Minimum Wage to be restored??!

Hotais

So Noonan has decided to restore the minimum wage to €8.65 per hour... thoughts?!

DJCR

Hotais wrote: »

So Noonan has decided to restore the minimum wage to €8.65 per hour... thoughts?!

Not a good move. Could raise the competitiveness issue which the government will try to stave away by making up for it by giving tax breaks to companies.

I mean, what is going to kill people in this country a is interest rates on their houses. With more money to the employees, this will (one would hope) lead to a short term easing of their burden leading to (one would hope again) an increase in spending as people realize that they have more disposable income.

Leading to an end product of more taxes for government (I imagine thats the Plan)

However, this won't happen as the majority of people are broke, and those on minimum wage will remain so.
Therefore, spending won't increase substantially among them as they will continue to be just surviving.
Where it will make a difference is among those who arn't tied down to mortgages/loans etc. and they will find that they have an extra few euros a week. (Those who are managing right now moving themselves into a more comfortable area .... €150 a month is a lot of money these days).

They will have increased income, and therefore an increase in their disposable income which they will spend.

This, in addition to the added costs to business will lead to a price rise, leading to inflation and with inflation there will be a rise in interest rates and this will bring all Irish people back to square one - just with a slightly more devaluated Euro (From our point of view we will have less bang for our buck so to speak).

So, all I can see it achieving is a very short term restbite for people managing at the moment.
Those on the borderline will be worse off as interest rates rise and everyone else will be worse off as prices rise slightly as a result of this move.


Comments open for debate - keep it nice though please.

View

Hotais wrote: »

So Noonan has decided to restore the minimum wage to €8.65 per hour... thoughts?!

Well, it means higher unemployment. After all, if an employer can afford to pay you 8 Euro an hour (but no more than that due to their circumstances) and you are willing to work for that rate, you could be in employment. Now though, due to government action neither you nor the employer will be able to enter into such an agreement, so the employer does without an employee and you sit on the dole.

_Cato_

Get rid of the minimum wage altogether.

20Cent

Good move to protect those hit hardest and who had least to do with the crisis. IBEC of course will be out crying about it (while also being the main beneficiary of the most bailout money in the history of the state).

thebman

IMF stated it was an issue for Ireland so they don't have a problem with it being done.

Who knows what affect it will have on the growth of the economy though?

We are already slightly behind but within the margin of error according to the IMF.

irishh_bob

Hotais wrote: »

So Noonan has decided to restore the minimum wage to €8.65 per hour... thoughts?!

was never that important of a step to cut it in the 1st place , more symbolic than anything else and while i didnt have a problem with seeing it cut , im with paul sommerville on this one

the goverment needs to 1st tackle the sheltered sectors of the economy like , health providers ( GP,s , dentists etc ) , electricity providers and other monopoloys or protected professions , this way , the hit for someone on the minimum wage is greatly cushioned , once they know that they have a choice when going to a GP of paying 35 euro or 65 euro or getting thier electricity at a cheaper competitor , they can feel more secure on a minimum wage job , time theese protected elites were brought into the real free market

wellfare should be now cut however as thier needs to be clear blue water between what those on the bottom of the ladder in employment bring home and those who are unemployed , this is another important symol

DJCR

thebman wrote: »

Who knows what affect it will have on the growth of the economy though?

It will contract it as businesses on the border line of being able to afford another employee will no longer be able to hire them....

Does anyone know what is going to happen to those on the €7.65 rate - can they be let go?

Elexis

The minimum wage is supposed to protect teenagers and inexperienced, low skilled workers from "exploitation" but a high minimum wage simply makes it much harder for somebody to get a first job and some experience, hence the problem with teenage unemployment. Why can't the minimum wage be set by the demand for my labour vs. the supply of low skilled labour? If it was, I would be able to get experience and develop my skills so I could demand a higher wage in the future... instead of being unemployed and not getting the chance to improve my CV at all.

Hotais

I cannot understand why its beign reinstored.... Personally I don't care either way but it's really just a play for points by Fine Gael I reckon.

Our labour market is unattractive and overpriced... it's about time we all woke up to the reality.

Cillerz

Hotais wrote: »

So Noonan has decided to restore the minimum wage to €8.65 per hour... thoughts?!

I'm completely against the minimum wage price floor. Okay maybe in today's terms it might actually be the right action. But in general I just don't see any good sides to it. The price should be left to the free market - let companies set their own wages. With a minimum wage, more people are demanding work and less are supplying it, leading to unemployment. And for socialists, wouldn't it be better to have (for a smaller example) 10 people employed at €5 per hour than 8 at €6? It means more money in the economy!

"A study just released by Ragnatz and Marcel Thum from the Ifo Institute for Economic Research says increasing the minimum wage to 6.50 euros per hour (in Germany, from nothing), as the Social Democrats have called for, would result in a loss of around 465,000 jobs. Raising it to 7.50 euros would kill around 621,000 jobs, according to the report." from atlanticreview.org.

K-9

20Cent wrote: »

Good move to protect those hit hardest and who had least to do with the crisis. IBEC of course will be out crying about it (while also being the main beneficiary of the most bailout money in the history of the state).

Well there'll be a reduced rate of Employer's PRSI instead so it isn't as bad as they will make out.

Denerick

About time. I'm acutely aware that those most willing to give the 'competitiveness' spiel haven't worked minimum wage jobs in a long long time.

Economically speaking it was an absurd idea, these people live on the breadline as it is and barely save any money whatsoever, every penny is pumped directly back into the economy from low paying jobs. Cutting these people is absurd. If the government were seeking to restore competitiveness they could tackle some of the major cartels in this country. For example barristers and solicitors effectively collude to inflate their fee's and their income, adding absurd costs to business and individuals.

whiteonion

In order to be fully competitive like a highly successful country such as Nigeria we should scrap minimum wage, allow corporations to run militias that kill undesirables and legalise child labour. Finally we should allow companies to dump their toxic waste straight into the Liffey.

Don't you guys want Ireland to be as competitive as Nigeria?

max 73

the goverment needs to 1st tackle the sheltered sectors of the economy like , health providers ( GP,s , dentists etc ) , electricity providers and other monopoloys or protected professions , this way , the hit for someone on the minimum wage is greatly cushioned , once they know that they have a choice when going to a GP of paying 35 euro or 65 euro or getting thier electricity at a cheaper competitor , they can feel more secure on a minimum wage job , time theese protected elites were brought into the real free market

Agree with this, however, wages are only part of competitiveness...rates, insurances, energy costs, etc all need to be lowered and only then will true competitiveness be seen....

Lockstep

Elexis wrote: »

The minimum wage is supposed to protect teenagers and inexperienced, low skilled workers from "exploitation" but a high minimum wage simply makes it much harder for somebody to get a first job and some experience, hence the problem with teenage unemployment. Why can't the minimum wage be set by the demand for my labour vs. the supply of low skilled labour? If it was, I would be able to get experience and develop my skills so I could demand a higher wage in the future... instead of being unemployed and not getting the chance to improve my CV at all.

If you're a teenager then you're not entitled to €8.65 anyway, you were entitled to €5.34 an hour (presumably this will go up to around €6, as with the old minimum wage). Certainly not high and it's a trade off; employers can hire an 18 year old with 2 years experience (the minimum required to receive €8.65) or an inexperienced teenager for €6. The employer needs to decide which is more important and this would still be there if there was no minimum wage.

I've been working minimum wage jobs in Ireland since 2007 and there's always been teenagers working alongside me (except for bar work). There are definetly jobs out there, you just have to keep looking.

Lockstep

Cillerz wrote: »

I'm completely against the minimum wage price floor. Okay maybe in today's terms it might actually be the right action. But in general I just don't see any good sides to it. The price should be left to the free market - let companies set their own wages. With a minimum wage, more people are demanding work and less are supplying it, leading to unemployment. And for socialists, wouldn't it be better to have (for a smaller example) 10 people employed at €5 per hour than 8 at €6? It means more money in the economy!

"A study just released by Ragnatz and Marcel Thum from the Ifo Institute for Economic Research says increasing the minimum wage to 6.50 euros per hour (in Germany, from nothing), as the Social Democrats have called for, would result in a loss of around 465,000 jobs. Raising it to 7.50 euros would kill around 621,000 jobs, according to the report." from atlanticreview.org.

The minimum wage debate is far more nuanced than that: as long as the minimum wage isn't set too high then its effects on employment are pretty much neglible; Card and Krueger did a 1994 study on this comparing the minimum wage effects between New Jersey and found that employment actually increased. Borjas redid the study as he found the data a bit skewed but still came up with the minimum wage effects being so small it made almost no difference to employment. The reason the minimum wage was raised by clinton was that his economists found the "minimum wage=unemployment" claim to be far too simplistic.
To quote Nobel prize winning economist Paul Krugman ""All the empirical evidence suggests that minimum wage increases in the range that is likely to take place do not lead to significant job losses. True, an increase in the minimum wage to say, 15 dollars an hour would probably cause job losses, because it would dramatically raise the cost of employment in some industries. But that's not what's on-or even near- the table."

Keep in mind that only 3% of workers are on the minimum wage anyway (so inflation would barely be affected) and your model is staggeringly simplistic: employers don't automatically pass on the savings made into lower prices, rather, they are more likely to use the savings to increase profit margins. Nothing wrong with this, but it's naive to assume that lowering the minimum wage would lead to a genuine increase in employment.

Elexis

Denerick wrote: »

About time. I'm acutely aware that those most willing to give the 'competitiveness' spiel haven't worked minimum wage jobs in a long long time.

If that's true, so what? You could never have worked a day in your life and still understand the self-defeating impacts of the minimum wage. It's comparable to saying that brain surgeons are qualified to practice in their field only after they themselves have received a brain injury.

Denerick wrote: »

Economically speaking it was an absurd idea, these people live on the breadline as it is and barely save any money whatsoever, every penny is pumped directly back into the economy from low paying jobs. Cutting these people is absurd. If the government were seeking to restore competitiveness they could tackle some of the major cartels in this country. For example barristers and solicitors effectively collude to inflate their fee's and their income, adding absurd costs to business and individuals.

The minimum wage makes many of these totally inexperienced and skill-less workers essentially unemployable so you're seriously impeding them from moving up the ladder and off the bread-line/luxurious dole allowance.
Also, raising the minimum wage to €8.65 isn't going to allow those who do receive employment to live self-sustaining lives either so why don't you promote raising the rate to 10 or 12 or 14 euro per hour, depending on how "compassionate" you want to be?

The people who need the lowest paid jobs the most are those who have not worked before, people who rely on family etc. for their incomes-in-kind and start at the bottom to gain experience and develop their skills as workers so they can get better wages in the future. By raising the minimum wage, you diminish their ability to do this.

Lastly, there is not "cartel" amongst solicitors. If you were familiar with the legal profession, you would know that many are unemployed, many are going out of business and many are working simply to professionally survive, not to make a profit. Under cutting is very common in the business.

Lockstep wrote: »

The minimum wage debate is far more nuanced than that: as long as the minimum wage isn't set too high then its effects on employment are pretty much neglible; Card and Krueger did a 1994 study on this comparing the minimum wage effects between New Jersey and found that employment actually increased. Borjas redid the study as he found the data a bit skewed but still came up with the minimum wage effects being so small it made almost no difference to employment. The reason the minimum wage was raised by clinton was that his economists found the "minimum wage=unemployment" claim to be far too simplistic.
To quote Nobel prize winning economist Paul Krugman ""All the empirical evidence suggests that minimum wage increases in the range that is likely to take place do not lead to significant job losses. True, an increase in the minimum wage to say, 15 dollars an hour would probably cause job losses, because it would dramatically raise the cost of employment in some industries. But that's not what's on-or even near- the table."

Keep in mind that only 3% of workers are on the minimum wage anyway (so inflation would barely be affected) and your model is staggeringly simplistic: employers don't automatically pass on the savings made into lower prices, rather, they are more likely to use the savings to increase profit margins. Nothing wrong with this, but it's naive to assume that lowering the minimum wage would lead to a genuine increase in employment.

A very large majority of the statistical analysis has demonstrated that unemployment amongst low skilled and teenage workers rises as minimum wage rates rise, and vice-versa. It's not a very nuanced issue. If I am an employer with a labour budget which allows me to hire 8 workers at a minimum wage rate of €7 per hour and then the government increases the rate so that my budget will only employ 6 people, I'm not going to hire more workers.

wee truck big driver

the idea of increasing the miniumum wages is nuts at atime when the goverment claim to be interested in creating jobs cutting all wages and a dramatic drop in social welfare would see an immediate boost in employment. it would bring down the cost of living and would possibly prevent the situation which will soon arrive wherby the minimum wage will be irrelevant because the country will be on the breadline and not like the one we have now where people or crying poverty while driving around in bmws im talking real poverty

nesf

Lockstep wrote: »

The minimum wage debate is far more nuanced than that: as long as the minimum wage isn't set too high then its effects on employment are pretty much neglible; Card and Krueger did a 1994 study on this comparing the minimum wage effects between New Jersey and found that employment actually increased. Borjas redid the study as he found the data a bit skewed but still came up with the minimum wage effects being so small it made almost no difference to employment. The reason the minimum wage was raised by clinton was that his economists found the "minimum wage=unemployment" claim to be far too simplistic.
To quote Nobel prize winning economist Paul Krugman ""All the empirical evidence suggests that minimum wage increases in the range that is likely to take place do not lead to significant job losses. True, an increase in the minimum wage to say, 15 dollars an hour would probably cause job losses, because it would dramatically raise the cost of employment in some industries. But that's not what's on-or even near- the table."

Keep in mind that only 3% of workers are on the minimum wage anyway (so inflation would barely be affected) and your model is staggeringly simplistic: employers don't automatically pass on the savings made into lower prices, rather, they are more likely to use the savings to increase profit margins. Nothing wrong with this, but it's naive to assume that lowering the minimum wage would lead to a genuine increase in employment.

Not causing job losses is not the same as not reducing the potential for employment. It's nuanced both ways. Companies won't fire people over 50c an hour for the most part but it will deter them from hiring extra people. Looking at it as it not causing a loss of jobs only works at full employment which we really are not at now. Also the minimum wage puts upward pressure on all wages above the minimum wage to a greater or lesser extent, the minimum wage rate does not just affect 3% of the workers.

Though that said, there are far more important fixed wages that need sorting out than the minimum wage.

Lockstep

Elexis wrote: »

Also, raising the minimum wage to €8.65 isn't going to allow those who do receive employment to live self-sustaining lives either so why don't you promote raising the rate to 10 or 12 or 14 euro per hour, depending on how "compassionate" you want to be?

Once again: ""All the empirical evidence suggests that minimum wage increases in the range that is likely to take place do not lead to significant job losses. True, an increase in the minimum wage to say, 15 dollars an hour would probably cause job losses, because it would dramatically raise the cost of employment in some industries. But that's not what's on-or even near- the table."
Paul Krugman

Elexis wrote: »

A very large majority of the statistical analysis has demonstrated that unemployment amongst low skilled and teenage workers rises as minimum wage rates rise, and vice-versa. It's not a very nuanced issue. If I am an employer with a labour budget which allows me to hire 8 workers at a minimum wage rate of €7 per hour and then the government increases the rate so that my budget will only employ 6 people, I'm not going to hire more workers.

If you're going to refute another posters' sources by making reference to a 'very large majority of statistical analysis' you'd really want to include them in your reply.
Of course it's a very nuanced position, to say otherwise is an extremely blinkered position.
Please provide some sources for your claims.

Elexis

Lockstep wrote: »

If you're going to refute another posters' sources by making reference to a 'very large majority of statistical analysis' you'd really want to include them in your reply.
Of course it's a very nuanced position, to say otherwise is an extremely blinkered position.
Please provide some sources for your claims.

You are attempting to defy basic economic laws by citing a study which used distinctly narrow and isolated examples in order to draw very broad conclusions.

I refer you to a publication which analysed over 300 studies (including the one you cite) on the effects of the minimum wage in several countries (link). It took 20 years to be completed and categorically found that the minimum wage reduces employment opportunities and has negative long-term effects in a large majority of cases. I challenge you to find a more comprehensive and empirically based study than the one I refer to. There is a wikipedia piece on it here (link). Milton Friedman was right to say that the minimum wage was the "most anti negro law of the 20th century" as, in the U.S., it adversely effects ethnic minorities as well as teenagers in general.

Having a minimum wage which gravitates around the market price of labour won't have a significant impact on employment levels, obviously, but the current minimum wage is well above the market rate. Making the claim that our current rate has no effect on unemployment is to make a mockery of economics as you would, in effect, be stating that the subject has no objective scientific validity.

Lockstep

Elexis wrote: »

You are attempting to defy basic economic laws by citing a study which used distinctly narrow and isolated examples in order to draw very broad conclusions.

The fact you take a controversial issue and simplify it as a basic economic law shows you are approaching this with a very blinkered mind.

Elexis wrote: »

I refer you to a publication which analysed over 300 studies (including the one you cite) on the effects of the minimum wage in several countries (link). It took 20 years to be completed and categorically found that the minimum wage reduces employment opportunities and has negative long-term effects in a large majority of cases. I challenge you to find a more comprehensive and empirically based study than the one I refer to. There is a wikipedia piece on it here (link). Milton Friedman was right to say that the minimum wage was the "most anti negro law of the 20th century" as, in the U.S., it adversely effects ethnic minorities as well as teenagers in general.

Out of interest, have you read the report yourself (seriously though, don't rely on Wikipedia in debates)

First of all, to disregard the Card/Krueger report as using distinctly narrow and isolated makes a mockery of the support that has been given to it by economists such as Borjas and Krugman. Few would deny that an overly-high minimum wage increases unemployment, but that's not what's on the cards here.

Likewise, Doucouliagos and Stanley did their own research based on 64 minimum wage studies and found that once errors and selection bias were accounted for, the minimum wage actually increased employment. Publication Selection Bias in Minimum-Wage Research?
A Meta-Regression Analysis


Also, Dube, Lester and Reich did a 16 year study on minimum wage effects across US counties and found it had very little significant impact on unemployment. MINIMUM WAGE EFFECTS ACROSS STATE BORDERS:
ESTIMATES USING CONTIGUOUS COUNTIES)
Essentially, the effects of the minimum wage are very controversial. For you to try and pass off your opinions as fundamentals of economics is very disingenuous.

Elexis wrote: »

Having a minimum wage which gravitates around the market price of labour won't have a significant impact on employment levels, obviously, but the current minimum wage is well above the market rate. Making the claim that our current rate has no effect on unemployment is to make a mockery of economics as you would, in effect, be stating that the subject has no objective scientific validity.

What is your evidence for stating that the current Irish minimum wage is well above the market rate?

Secondly, please don't put words in my mouth. I never said that it has no effect on unemployment. I even quoted Krugman who noted that as long as it's kept sensible, it doesn't lead to significant job losses. In effect, it must be a balancing act; ensuring that wages are increased to give a benefit to low earners while not being raised high enough to increase unemployment.

femur61

Hotais wrote: »

I cannot understand why its beign reinstored.... Personally I don't care either way but it's really just a play for points by Fine Gael I reckon.

Our labour market is unattractive and overpriced... it's about time we all woke up to the reality.

I have to agree with you. Initially when the reduction was introducted I thought I'd see a reduction in prices but not many at all. Will be interesting if more businesses close down.

wolfpawnat

Hotais wrote: »

Our labour market is unattractive and overpriced... it's about time we all woke up to the reality.

Our labour market is overpriced because this country is overpriced. As for unattractive, there are 400,000 unemployed people that want to work.

Only a tiny proportion of the population (I think it is 4%) are on minimum wage, and it is only another €40 a week, though to them it is a large proportion of their income, 11%!

And since the tax brackets have been lowered they will be contributing more tax to the economy also! It really is wins all around, except it decreases the profit margins of a place, but for the likes of Tesco's they would not even feel it!

whiteonion

When I was in Australia a couple of years ago the minimum wage in WA was $16. It's not like they have a very high unemployment rate in WA now is it?

Joey the lips

i am personally delighted that the min wage is being restored. I have read all the points and while i agree it comes across putting more pressure on employers its clear the the orig intention of only applying the new rate to new workers was screwed around with and taken advantage of by certain companies. This was warned to the govt at the time but they choose to ignore it. Then they did not have the ability to enfore the ruling.

An additional reason i am glad the min wage is being restored is it now gives the possibility that the labour looks less attractive.

However i imagine advocates of doing away with a min wage would be advocates of doing away with labour as well.

SupaNova

When I was in Australia a couple of years ago the minimum wage in WA was $16. It's not like they have a very high unemployment rate in WA now is it?

This video explains pretty nicely why that is. (skip to 2:36 to 4:25)
http://www.youtube.com/watch?v=P0T6ya5qTb4

If minimum wage is below equilibrium wage there is no effect. The minimum wage policy only has effect when it is above equilibrium wage. That effect is unemployment.

Like someone said earlier if someone is willing to work for €8, and someone is willing to hire them at that price, they can't and the result is that person stays unemployed.

SupaNova

It really is wins all around, except it decreases the profit margins of a place, but for the likes of Tesco's they would not even feel it!

Its not a win for unemployed people. Its not a win for small shops willing to hire 5 people for €7 ph as opposed to 4 at 8.65 and other businesses with minimum wage workers in the same situation. Even if business kept the same number of minimum wage workers at a lower rate they could offer lower prices to attract more consumers to their business(a win for consumers).

The win is for people currently on minimum wage, but there are plenty of losers, businesses, the unemployed, and the consumer off the top of my head.

SupaNova

An additional reason i am glad the min wage is being restored is it now gives the possibility that the labour looks less attractive.

However i imagine advocates of doing away with a min wage would be advocates of doing away with labour as well.

Can you expand on why you would want a less attractive labour market? Or why you conclude that people wanting to do away with min wage want to do away with labour?

SupaNova

Likewise, Doucouliagos and Stanley did their own research based on 64 minimum wage studies and found that once errors and selection bias were accounted for, the minimum wage actually increased employment. Publication Selection Bias in Minimum-Wage Research?
A Meta-Regression Analysis


Also, Dube, Lester and Reich did a 16 year study on minimum wage effects across US counties and found it had very little significant impact on unemployment. MINIMUM WAGE EFFECTS ACROSS STATE BORDERS:
ESTIMATES USING CONTIGUOUS COUNTIES)
Essentially, the effects of the minimum wage are very controversial. For you to try and pass off your opinions as fundamentals of economics is very disingenuous.

Over the periods of time they were carried out their effect would have been minimal just like it is in WA today. Because the demand for labour during a relatively good economic period is high and the available labour supply is not large. During the current economic period the available labor supply is large and the demand to hire them at current minimum wage rates is low.

16 or so years may seem like a long time to conduct a study, but carry it out over the coming 16 years, and compare 2 similar countries one who keeps a high min wage and one who gradually lowers it. I would bet that the country who sticks with the high rate would suffer more.

I would also be very skeptical of Krugman, you should track some of his previous articles. Around 01 and 02 he suggested a housing boom would be good and could be achieved by keeping very low interest rates. I am also sure he is well aware of minimum wage effects in boom times will be minimal. The Nobel prize award has a lot more to do with politics rather than achievement, so it is annoying that any time someone mentions Krugman they always mention this as some sort of qualifier that he should garner great respect.