Minimum Wage

irish_goat

With the minimum wage being dropped by €1 in the Four Year Plan it got me thinking. The logic behind this move is that it will allow employers to hire more staff but will this actually make any real difference? Speaking from experience, working part time in a smallish pub/restaurant, I know we'll not be taking on anymore staff if our wages drop and I can only imagine this to be the case for most small businesses around the country.

Statistically speaking, when the minimum wage was brought out in 2000, despite ESRI concerns that it would decrease employment 95% of firms interviewed said that it didn't make any difference to the number of people they hired.

I'm not arguing that it should/shouldn't come down, but all the textbook reading and clearly, government thinking, is that the minimum wage restricts employment levels but this doesn't seem to be the case in practice. Is this bad economics on the government's part or should I just be more cynical of the plans to help businesses and forget the low wage workers?

Time Magazine

The empirical evidence is divided. Sometimes it has a statistically significant effect, sometimes it doesn't. Just as your anecdotal experience indicates it will have no effect, my anecdotal experience is that the local video shop closed an hour earlier when the minimum wage increased to its current level.

You would expect it is more likely to have an effect the more severe a recession and the higher the minimum wage is. It may not work, but it's not bad economics.

gerry87

I imagine it depends on the industry, a lot of places have had to cut-back on staff, these places can increase their staff by 12% for the same cost as before. That's pretty significant.

But just thinking it through now, someone might correct my thinking... employers drop all their staff wages, and that directly increases profits. Then wouldn't the same chunk of money be taxed all of a sudden, whereas before it was being paid to people under the tax entry point and so no tax revenue on it.

Essentially, if employers dropped wages but didn't change anything else, it would increase corporate tax receipts by around 1.6%.

It would only equate to around €40m increase in tax receipts so it probably wouldn't have influenced any decisions, but is my thinking wrong on that?

Ostrom

irish_goat wrote: »

With the minimum wage being dropped by €1 in the Four Year Plan it got me thinking. The logic behind this move is that it will allow employers to hire more staff but will this actually make any real difference? Speaking from experience, working part time in a smallish pub/restaurant, I know we'll not be taking on anymore staff if our wages drop and I can only imagine this to be the case for most small businesses around the country.

Statistically speaking, when the minimum wage was brought out in 2000, despite ESRI concerns that it would decrease employment 95% of firms interviewed said that it didn't make any difference to the number of people they hired.

The common practice during the 80's for the contruction industry at least (anecdotally, from an extended family of many years in contracting) was to 'sack' employees a number of days before their temporary contracts reached the point of becoming permanant.

The labour market - and the terms of employment for comparable low wage workers today - is much different. I would imagine - and this is just my own experience, you guys have the data to correct me - that for an industry with such a high proportion of temporary, casual and contract staff, (such as hospitality) resisting any wage decrease will be impossible. What is the incentive for an employer to hire more staff? Or not to repeat the above? Temporary staff have less legal recourse (let alone means) to oppose such measures.

I'm sure I'm being too simplistic about this, but if demand is down, and you are faced with a reserve supply of cheap, willing labour - and your own temporary staff are expendable - why hire more? Why not accumulate more temporary staff on a depressed minimum wage and let the state pick up the surplus?

Listening to IBEC's minimum wage lobbyist on the way home yesterday, they seemed to think employers will automatically act in the welfare of the employee.

Time Magazine wrote: »

The empirical evidence is divided. Sometimes it has a statistically significant effect, sometimes it doesn't

Could you point out some papers? (Genuinely curious)

Time Magazine

gerry87 wrote: »

but is my thinking wrong on that?

If marginal cost drops, output should increase.

q = quantity
P = price
TC = Total Cost
TR = Total Revenue

P = a - bq
TC = f + mq
TR = q(a-bq) = qa - bq^2
obj: max TR - TC
= max qa - bq^2 - f - mq

d/dq(TR-TC) = a - 2bq* - m = 0

2bq* = a-m
q* = (a-m)/2b

Output is negatively related to m. As m falls, q increases.

Time Magazine

efla wrote: »

Listening to IBEC's minimum wage lobbyist on the way home yesterday, they seemed to think employers will automatically act in the welfare of the employee.

Very, very simplistic model I just posted shows that a ruthless profit-maxmising company thinking only about himself should hire more staff if the cost of hiring them falls. Things only get better if you agree that companies aren't complete scumbags and do care about other people.

Ostrom

Time Magazine wrote: »

Very, very simplistic model I just posted shows that a ruthless profit-maxmising company thinking only about himself should hire more staff if the cost of hiring them falls. Things only get better if you agree that companies aren't complete scumbags and do care about other people.

Does that fit with observations for such past conditions?

Time Magazine

efla wrote: »

Does that fit with observations for such past conditions?

To the best of my knowledge there has never been a cut in the minimum wage from such a high level after such a large dip in GDP. You can lob in other variables onto the right hand side of a regression equation, but that's by no means perfect. We're in new territory, and where data doesn't exist you should look at theory.

The empirical evidence in general (and we're talking mostly about the US where the minimum wage is about half ours) is mixed.

Time Magazine

efla wrote: »

Could you point out some papers? (Genuinely curious)

Sure

http://mitpress.mit.edu/catalog/item/default.asp?ttype=2&tid=11659

http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B7P5V-4FJ8VR9-N&_user=10&_coverDate=01/01/1999&_rdoc=1&_fmt=high&_orig=search&_origin=search&_sort=d&_docanchor=&view=c&_searchStrId=1555939773&_rerunOrigin=scholar.google&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=9a49fd3370cf8fdfa7f163d60bf30c97&searchtype=a

CaptnGumption

I would be in favour of lowering the minimum wage to €6.35 or even less to really make Ireland competitive against global competitors. There should also be a loosening of labour laws where companies can lay off workers easier to be an element of flexibility into the labour force. This would benfit us greatly.

Manach

CaptnGumption wrote: »

I would be in favour of lowering the minimum wage to €6.35 or even less to really make Ireland competitive against global competitors. There should also be a loosening of labour laws where companies can lay off workers easier to be an element of flexibility into the labour force. This would benfit us greatly.

Offhand, and leaving aside the correctness of allowing policitians to set that wage, if it were cut to that level:
> Taking the US model as an example, it would trap workers in a low paid positions with little chance of advancement.
> Employers would likely not pass on reductions to the customer but increase their profits
> In a global economy, there will always be downward pressures. But minimum wage staff in say the the services sector are not subject to the same globalisation forces as say would impact the IT sector where headcount cost is an issue.
My 2c guess.

noodler

As a side..

Indo today says 43,000 are currently on the min wage whilst other news reports have been saying 80,000.

The indo quoted the CSO in fairness but I wonder what the 80,000 is in reference to?

EL D

I certainly think it will help employment, it may not create jobs but less businesses in trouble will be laying people off. Thats not to say I fully agree with a cut on the minimum wage, I've lived with very little disposable income, when I was starting out with my own business, and know that Ireland isn't a cheap place to try to get by.

Would it be possible to have the minimum wage workers subsidised by the state. ie the employer pays €7.65 and the state pays €1.

You could then scale this for the unemployed so that the longest term unemployed got the largest subsidy, ie someone unemployed for 5 years might get a 4 euro subsidy (costing the state €160 per week). Then the employer only has to pay €4.65.

Certainly on a simplistic level this works for me, in that the individual benefits because they get employement at a higher level of pay then they could otherwise get. The employer benefits because they're staff costs are reduced and while they may have to spend more time training the long term unemployed staff, they get a meaningful compensation for the effort. Finally the state benefits because it directly saves on social welfare payments and it gets the social benefits of having people in employment instead of long term unemployment.

The subsidy could be reduced annualy so after a years employment the person who had been unemployed for 4 years now got the 3 year unemployed level of subsidy etc. This would be on the basis that after a years experience in a busienss that individuals skill set would mean they would require less subsidy. I don't know how much unemployment this would eliminate but I would prefer the state to subsidise employment to the full level of social welfare allowance than the current situation. I think it would be better for the individuals (they'd be getting paid €8.65 an hour instead of social welfare allowance). I think it would also cut down welfare fraud and may to some extent cut down on the need/cost for FAS and public sector training programs.

I'm not sure what it would do for the economy, on one level it should make it more compeitive, employers getting cheaper labour would in a competitve market have to pass on the savings into the economy in general. Also the spending power of the individuals would be higher than if they were simply on the dole. However I don't know how this type of intervention in the employment market would corrupt things. How would it effect people on higher salaries? Would it trap people on the minimum wage (this though may be preferable to being trapped on social welfare)?

I'm an entrepreneur and have no economics training but I know that some businesses (not mine thankfully) can't employ people if they've to pay them the minimum wage, its simply a loss making exercise. However I also know that living in Ireland off less than €8.65 should not happen to any person honestly willing to work. I'm curious as to wheater we as a society can resolve those conflicting points?

Life has left me a cynic, so I'm fairly certain theres some big hole in my rational that I just haven't the time to figure out. Its an itch I'd like to scratch, help please.

JamesBond2010

typical in this Country One Rule for the Rich & another Rule for the Poor. Screw the poor And let the Corrupt rich get away!!.you wont survive Practically speaking on mimimun wage cause ESB and all that has increased not decreased. so you a re screwed!!!!

Économiste Monétaire

JamesBond2010 wrote: »

typical in this Country One Rule for the Rich & another Rule for the Poor. Screw the poor And let the Corrupt rich get away!!.you wont survive Practically speaking on mimimun wage cause ESB and all that has increased not decreased. so you a re screwed!!!!

Take note that this is not After Hours. Rant somewhere else.

andrew

EL D wrote: »

I certainly think it will help employment, it may not create jobs but less businesses in trouble will be laying people off. Thats not to say I fully agree with a cut on the minimum wage, I've lived with very little disposable income, when I was starting out with my own business, and know that Ireland isn't a cheap place to try to get by.

Would it be possible to have the minimum wage workers subsidised by the state. ie the employer pays €7.65 and the state pays €1.

You could then scale this for the unemployed so that the longest term unemployed got the largest subsidy, ie someone unemployed for 5 years might get a 4 euro subsidy (costing the state €160 per week). Then the employer only has to pay €4.65.

Certainly on a simplistic level this works for me, in that the individual benefits because they get employement at a higher level of pay then they could otherwise get. The employer benefits because they're staff costs are reduced and while they may have to spend more time training the long term unemployed staff, they get a meaningful compensation for the effort. Finally the state benefits because it directly saves on social welfare payments and it gets the social benefits of having people in employment instead of long term unemployment.

The subsidy could be reduced annualy so after a years employment the person who had been unemployed for 4 years now got the 3 year unemployed level of subsidy etc. This would be on the basis that after a years experience in a busienss that individuals skill set would mean they would require less subsidy. I don't know how much unemployment this would eliminate but I would prefer the state to subsidise employment to the full level of social welfare allowance than the current situation. I think it would be better for the individuals (they'd be getting paid €8.65 an hour instead of social welfare allowance). I think it would also cut down welfare fraud and may to some extent cut down on the need/cost for FAS and public sector training programs.

I'm not sure what it would do for the economy, on one level it should make it more compeitive, employers getting cheaper labour would in a competitve market have to pass on the savings into the economy in general. Also the spending power of the individuals would be higher than if they were simply on the dole. However I don't know how this type of intervention in the employment market would corrupt things. How would it effect people on higher salaries? Would it trap people on the minimum wage (this though may be preferable to being trapped on social welfare)?

I'm an entrepreneur and have no economics training but I know that some businesses (not mine thankfully) can't employ people if they've to pay them the minimum wage, its simply a loss making exercise. However I also know that living in Ireland off less than €8.65 should not happen to any person honestly willing to work. I'm curious as to wheater we as a society can resolve those conflicting points?

Life has left me a cynic, so I'm fairly certain theres some big hole in my rational that I just haven't the time to figure out. Its an itch I'd like to scratch, help please.

Has a model like this been tried anywhere? At first glance it seems like a pretty good idea.I get the impression, however, that if someone is long term unemployed then the problem isn't necessarily getting them a job, it's getting them out of the cycle of doing nothing all day.

Kiki10

80,000 people work on Min Wage. Cutting it by €1 per hour saves €3.2million a week for McDonald's, Supermac's, and many pubs & restaurants around Ireland. The vast majority of people in this section of the workforce are from overseas. Any disposable income in this section is been sent home just as we did years ago. So like it or not this effectively plugs a €3.2million leak in the economy a week, which might insure these jobs stay. Can you imagine the devastation to O'Connell st in Dublin without fast food outlets?

EL D

andrew wrote: »

Has a model like this been tried anywhere? At first glance it seems like a pretty good idea.I get the impression, however, that if someone is long term unemployed then the problem isn't necessarily getting them a job, it's getting them out of the cycle of doing nothing all day.

I fully agree that someone who's been long term unemployed is likely to be somewhat institutionalised and lost much of their employability but I feel its more efficient and more beneficial for the economy if we set a price on their disadvantage and use it discount the cost of their employment. Even if an employer is only having to pay someone €3 an hour, that employer is still likely to check the new staff member turns up on time and puts in a days work. I think this could be one way of getting people out of "the cycle of doing nothing all day". It certainly might prevent others from getting too far into that cycle, if a sliding scale of employment subsidy were to initiate once someone had gone say six months unemployed.

Personally I'd trust the self interest of an employer to get the best out of subsidised staff member and the self interest of the unemployed person to want to get the financial benefits of working, particularly if the gap between the minimum wage and traditional unemployment benefit is significant. Which is why i'd sooner see a higher minimum wage, but thats supported by employment subsidy, with a lower unemployment benefit. Honest work should be rewarded, facilitated and encouraged.

FoxT

noodler wrote: »

As a side..

Indo today says 43,000 are currently on the min wage whilst other news reports have been saying 80,000.

The indo quoted the CSO in fairness but I wonder what the 80,000 is in reference to?

Ah, sure, they'e only out by 3dB, that's better than usual for them...

dlofnep

Lowering the minimum wage isn't going to do much. It will result in less disposable income, which means less wealth being pushed through businesses.

The minimum wage in the north is €7.04 (£5.93) - Where the cost of living is substantially less than the south, and the corporation tax is more than double ours. How our Government can justify cutting the minimum wage is beyond me.

And all those who are in favour of it being cut (one poster suggesting 6.50) - Are you willing to work for those rates?

Businesses are getting away with everything and the workers are taking the blunt for it.

DaSilva

Time Magazine wrote: »

If marginal cost drops, output should increase.

q = quantity
P = price
TC = Total Cost
TR = Total Revenue

P = a - bq
TC = f + mq
TR = q(a-bq) = qa - bq^2
obj: max TR - TC
= max qa - bq^2 - f - mq

d/dq(TR-TC) = a - 2bq* - m = 0

2bq* = a-m
q* = (a-m)/2b

Output is negatively related to m. As m falls, q increases.

I'm sorry, but is that the best economic motivation behind this? A presumption that output should increase? A guess? But here is a derivation, filled with amazingly ambiguous and undefined variables, which is meant to convince that all the important variables have been accounted for. You guys really believe that that formula, predicts human behaviour with any amount of measurable precision?

andrew

DaSilva wrote: »

I'm sorry, but is that the best economic motivation behind this? A presumption that output should increase? A guess? But here is a derivation, filled with amazingly ambiguous and undefined variables, which is meant to convince that all the important variables have been accounted for. You guys really believe that that formula, predicts human behaviour with any amount of measurable precision?

Well, it's not really a presumption or a guess. It's a formalisation of the idea that if a company's costs go down, then they'll employ more people. While the variables aren't perfectly defined, in a general sense they describe firms across the whole economy. In addition, while of course people (and by extension companies) don't always act rationally, in a general sense it can be said that companies seek to maximise profits. Simple models like the one you quoted don't claim to be very accurate; they're like a map. A map of the world will give you a general sense of what shape each country is, but of course they don't tell you much about the specific shape and topography of that country, which is more nuanced than a general map could ever show.

Also, there are papers showing how marginal cost decisions can be applied to management decisions, if you have access to JSTOR I could link you to one.

DaSilva

andrew wrote: »

Well, it's not really a presumption or a guess. It's a formalisation of the idea that if a company's costs go down, then they'll employ more people.

Ok, so it's a hypothesis at best.

andrew wrote: »

While the variables aren't perfectly defined, in a general sense they describe firms across the whole economy. In addition, while of course people (and by extension companies) don't always act rationally, in a general sense it can be said that companies seek to maximise profits.

So, it's not a prediction of human behaviour, rather a prediction of an average human behaviour, still a rather impressive claim.

andrew wrote: »

Simple models like the one you quoted don't claim to be very accurate; they're like a map.

A better phrasing would be, simple models like the one I quoted are inaccurate.

andrew wrote: »

A map of the world will give you a general sense of what shape each country is, but of course they don't tell you much about the specific shape and topography of that country, which is more nuanced than a general map could ever show.

I understand your analogy here, to extend your analogy to demonstrate my "gripe" is, such a map would then not be used to discuss topography, only to discuss general shape. Economics in my (seemingly unpopular) opinion, tries to do more than it currently can.

andrew wrote: »

Also, there are papers showing how marginal cost decisions can be applied to management decisions, if you have access to JSTOR I could link you to one.

I guess JSTOR is a research paper db? I'm not in college any more so I don't think I have access, also to be quite honest, I am comfortable with calculus but I rarely follow Economic maths. Actually as a side note, I always think since many of these maths heavy Economic hypothesises are new, you have an opportunity to do away with cryptic maths that Physics and other sciences seem to embrace, e.g. you don't need to use just one letter variable names (computers are great at doing boring stuff like expanding shorthand to verbose descriptions) , although at least you don't use other languages alphabets :P

Also, by the way, I enjoy arguing/debating with Economists, especially you guys here since you can be pretty thorough. I know that I come across belligerent, but really it is not my intention. I don't have an axe to grind with Economics, or want to see it gone, rather I think it needs to have more (some?) humility.

andrew

This is going off topic a bit I suppose, but...

DaSilva wrote: »

Ok, so it's a hypothesis at best.


So, it's not a prediction of human behaviour, rather a prediction of an average human behaviour, still a rather impressive claim.


A better phrasing would be, simple models like the one I quoted are inaccurate.

I understand your analogy here, to extend your analogy to demonstrate my "gripe" is, such a map would then not be used to discuss topography, only to discuss general shape. Economics in my (seemingly unpopular) opinion, tries to do more than it currently can.

I suppose the response to that would be, well, of course they're inaccurate. I think the problem is more that people think that Economics can do more than it can. This is partly the fault of Economists probably, though I don't think it's intentional. Anyone who studies economics knows full well that models are limited and idealised, that regressions don't prove anything etc. There's an assumption on the part of Economists, I think, that the general public understands that these limitations exist too, which they don't. So when economists make 'pronouncements' they don't really understand the way the lay person interperates what they say.

So when an economist says 'Lower minimum wage means more employment' they know that the size of the effect can vary a lot, and that the effect in turn can be affected by (and can affect) many other different factors, and may not apply to any arbitrary employer but to employers as a whole. They basically say that, given the data and theory available, all things considered a lower minimum wage will probably lead to some sort of increase in employment, as opposed to a decrease or no change at all.

What people hear though, is "a lower minimum wage will mean a shitload more jobs." And then they look around and notice that this hasn't happened, and examine the anecdotal data, and conclude that the economists must've been completely wrong.

at least you don't use other languages alphabets :P

Ha! So many Greek letters

Treora

optics and reality control finanical fluidity. The optics are essentially the statistics (unemployment rates etc..) that are given to the city and the street in order to affect their decision to move money.

Economic reality is
land - nama
labour -
capital - IMF/EU/ECB
enterprise - 12.5% -> 2% via tax relief on loans companies make to themselves

Labour is the only thing that those in governance can or wish to control. By reducing the minimum wage they affect the average industrial wage (and minimum wage) of the second most costly wage site in the eurozone. This is the key to changing the optics by controlling the statistics.

They can no longer manipulate the stats by comparing apples and organes or a 12 month period with a 9 month period as they have done in the past. Now they have to directly kick reality in order to spin statistics so the city and the street don't tear the fabric of the currency.

simples

Hasschu

In its simplest form there are two aspects to the minimum wage and they are internal and external. Internally we are taking in each others washing and the level of the minimum wage is of little importance. It does matter if foreign tourists are an important component of GDP (hotels, restaurants, bars). Externally it matters very much since companies that export can only do so if wages are competitive. It should be noted that Germany does not have a minimum wage. If we did not trade internationally and operated our own bank note printing press we could arbitrarily set the minimum wage at any level that looked reasonable to the public.