Minimum Wage - Time For Reduction To Boost Economy?

lmtduffy

donegalfella wrote: »

This post has been deleted.

and who benefits form all this? the producer.
It does not discriminate against them it ensures that regardless of the opportunities they have not had that they can live as part of society.

The only chances theyd have are what the employer gives them, which is not going to be anything that doesn't benefit the producer.

The argument for a state-mandated minimum wage rests on the presumption that market wages are somehow immoral, as if, but for the grace of the state, we would live in some Dickensian dystopia where the vile capitalist would happily pay his workers €0.01 per hour so that he could pocket billions. This is nothing but a caricature.

yes they are immoral as they are stuck into a cycle of boom and bust and employers like to have their cake and eat it too, they like to overcharge during the boom and cut wages during the bust.

The only thread of logic in the free market is that it is more efficient, but if you look at history that is not good enough for most people, as most people value the quality of their life and of others more than economic efficiency.

That is why the free market has constantly been built upon and why it is seen as distasteful to the majority of society.

O'Coonassa

freemarketeer wrote: »

Yeah.. I don't know what you're mentioning religious nutters for..

Adam Smith. AFAIK he thought the 'great architect of the Universe' had everything under control. The only invisible hand is human greed IMO.

freemarketeer wrote: »

Distribution of wealth can be irrelevant, if the alternative system would make everyone equally poor. Also, you're just wrong about the numbers of people living in extreme poverty. See hundreds of millions of people in China and India for proof that the market economy works, and brings people out of poverty.

There was less than a billion people on Earth when the system you believe in got going. The numbers living in absolute poverty have undoubtedly increased under it.

johnnyskeleton

freemarketeer wrote: »

All you've proven there is that the country is snookered either way? What matters is relative movement. We make Ireland relatively cheaper to operate in, and we make it relatively more attractive.

Over the long term yes, but you can't cut the minimum wage by so much overnight and expect everything to be peachy. Yes, the country is snookered either way AND THERE IS NO QUICK FIX. Any solution to the problems has to be over a number of years whereby we allow the orderly winding up of unsustainable businesses, the orderly deflation of assets, the orderly reduction of costs and wages, and at the same time preparation for new industries. A drop in the minimum wage from €8.65 to €7 does not make us significantly more attractive than countries which offer the same positives but with wages at around €1-2 per hour (or in some places, per day), and it would create a lot of hardship at the bottom end of the economy. It would have to go hand in hand with an equal or greater decrease in social welfare (as otherwise people on social welfare would be better off than people on minimum wage).

freemarketeer wrote: »

Your other examples confuse matters by attempting to analyse the impact of changes in several exogenous factors at once. Also, you look at individual industries in isolation. You ignore the possibility of job creation, or the possibility that goods and service can be made cost-effective through wage reduction. In short, your analysis is incomplete. You haven't beaten the thesis of my argument by throwing imagined examples around.

I dealt with the unlikeliness of job creation in my other posts and above. Our cost base is several times that of competing countries. I also stated earlier that a reduction in the minimum wage could lead to cheaper prices but that's beside the point. You argued that a reduction could mean 1) more jobs and 2) a boost to the economy. I argued that it wouldn't mean more jobs and at best would stem the tide of job losses (but will not stop the majority of job losses). I didn't directly address the effect on the economy, but in the short term it would make things worse because it would take even more money out of the pockets of the employees without necessarily leading to reduced prices (prices drop due to competition - lower costs ceterus paribus means more profit). But I don't have to prove you wrong, you have to prove it yourself. Show us some examples of how jobs would be created because of the proposed reduction. What jobs in what sectors?

freemarketeer wrote: »

I'm not saying that this measure would be a panacea, just that it might prevent some job losses in some circumstances. Also, you're ignoring what I proved earlier - that savings will be passed onto consumers due to the competitive environment. Therefore, you're forgetting that minimum wage workers are consumers too. Also, what about the welfare of all other consumers?

You're shifting the goalposts now from job creation to effectively my point which was that it would at best stem the tide of job losses in some areas. You didn't prove any such thing earlier, you at best asserted that savings might be passed on to consumers, but that has nothing to do with your original post which was that a reduction in minimum wage would lead to job creation and a (short term) boost to the economy. If you want to go down the path of minimum wage workers are consumers too, then any such decrease should be in line with deflation and social welfare decreases otherwise it would be a disaster.

freemarketeer wrote: »

Could it slow the tide though? Logically, yes. What's the difference between now and a few years ago? There are other factors causing job losses? But we only need to look at the impact of this policy, ceteris paribus.

It could slow the tide, but it definately would cause a lot of hardship and would have the effect of taking money out of the consumtion economy. The difference between now and a few years ago is that our economy and exchequer could handle a costs reduction policy a few years ago, but in the middle of a recession it's the paradox of thrift. Not spending now only worsens our problems, but we have no other choice. However, decreasing spending even further is a step towards oblivion. Yes there are other factors causing job losses which at the moment dwarf the minimum wage being high.

freemarketeer

lmtduffy wrote: »

or the competing firms may as often happens ease competition to ensure mutual survival, rather than lowering their prices against each other they will stagnate where they keep a preferred level of profit, these are called cartels.

How come there are price wars between supermarkets at the moment?

lmtduffy wrote: »

How about hose on higher wages and the employer take wage cuts?

How about we just find a big pile of money? Or we discover gold in the Wicklow mountains? How exactly are you suggesting that this is achieved? People on high wages are already taking pay cuts, and taxation increases.

lmtduffy wrote: »

or they will stagnate where its comfortable for them, have you ever notice that businesses often charge the same prices if their in the same market?

Hmm.. It's almost like they are operating in the same market, producing the same goods using very similar componenets. Wait! That's the reason why, not your paranoia.

freemarketeer

lmtduffy wrote: »

maybe the employer and other high payed staff could all cut their wages to the minimum first?

Good idea, except it won't happen in REALITY. The reality is that the low-skilled staff will get laid off when they are done imposing wage cuts on higher-earners.

You need a mechanism by which you intend to achieve your magical new equilibrium with everyone on the minimum wage. It's called communism?

freemarketeer

lmtduffy wrote: »

yes that what the free market did, or maybe it was people forming unions, fighting for safe working conditions, a living wage and workers rights.

That is the working of the free market! It's so funny how people forget that. Allowing determination of wages, working conditions, etc. through the price mechanism is exactly what the market does. Don't kid yourself into thinking that the legislation came first. Bargaining power of workers increased. The market solved for new conditions. The legislation entrenched these conditions for all, to the detriment of the worker that was willing to compete - work for less, take risks, not wear a safety harness, etc.

freemarketeer

lmtduffy wrote: »

The only thread of logic in the free market is that it is more efficient, but if you look at history that is not good enough for most people, as most people value the quality of their life and of others more than economic efficiency.

Increased efficiency in production leads to better quality of life. The poorest people in Ireland are better off than people working in the third world. Because the market mechanism brought production to Ireland, employment, and prosperity. I'm not arguing this line with you any more.

eamonnm79

And it's a point I disagree with, as you can see from my point above. I'm not saying it wouldn't stop any job losses, but just that the way things are going i.e. the fallout from the property & construction bubble, the main job losses come from the loss of demand. So the jobs that would be saved IMO would not outweigh the damaging effects of people having less take home pay. Companies are not going to keep more workers on if they don't need them, even at a lower rate of pay. Let's look at two examples:

1. Furniture factory employs 100 staff and makes 10,000 items of furniture per annum. These items are sold at €500 each and each employee is paid €20k (let's say that's the minimum wage) each can make up to 100 items per year, and the marginal cost of producing each item (raw materials) is €50. The company has turnover of €5m, let's say €2m overheads, €2m wage bill and €500k on raw materials (500k operating profit). Due to the housing bust, only 7,000 items of furniture are sold (for this example, let's say that if the price was dropped, still only 7k items would be sold). The turnover of the company is now only €3.5m. The costs of the company are €2m overheads, €250k raw materials plus wages of €2m, which is a €.75m loss. They can probably get their overheads down a bit, so let's say €.25m, and they will remain in business with an operating profit as low as €100k for a few years, so they need to make up €600k from the wage bill. This could be to reduce minimum wage by 30% from €20k to €14k and everyone keeps their job, 30% of the workforce are made redundant but they all stay at €20k or some combination of the two.

Here, your argument is that if the minimum wage was cut, the employer would keep everyone in work and could still make a profit, which makes sense on paper. However in relality what happens is that when the minimum wage is cut by 30%, the employer is still employing 30 people more than he needs. So he can either employ them and make €100k operating profit, or he can get rid of them and get his profits back up to €520k. So, in an industry which has experienced a drop in demand at constant price, a cut in minimum wage will not stop job losses.

2. A potatoe farmer employs 10 staff and produces 100,000 bags of potatoes every year, which sell at €4 each. His overheads are low, say €100k and his staff earn minimum wage (again, let's say €20k). So his total revenue is €400k, costs of €300k, operating profit of €100k. Now, while people still want potatoes, they are demanding that they only pay €3 per bag, which would leave the farmer with a loss of €50k p.a.. He can't cut overheads, and is not perpared to farm the land without earning a profit. In this scenario, if those ten staff are absolutely essential, the farmer's choice is to cut their wages or else refuse to drop his prices.

3. A third scenario could be where not just basic demand, but aggregate demand (i.e. demand at a price) falls, but in such cases the businesses' survival will not be determined by wage factors.

The first scenario shows that in industries where basic demand has fallen i.e. people simply don't want the goods or services anymore, job losses are the only way to reduce costs, and a cut in minimum wage will not stop job lossess. The second scenario shows that in industries where basic demand has not changed, just people can't afford the higher price anymore, cuts in the minimum wage could make a difference. So which are we in now? Well, both is the answer, but the vast majority of job losses have been in construction, property, services etc sectors and its mostly because people are not interested in buying houses, furniture, new cars etc at ANY price. There is also a lot of price pressure on food, clothes etc, and those are areas where a cut in the minimum wage could lead to a reduction in prices which might help save jobs but it is not guaranteed to do so.

I agree that in the long term we should be aiming to get our cost base down, as we have allowed it to spiral out of control relative to other EU countries. Hopefully, in 10/20 years time, similar jobs in every country in the eurozone will earn more or less the same and have more or less the same standard of living, thus removing the beggar thy neighbour policies we have pursued. But a cut in the minimum wage will not stem the tide of job losses at this moment in time. It might have done if it was implemented a few years ago, but not now.

Jesus man that was brilliant, seriously, no messin, you should have put QED at the end. you explained a fairly complicated issue with a lot of clarity, and in simple english.

freemarketeer

johnnyskeleton wrote: »

A drop in the minimum wage from €8.65 to €7 does not make us significantly more attractive than countries which offer the same positives but with wages at around €1-2 per hour (or in some places, per day).

I'm not saying that we'll take business from these nations. I'm saying that it will have a knock-on effect that reduces wages throughout the economy, and makes us more competitive. That's where we start benefiting as a nation.

johnnyskeleton wrote: »

It would have to go hand in hand with an equal or greater decrease in social welfare (as otherwise people on social welfare would be better off than people on minimum wage).

That's happening anyway. It also goes without saying.

johnnyskeleton wrote: »

I also stated earlier that a reduction in the minimum wage could lead to cheaper prices but that's beside the point.

No, it's not. That's the whole point. Deflation is Ireland's only route out of the current situation, and into global competitiveness again. You need to start somewhere, and initiate it somewhere.

johnnyskeleton wrote: »

Prices drop due to competition - lower costs ceterus paribus means more profit.

There is existing competition. Why are there price wars between supermarkets? Aren't their goods a major determinant of spending by consumers?

johnnyskeleton wrote: »

Show us some examples of how jobs would be created because of the proposed reduction. What jobs in what sectors?

Wherever there are people being laid off, jobs may not be lost. Wherever the reduced cost passes savings onto consumers, they reduce their wage demands and jobs will not be lost. Wherever the savings are passed onto consumers and they have more money to spend, jobs will be created.

johnnyskeleton wrote: »

You're shifting the goalposts now from job creation to effectively my point which was that it would at best stem the tide of job losses in some areas.

There's no qualitative difference. Also, I'll allow the market to create the jobs better than me. It's generally quite good at that.

johnnyskeleton wrote: »

It could slow the tide, but it definately would cause a lot of hardship and would have the effect of taking money out of the consumtion economy.

That needs to be backed up. Consumers can afford to buy more, or buy as much for less. Benefit!

johnnyskeleton wrote: »

In the middle of a recession it's the paradox of thrift. Not spending now only worsens our problems, but we have no other choice.

That doesn't make much sense. Generating economic activity through a reduction in cost base at the lowest level of the economy will increase the amount of spending in real terms. There will be more buying and selling of goods and services.

eamonnm79

freemarketeer wrote: »

Increased efficiency in production leads to better quality of life. The poorest people in Ireland are better off than people working in the third world. Because the market mechanism brought production to Ireland, employment, and prosperity. I'm not arguing this line with you any more.

Actually the reason that the poorest people in Ireland, those on social welfare and those on the min wage are better off is because of the minimum wage and livable dole payments. I like to call it civilisation.

johnnyskeleton

I think we're at an impasse, but there are just a few final points I want to make.

freemarketeer wrote: »

No, it's not. That's the whole point. Deflation is Ireland's only route out of the current situation, and into global competitiveness again. You need to start somewhere, and initiate it somewhere.

If you cut wages before prices come down, it creates massive hardship for people. Starting somewhere doesn't mean start at the bottom where the most vulnerable are, but more importantly a cut in the minimum wage above the rate of deflation would have far reaching consequences not all of them good. Job creation is what is really needed, and we may not even bother trying to get the nickel and dime jobs because those that are not location specific can be done in other countries far cheaper. Instead, and I hate to sound like a government supporter here, what we need are high paying high quality jobs. If anything, Ireland discourages innovation. There is a very real chance that the US companies will start pulling out of Ireland. Cutting the minimum wage is not the answer but one thing we could do is try to foster indigenous entrepreneurs who will take over and compete with the US firms. This should be the main focus of government policy, and if it genuinely was (as opposed to the lip service of "the knowledge economy") then we might actually get through the recession in relatively good shape.

There is existing competition. Why are there price wars between supermarkets? Aren't their goods a major determinant of spending by consumers?

Interesting that you bring this up, because while I am totally in support of cheaper food, you will notice that Lidl/Aldi are cheaper but have less staff, shopping in Northern Ireland might mean less jobs here, and the move by Tesco to cheaper UK suppliers means that jobs are lost in Irish supply firms. I'm not sure that Lidl/Aldi would hire more staff if the minimum wage was cut, I don't think supermarkets in Ireland would drop their prices by 20% if the minimum wage was cut by 20%, and likewise the suppliers. In the long term, we should be aiming to have competitive prices, and by that time no doubt our minimum wage would be similar to that in all our major trading partners. But an overnight cut, assuming it were even possible without riots etc, will not cure the rot in Irish busniess, nor would it in my view significantly boost the economy.

In all this, I am not saying that costs and wages will not have to go down (although you seem to ascribe these views to me), but what I am saying is that now is the wrong time to do it, a large drop will be far too damaging, it will not achieve your stated objectives, it would be politically impossible and most importantly, it should not be done in a vaccuum but should only be done in line with reduced costs across the country (and that will take several years).

Wherever there are people being laid off, jobs may not be lost. Wherever the reduced cost passes savings onto consumers, they reduce their wage demands and jobs will not be lost. Wherever the savings are passed onto consumers and they have more money to spend, jobs will be created.

That needs to be backed up. Consumers can afford to buy more, or buy as much for less. Benefit!

I don't understand how you can hold both of these views. Wages and prices drop by an equal amount (otherwise it wouldn't fit in with your deflation policy) yet consumers have more money to spend thus creating more jobs? Surely that would be pulling yourself up by your own bootstraps.

That doesn't make much sense. Generating economic activity through a reduction in cost base at the lowest level of the economy will increase the amount of spending in real terms. There will be more buying and selling of goods and services.

At the moment, people are only spending what they need to spend. In a deflationary period, people save and reduce consumption. Also, the people whose wages are cut will buy even less because they can't afford it. The paradox of thrift means that during a recession, if you take money away from people (through wage cuts or tax) they will spend even less than you have taken away from them and so the overall economy suffers. Fairly basic economics I would have thought. But answer the question I asked before, in which areas are these increased goods and services going to come from, because it helps no one if jobs are created producing things that no one wants.

lmtduffy

freemarketeer wrote: »

How come there are price wars between supermarkets at the moment?


How about we just find a big pile of money? Or we discover gold in the Wicklow mountains? How exactly are you suggesting that this is achieved? People on high wages are already taking pay cuts, and taxation increases.


Hmm.. It's almost like they are operating in the same market, producing the same goods using very similar components. Wait! That's the reason why, not your paranoia.

Why weren't there price wars before the recession, because they were taking advantage of the market, and why are they letting go of staff and lowering prices now because its advantageous to them, you need to understand the controls that make these models work, such as the consumer being able to walk away or withdraw their labour if the prices or wages offered dont suit them does not exist in reality.

Yes those who can take cuts are to a degree but your suggesting those who cant take cuts all should and to top it that this would be of benefit to them.

So are you just contradict yourself blatantly above surely if "they are operating in the same market, producing the same goods using very similar components" they would compete as opposed to charge the same prices?

lmtduffy

freemarketeer wrote: »

Good idea, except it won't happen in REALITY. The reality is that the low-skilled staff will get laid off when they are done imposing wage cuts on higher-earners.

You need a mechanism by which you intend to achieve your magical new equilibrium with everyone on the minimum wage. It's called communism?

Im not suggesting communism at all, what Im saying is to apply your logic in an equitable manner would mean cutting all wages just so people have jobs despite the quality of life they can afford or the work they are doing, what Im saying is dont do that and dont use your insulated solution either.

lmtduffy

freemarketeer wrote: »

That is the working of the free market! It's so funny how people forget that. Allowing determination of wages, working conditions, etc. through the price mechanism is exactly what the market does. Don't kid yourself into thinking that the legislation came first. Bargaining power of workers increased. The market solved for new conditions. The legislation entrenched these conditions for all, to the detriment of the worker that was willing to compete - work for less, take risks, not wear a safety harness, etc.

The worker wiling to compete to there own detriment and to the employers benefit, honestly your sounding like a communist caricature of a capitalist now.

I dont think anyone begrudges legislation that protects them from exploitation.

And no the market did not do any of that workers fought for it and a number of privileged and uncaring people fought against it, and tried to justify themselves by claiming that this is how the market works and how it works best,

but what every one with a clue is telling you is, okay thats how the market works but its not how society works, and with out the rest of us you haven't a pot to piss in and you should remember that next time you try to say that workers on the minimum wage should loose out on purchasing power to keep a business a float for the employers.

lmtduffy

freemarketeer wrote: »

Increased efficiency in production leads to better quality of life. The poorest people in Ireland are better off than people working in the third world. Because the market mechanism brought production to Ireland, employment, and prosperity. I'm not arguing this line with you any more.

yes I agree but we draw the line where those on the minimum are expected to loose out to benefit those with a larger disposable income, in other words the more efficient the better but never inequitable.