Are the Tories finished before they start?

[Mr Q]

Of course, that's not a problem if everyone who wants a job at £3.10 can get it at the (higher) minimum wage. But they can't - because employers simply won't offer the same number of jobs. There is a market for labour - businesses demand workers, and we supply our services. But when the price of virtually anything goes up, the quantity people demand of it will fall. Labour included.

The effect of a minimum wage is to raise the cost of labour in some segments of the market. Ensuring people get paid a 'fair' amount is an entirely noble goal - I appreciate the intent of the policy. And it works for some people (that is, those who can still get a job at the higher minimum wage). But for others, it denies them a chance of a job at all. Minimum wages ensure that there is a level of unemployment in the economy. I think people conveniently forget this point.

Ah, there's your economic theorist view, but is that idea borne out in the data? I don't seem to think there was any rise in employment or prices in a stepwise manner with the introduction of the minimum wage. I realise of course that it might not be such a linear relationship, and it might have affected some metric like "job security in tough times" but has there been a measurable effect on employment?

Well, that's difficult to assess, particularly since I don't have British economic data in front of me. As an analysis, what you're asking for is the counterfactual - what would have happened to unemployment in the absence of the minimum wage being introduced? Keeping in mind that, up until recently, the British economy has enjoyed a period of strong growth, so you'd expect unemployment to fall anyway. (And, of course, it certainly didn't fall to zero!) You have issues with the quality of employment data (which I note has already been raised within this thread). You have the informal or black market economy to consider - people who have a job, but aren't officially recorded as employed (and perhaps not unemployed either - they might not be counted within the workforce). Indeed, those operating outside the formal economy aren't likely to be 'protected' by the minimum wage - many of them could well be earning less, which would actually tend to alleviate the effect on the unemployment rate. But that's more a question of how effectively you enforce a policy.

But on the whole, yes, an an economist I'm quite confident that minimum wages ensure a level of unemployment. The magnitude of the effect will vary from country to country - I certainly wouldn't want to hazard a guess as to how it's affected things in the UK. But I guarantee you it factors into the decisions your Low Pay Commission makes in setting the minimum wage.

[marksi]

M Q, what jobs would you suggest are overpaid at the minimum wage rate?

[Mr Q]

M Q, what jobs would you suggest are overpaid at the minimum wage rate?

Well, I'm not wild about the term 'overpaid' - that implies some kind of subjective judgment, which I don't want to enter into. But a minimum wage is a price floor - the policy doesn't allow the wage to fall lower than a fixed level. But if you remove that level, it stands to reason some of those wages would fall - reflecting the fact that some people would be willing to work for less than the minimum wage if that's what was offered. Furthermore, given those lower labour costs, employers would hire more people.

[marksi]

Why would they employ more people if they could get the work done for less money?

[Mr Q]

Why would they employ more people if they could get the work done for less money?

Because all suppliers in that market could increase output.

To give a slightly more technical explanation of that - in a competitive market, if per unit production costs decrease (ie. labour costs have fallen), then producers have an incentive to increase the quantity of their goods and services that they supply to the market. Why is that? Let's assume the price of the good/service which is charged to the consumer remains the same as production costs fall. Profit obviously increases. But because the good/service is now more profitable to supply, more businesses will want to enter the market to compete. And they will compete on price - to sell more goods/services, both the incumbents and new entrants will gradually reduce the price (with the lowest price they will be willing to supply at being their per unit production cost).

[all new Phil]

I think my problem with the minimum wage is that it is exactly that - a minimum level that companies can keep to, removing the need for competitive wages as all jobs of a similar type pay the same. In fact, the company I work for, when the minimum wage was introduced, was paying considerably more than what it had to and so, as time went on, the minimum wage increases were allowed to catch up with it.

[Gavin Scott]

Well I hate to take away from all of these perfect models of capitalism with the inconvenient fact of the matter - in the city I live in, it is impossible to live above the poverty line with a wage of less than £3.50 per hour - unless you are in social housing - something else that doesn't fit the capitalist model.

People will do desperate things when they are desperate for a job - including agreeing to work for whatever they can get. NO ONE wants to work for a pittance, so to suggest that they are "willing" is a complete misrepresentation of their circumstance and motivation.

As long as those corporations make a profit though, eh?

[marksi]

I'll repeat the question and be more specific.

If a hotel can employ 5 maids to clean rooms for £3.50 an hour instead of minimum wage, how does this benefit anyone other than the hotel owner? Why would they employ more people?

At what point in the pay scale do you consider the worker to be exploited?

[Gavin Scott]

I'll repeat the question and be more specific.

If a hotel can employ 5 maids to clean rooms for £3.50 an hour instead of minimum wage, how does this benefit anyone other than the hotel owner? Why would they employ more people?

At what point in the pay scale do you consider the worker to be exploited?

Yes, I was going to pose a similar scenario.

If an individual McDonalds franchise takes 12 members of staff to run the restaurant, they use the "fixed retail price" as all franchisees do - what possible incentive would there be for the owner of that franchise to employ more staff? An employer in this circumstance cannot increase production, as his sales will largely be dictated by what the restaurant can produce and what the local market will bear.

They have 1250 franchises in the UK, with income of over half a billion pounds.

For the record, McDonalds now pay a fraction above the minimum wage in the UK - albeit by a matter of pennies. Pre 1999 they did not. I appeared in a stage play based on what was considered to be the "exploitation" of their employees and, but for a legal injunction which stopped the tour, we were written to and approached by hundreds of members of staff who wanted to share their experience of pay and conditions.

I cannot comment on the veracity of that apocryphal evidence, but I still have a box file full of the letters I got - thanking us for bringing their "disgraceful behaviour" to light; should anyone care to read them.

My view is that if you give someone desperate a "take it or leave it scenario", they are likely to take it.

At what point is this exploitation? At what point does it become sickeningly unethical?

[Chie]

Better you than me, because you would be better off on benafits!

If people would rather depend on benefits and slowly die of boredom in the process, then that's their look out.

There's always tax credits or income support as well.

You can live on that money. Not easily or comfortably, but you can do it. Isn't that a reasonable expectation of British employers?

Show me how you can live on, say, £3.10 an hour in Britain - unless you live in poverty.

Lots of people could. People who still live with their parents or live with a high earning partner. I'd be willing to accept £3.10 an hour right now - at least it's something.

But you live with your parents, Chie. You don't have household bills.

Yes, exactly. I can afford to work for £3.10 per hour and there are hundreds of thousands of people who live with their parents at present (I'm not suggesting people "move back to their parents" or "land themselves a high earning partner" but if they're in that situation already..) who could do the same.

Being self-employed I earn enough to get by (and that means buying all my own things including washing powder and loo roll, and spending £140 on food) pay off my debts and treat myself to some luxuries now and then. It would be nice to also have a part-time job to top up my income. I'd be happy with an extra £100 per month and an employer would be less fussy about employing someone who doesn't have a lot of experience if the wage was only £3.10 per hour, so we both benefit.

But lets break down that figure that you would be happy to work for - and what you need to spend in order to live (note - I said "live", not "survive").

£550 p/m for rent, council tax, gas and electric (unless its a cold winter, then its nearer £600)
£30 p/m for a telephone line and a TV licence (no broadband, cable package or mobile phone)
£80 p/m for food (I know people spend more than I do on that, but I've got it down to a fine art)

That comes to £660 per month - and there's no money there for clothes, contact lenses, cigarettes, a bottle of wine and DVD rental, never mind a night out in the pub with pals.

You need to work 212 hours a month (more actually, because we didn't include your tax or National Insurance in your £3.10 per hour). That's 53.5 hours per week. A standard working week is between 35 and 40 hours.

53.5 hours - and you can't buy anything other than your measure of "3 meals a day and household bills" - certainly not a "wardrobe of clothes".

Council houses are cheaper - if you can get one. the private rental I am quoting is about the best value you will find on the open market - and that is a fact.

So you begin to see that £3.10 per hour in Britain won't get you far - not even as far as your basic list of requirements, and you would be working 7 days a week to achieve that.

I lived in shared accommodation for just over a year while I was in the my third year at college, so I know that in that situation you need as much as you can get. But I'm talking about people can afford to work for less than the minimum wage if they want to.

I'm glad to hear that you don't want the NMW abolished - but the tory party bill allows for people to "opt out" - as in, sign away their rights to it because they as desperate for a job.

Then I think people should have that choice.

[Gavin Scott]

I lived in shared accommodation for just over a year while I was in the my third year at college, so I know that in that situation you need as much as you can get. But I'm talking about people can afford to work for less than the minimum wage if they want to.

People who can afford to work below the minimum wage are a minuscule percentage; and even then it doesn't stack up. Take, for example, a wife and mother returning to the workplace. When you factor in the cost of childcare, she would be making a loss by returning to work.

There's an old adage, "I work to live, I don't live to work" - which fits most of us, I would say.

People entering the job market, not for the money but just to get out the house, are not the ones who need protection from the unscrupulous, or those who seek to exploit.

I'm glad to hear that you don't want the NMW abolished - but the tory party bill allows for people to "opt out" - as in, sign away their rights to it because they as desperate for a job.

Then I think people should have that choice.

What about when an employer says to a desperate job seeker - "sign your rights away or we'll give the job to someone who will".

How is that a choice?

Its those who are happy to pay 2 quid an hour to their staff who are unlikely to feel troubled at forcing an "opt out" on them