Friday, 31 October 2014

If Only They'd Get The Message About The 'Living Wage' Fallacy

Oh ah, finally the ill-conceived ‘living wage’ pressures being applied on businesses have brought about the outcome people like me keep banging on about – redundancy and unemployment. After coming under intense pressure to pay their workers a ‘living wage’, Ritzy cinema finally relented – an action which amounted to a reduction of about 20 staff members.

I just hope all the misinformed people who keep going on about a living wage are very pleased with themselves. Might it be too much to hope for that they could just realise that the more they apply this ‘living wage’ pressure, the more we’ll see of this kind of employee reduction?

Sadly, it’s not the first time I’ve had to talk about this minimum/living wage fallacy:

“As well as unfairly loading the burden on firms that employ low earners, it also encroaches on low end business, it reduces job availability, and it often causes inflation of prices as firms try to recoup their losses on increased wages. A minimum wage does two further things. It shifts capital from employers in an unstable competitive market to low paid workers, and it induces some employers to let their staff go because they cannot afford the wages. If you’re getting £7 per hour and only bringing £6 per hour worth of benefits to your company, you’ll likely find yourself on the dole. If you are a lower paid man or woman going from here to there in different jobs, you will find less work available with every rise in the minimum wage – and the higher the rate the more unemployment. This might amount to a road block for young, unskilled workers and the unemployed – which is why tax credits are a more effective method because they target those who have children or high level benefits, and need high wages to make it worth their while signing off benefits, but who don’t have the skills or experience to command that kind of salary. “

Why is such a simple thing so difficult to grasp for those on the economic left? If prices (that’s goods, services and wages) are artificially set higher than their natural profitability or productivity, the costs will have to be offset elsewhere, either by increased prices for customers or, as is the case here, a reduction in staff. I’m sad to say that I think the only explanation for this continued fallacy is that a great many supporters of the living wage are not interested in what’s best for low paid workers, they are only interested in self-congratulation and moral posturing. That is to say, in seeming to support the underdogs they don’t mind hurting them as long as there are enough credulous people out there conferring praise on them.

We see a similar thing going on with trees and paper. Some people claim to care about preservation of trees. Such people stridently champion paper recycling as the best way to preserve our forests. The reality is, if they really cared about trees they should be against paper recycling, not for it. It is not hard to find out that paper is cheap and that recycling is worse for trees and for consumption. Trees are farmed for economic reasons too, and in commercial terms they are planted for future sales. To give you a compelling analogy, does anybody think that if we recycled chicken breasts there'd be more chickens in the world? Of course not. It's the same with trees. People who are for paper recycling share this commonality with people for the ‘living wage’ – they are either outrageously misinformed, or they are not interested in the number of trees in the world and the number of low-skilled people in work, only in moral posturing. 

What makes me so sure of this? Easy, it’s the fact that they have been told time and time again that there is a better way to stand up for the underdogs – a way that boosts their income but doesn’t jeopardise their employment - yet they continue to ignore it. All the government has to do to help low earners is take them out of tax and national insurance – thus making their wage more like a living wage, but not jeopardising employment levels or penalising employers of low-skilled workers.

I hope that, in my lifetime, politicians and social commentators begin to get this simple message (illustrated well in the cartoon below) – if you artificially remove the lower rungs on the ladder, you make it difficult (often impossible) for people to climb it, or in some cases, get on it at all.