but there were none in store.

As I said before, I know of someone who lost a day’s wages when a couple walked out of a well-known pizza restaurant and I know of a guy who has had nearly a thousand pound taken from his wages in all kinds of infringements including a relief agency driver employed to cover his holiday losing a fuel card.

These issues are often ignored by the Left, often citing some kind of ‘code of practice’ or ‘voluntary agreement’ to tackle this thing. This type of story is swept under the carpet, but women in the boardroom? All talk of voluntary agreements stops because that requires action. As I said before, the Sunny’s and the other contributors here mean well and I truly believe their hearts are in the right place, but they do not have a clue the conditions that millions of the lower paid in society are forced to endure. This is not through ill will or that they do not care, they just do not understand.

The Labour Party are more likely to be chasing the big bucks rather than grass roots and big business have the ear of the Party, with disastrous consequences:

http://www.dailymail.co.uk/news/article-2258146/Poorest-gamblers-spend-5bn-crack-cocaine-betting-machines.html?ito=feeds-newsxml

Look at this gang rape in India. Tragic case as it is with far reaching implications. Seven pieces this year already and I bet another three or four in the pipeline. However, the zero hours contract person who sits by the phone? Not this week, I am afraid because we did the living wage thing last month.

can someone invoke a ‘no platform’ clause on the double post (and this one too), thanks!


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