Monday, September 22, 2008

[minimum wage] beneficial or detrimental

The minimum wage in the UK at the moment appears to be £5.52 an hour and in the U.S.A., the federal minimum wage is $5.85 per hour, effective July 24, 2007.

Proponents say that the net effect of a minimum wage policy guarantees a base living standard for all workers, does not significantly effect unemployment, increases work ethic, stimulates the economy through consumer buying, decreases social welfare payouts and helps business.

Opponents say that the net effect is to hurt small business by excluding low cost competitors, reduces hours worked by workers,raises prices of goods and creates inflationary pressure, causes outsourcing and hurts the really disadvantaged in the lowest positions, making some employable people now unemployable. This then adds them to the welfare system.

They say that the policy should be one of maximizing work opportunities by encouraging small businesses, topping up wge packets with earned income tax credits and indirect money saving across the board, e.g. reduction in hidden taxes.

Anyone in my current position needs to have enough to cover, flat rental, gas and electricity, transport to and from work and a minimum for food. The flat rental cost needs to be below that and in this part of the world can be around £90 a week if you're lucky, with up front costs to get started.

Against that is unemployment benefit of £56.20 on current information [which I'm not eligible for] and housing benefit of around £50 [which is possible]. For someone who has lived here for years, that then leaves, in round terms, about £15 for all utilities, clothing, transport and food. For me it doesn't. For many graduates, tricky little clauses in the eligibility for the dole effectively exclude them.

In realistic terms, once employed, these benefits disappear anyway and one is reliant on the weekly wage which, if you work a 35 hour statutory week, comes out to £193.20 per week. The advantage, if one works a rotational shift, is that one can find other work as well. Such work is available and living, though very tight, precluding any frills and subject to landlords bumping up the rental in line with inflation, is a possibility. Just.

From an employer's point of view, using my friend's analogy, if you have, say, a flower delivery service, you need to have people to deliver flowers. Assuming you run a good business, then you'll be paying above minimum wage, plus rebate on usage of the employees' cars. Otherwise you won't be attracting employees who have a certain amount they're paying out to survive.

The higher the minimum wage goes, the less people you can employ and the harder they must work to compensate. Thus the higher the turnover of staff and the more you need to retrain, before even looking at taxation and the like. With no minimum wage, you can employ far more people at a lower rate, this stimulates the economy in a small way but you are just one of many and the economy overall benefits.

It seems a sort of catch 22 to me. Maybe you could look over this post and tell me where the fallacies are and what it missed. I don't claim to have any authority in this matter.

9 comments:

  1. Every time the minimum wage goes up (for the 10-15% of people that actually make minimum wage); the costs of employers rise and minimum wage earners either get cut (unemployment rises) or they get their hours cut (lowering costs, but lowering take home pay)...

    Happened everytime, not a surprise and is pointed out everytime someone wants to raise it.

    Minimum wage isn't a 'living' wage and isn't supposed to be. People making minimum wage (generally) are not their for a career but a stopgap to the next job paying slightly (or more) better wages.

    If you keep raising min. wage, you will eventually price out all the unskilled workers and raise other prices (food/services) to the point that minimum wage will be lower (in terms of buying power) than it already is.

    No one that actually is for minimum wage seems to actually look at the net effect on employment, pricing and wages that it makes; and are generally surprised when it all pans out just like they were told it would and didn't believe.

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  2. In these times it makes it more difficult to survive. As they have to pay the minimum wage.

    They can't if facing difficulties come to an agreement with their staff to cut wages so the business and jobs survive.

    Just a thought.

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  3. The minimum wage is designed to encourage you to claim working tax credits to increase your take home pay to something above existence. It's a double con as it takes people out of headline unemployment but (good for govt)can enable them to claim as much in tax credits (high uptake means successful govt policy) and it also discourages employers from investing in innovation and new technology for simple routine work.

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  4. slightly agree with tbrrob (in that companies can't easily keep up with minimum wage) except that market forces would close the companies that don't pay 'competitive' wages in the real world (which would be the same) so the net effect there wouldn't be significant (for the company)

    gallim: that only works on your side of the pond; no working tax credits to help out the little minimum wage guy here; simply a need for government to nanny

    I was speaking solely for the US version of minimum wage, I don't know enough about how your day-to-day things go over there to comment on the net effects in a more socialistic state

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  5. I am not going to comment on the minimum wage being beneficial or detrimental in the long run, although everywhere it seems to sustain one at way below the poverty line.

    The exception seems to be Australia where I was told recently by someone here on Sabbatical from Western Australia that it is $18 per hour as opposed to $8 here. This person did not seem to think there were problems with it being so high. I was quite shocked I can tell you since I don't think normal wages are so different from here.

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  6. Actually I should have googled that to check before opening my mouth. Beginning July 2008 WA's minimum wage is $557.40 with the Federal minimum wage at $543.78 but I don't know for how many hours. At 40 that works out to $13.93 for WA but knowing the Australians it could be a shorter work week.

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  7. The idea is that everyone should have a base standard of living. But at the moment the minimum wage doesn't cover the costs of basic living. I think also think of the people at the top of the sphere getting richer whilst the poor get poorer...

    It is something that troubles me daily, but like you I don't know what the answer is.

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  8. The idea is for people to get a job that pays what they can afford to live on, not for the government to make sure they get a wage that won't.

    I have no trouble with the rich getting richer; the poor also seem to move up and the middle becomes the rich; of course I don't have any socialistic tendencies to worry about 'inequalities' in wealth; just equality in opportunity

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