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wonderpup

Welfare And Corporate Profits

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Ok- lets suppose you run a business and are very good at it- so good in fact that you have optimised the entire operation to maximise your profits.

And as part of that optimisation you have only employed the exact number of staff you need to make that business run- slap yourself on the back here- you are one hell of a CEO.

Then a new law comes in that will force you to pay those workers a small amount more than you are currently paying them.

Now you are doomed right- because if you increase their pay you will be forced against your will to lay some of them off- but because you have done such a good job of optimising your operation there is very little fat to cut- if you lay people off your business will no longer be operational- you are a victim of your own efficiency.

So that's it- game over.Right?

Or- perhaps you could take a little less profit and pay that money out as slightly higher wages? See how that works?

Reality is not as binary as you seem to imagine. I'm not saying that wage demands could never reach a level where they destroy a business- but this idea that a wage increase always and everywhere = a loss of jobs is nonsense. There is no automatic law of nature that states an increase in wages leads to a loss of jobs- it might just lead to lower shareholder returns or even-gasp!- less generous payouts for the CEO and his team.

For a well run, well optimised business a loss of employees represents a real threat to the viability of the company because-if it is well run- it will not be carrying employees who are not vital to it's operation.

So any CEO whose first and only solution to a wage hike is to threaten to lay people off is really just advertising his own incompetence- if he had been doing his job correctly there would be no way that laying people off would be his first choice- it would be his last.

To start with, I agree with you that things are not binary. It is also acknowledge that your 100% optimisation is a solely here for the sake of the argument (as it doesn't exist in the real world).

In many case, of course the business could pay more, but in our capitalistic world, nothing other than more would suffice. The CEO gets fired if he turns a £1bn pa profit in to £900m pa. His competent is never measured in the number of people he employed.

If a banker on £10m pa employs a nanny for £30k and minimum wage makes it £32k, of course it is just a redistribution between the employer banker and the nanny. However, in an economy as large as ours, there are always businesses/employers operating at the margin and a small change wll tip their decision. Of course, if you are talking about a £1 per month increase then it is likely that nothing will happen as this is a rather meaningless sum to the employer, and for that matter, the employee (£1 isn't going to change his behaviour/life).

The Living Wage proposal is demanding approximately a 10% increase - that is enough to hit quite a few people. Typical though - no one go round saying cost of living should be less, but people should be paid more - the monopoly land market soon adapts to suck up the new surplus.

As for your Gameover thing - I am just curious why you have not thought of a call to NCR/IBM/Siemens Nixdorf Informationssystem since you appeared to see automations at every turn previously?

The other popular way round higher minimum wage is to pay workers at one rate, and print the pay slip with another, as commonly done by some doggy employers.

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To start with, I agree with you that things are not binary. It is also acknowledge that your 100% optimisation is a solely here for the sake of the argument (as it doesn't exist in the real world).

In many case, of course the business could pay more, but in our capitalistic world, nothing other than more would suffice. The CEO gets fired if he turns a £1bn pa profit in to £900m pa. His competent is never measured in the number of people he employed.

If a banker on £10m pa employs a nanny for £30k and minimum wage makes it £32k, of course it is just a redistribution between the employer banker and the nanny. However, in an economy as large as ours, there are always businesses/employers operating at the margin and a small change wll tip their decision. Of course, if you are talking about a £1 per month increase then it is likely that nothing will happen as this is a rather meaningless sum to the employer, and for that matter, the employee (£1 isn't going to change his behaviour/life).

The Living Wage proposal is demanding approximately a 10% increase - that is enough to hit quite a few people. Typical though - no one go round saying cost of living should be less, but people should be paid more - the monopoly land market soon adapts to suck up the new surplus.

As for your Gameover thing - I am just curious why you have not thought of a call to NCR/IBM/Siemens Nixdorf Informationssystem since you appeared to see automations at every turn previously?

The other popular way round higher minimum wage is to pay workers at one rate, and print the pay slip with another, as commonly done by some doggy employers.

A couple points.

A higher wage and cutting out the rentier's take is not mutually exclusive - it should be possible to do both. Generally you do not hear about neutering the rentiers because to most people rent extraction is much less visible. A person see's his wage packet every week. He does not see how high land prices mean the goods he buys at tesco are made more expensive.

Secondly. A 10% real terms increase in low-end wages is easily absorbable by businesses given that it were done gradually. In fact it should be possible to increase low-end wages by 33% in real terms without having an impact on employment, since this would simply raise their wage share to what it was 30 odd years ago (1970's bottom 50% took home 16% of GDP as wages, in 2008 this figure was 12%). If it did not cause catastrophic unemployment then it would not now. It would however alter who earned what in our economic system. You would see a massive fall in executive compensation as that income would now go elsewhere. You would also see the total economic wage share of workers rise from it currents historic low back to the average observed between 1950 and 1980.

Overall you seem to be making the mistake that low end wages are driven by the value added by workers, so that any increase in wages would make them cost more to employ than the value they add. But this is not the case - low end wages are set by replaceability with a lower bound to this fixed in place by the NMW. Wages at the low end are ONLY driven by value added in a full employment economy, because this is the only time the pressure exists on employers to pay wages at the value added level. There would of course be some in a full employment economy that would ask for more than the value added level, and this would cause those businesses to cease to trade. But the end result of that is that businesses paying out too much in wages continually go bust, and are replaced by those paying out at the value-added level. Luckily enough we have historic evidence of exactly what that point is - 16% of GDP - meaning a 33% rise in wages for the bottom 50%.

Edited by alexw

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A higher wage and cutting out the rentier's take is not mutually exclusive - it should be possible to do both. Generally you do not hear about neutering the rentiers because to most people rent extraction is much less visible. A person see's his wage packet every week. He does not see how high land prices mean the goods he buys at tesco are made more expensive.

Yes, it is not about "possible to do both", they have to do both, doing the wage bit alone is pointless.

Secondly. A 10% real terms increase in low-end wages is easily absorbable by businesses given that it were done gradually. In fact it should be possible to increase low-end wages by 33% in real terms without having an impact on employment, since this would simply raise their wage share to what it was 30 odd years ago (1970's bottom 50% took home 16% of GDP as wages, in 2008 this figure was 12%). If it did not cause catastrophic unemployment then it would not now. It would however alter who earned what in our economic system. You would see a massive fall in executive compensation as that income would now go elsewhere. You would also see the total economic wage share of workers rise from it currents historic low back to the aerage observed between 1950 and 1980.

...

Overall you seem to be making the mistake that low end wages are driven by the value added by workers, so that any increase in wages would make them cost more to employ than the value they add.

I never said wages are driven solely by productivity, but it is a component. Other components are like ability to coerce (my dad will stop doing business with you, or my union members will shut your plant down) , scarcity, supply and demand, relative advantage over machines, taxations and embedded cost (e.g. land).

Heem.. but in the 1970 the other half of the world still in poverty and many people are behind the iron curtain. Further, some of chunk of the wage share in the 1970 have now been transferred to taxation and self employment - this has been debated before but obviously there is no data about which segment of the workers where the 10% change in wage shares come from.

To restore your 'golden age', you will also need to restore other factors as well, such as re-erecting the iron curtains, de-EU the A8 and reinstate the militant unions, uninvent computers etc.

Anyway, the left wing press Washington Post have a good analysis on this issue:

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/02/14/why-economists-are-so-puzzled-by-the-minimum-wage/

Among those - it could well be that there is no rise in unemployment numbers, but individual workers may not actually have more to take home (less hours, perks removals etc).

o.s. higher wages is also a cost component which companies decide where to locate their operation, so, some of the effect may take a good while to show up (no new investment, but no immediate impact).

This was a real case study where minimum wage changes (adjusted for productivity) will decide if jobs is in the UK or overseas:

http://edition.cnn.com/2012/12/10/business/china-uk-jobs

In this particular case, a 10% increase in minimum wage means jobs going back to China.

Edited by easy2012

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Yes, it is not about "possible to do both", they have to do both, doing the wage bit alone is pointless.

I never said wages are driven solely by productivity, but it is a component. Other components are like ability to coerce (my dad will stop doing business with you, or my union members will shut your plant down) , scarcity, supply and demand, relative advantage over machines, taxations and embedded cost (e.g. land).

Heem.. but in the 1970 the other half of the world still in poverty and many people are behind the iron curtain. Further, some of chunk of the wage share in the 1970 have now been transferred to taxation and self employment - this has been debated before but obviously there is no data about which segment of the workers where the 10% change in wage shares come from.

To restore your 'golden age', you will also need to restore other factors as well, such as re-erecting the iron curtains, de-EU the A8 and reinstate the militant unions, uninvent computers etc.

Anyway, the left wing press Washington Post have a gppd analysis on this issue:

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/02/14/why-economists-are-so-puzzled-by-the-minimum-wage/

Among those - it could well be that there is no rise in unemployment numbers, but individual workers may not actually have more to take home (less hours, perks removals etc).

Agreed that doing the wage bit alone would be pointless because the rentiers would just take the vast majority of it.

On the wage share bit I don't think its 100% necessary to do all those. There can be less disruptive methods. For example I'm a strong believer in "export certificates" as a means to stop corporations playing one nation off against another so as to force down wages.

And strangely enough reading that article you linked two of the reasons it gave for higher minimum wages not increasing unemployment exactly echo my previous points - lower relative incomes for higher earning workers, and lower returns to investors (meaning a higher total wage share).

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On the wage share bit I don't think its 100% necessary to do all those. There can be less disruptive methods. For example I'm a strong believer in "export certificates" as a means to stop corporations playing one nation off against another so as to force down wages.

I can see the merits in the export certificate scheme. However, I am not sure if UK is up to it though (US is different).

Over-simplying a bit, UK model is about we buy your stuffs, and then sell you financial services + expensive houses + education...

And strangely enough reading that article you linked two of the reasons it gave for higher minimum wages not increasing unemployment exactly echo my previous points - lower relative incomes for higher earning workers, and lower returns to investors (meaning a higher total wage share).

Indeed all of those would happen at different proportions and to different biz/people. Overall effect on small increase is indeed unclear but I suppose it is fair to say that very small increase probably lead to very small impact.

(But then Wonderpup insisted that none of the 'others' outcome would happen because most/all businesses are flush with cash/revenue and is sitting there to be split between either worker or investor, which is obviously false).

p.s. I linked to the washington post article because it is reflecting the truth, rather then trying to cherry pick articles to fit an ideological position.

Edited by easy2012

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The answer to this of course is to gradually lower the length of the working week. It's a win-win scenario.

At the end of it you have a more productive economy in terms of output per worker due to increased mechanization. The workers work less hours and have more free time. And they also have higher wages with which to purchase the extra goods that their more productive economy produces.

What if some people don't want to work less? What if they enjoy working long hours? Threats and jail?

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In many case, of course the business could pay more,

In many cases paying more would be the better option- if the alternative were to lay off vital staff members.

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What if some people don't want to work less? What if they enjoy working long hours? Threats and jail?

It would also be necessary to legally define the concepts of work and leisure (not as easy as you might think). Enforcement of such a thing would be completely abitrary.

I would also hate to have to work to a dead line under such a regime.

Edited by GradualCringe

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Fixed it for you. :P

Seriously, I think you're either being deliberately obtuse or you're the silly man talking crap.

How about if we bring in one of the other main tenets of capitalism: competition. If the business is able to make a very large heap of money because it is so profitable then more businesses will arrive to take a share of the lucrative business. The businesses will then compete with each other to continue to profit from the trade. One common result of competition is a reduction in the price of the products. Doesn't this add pressure to keep wages in line with market rates.

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I think there are real problems with the definition of 'a job'.

For example- I could place an ad in the local paper offering a full time post doing my garden at a rate of pay of ten pounds a week. So forty hours of work for ten pounds a week.

Have I created a job? Well- the free market answer is yes I have- based on the fact that people are free to reject my offer of employment- so it is in that sense a valid offer.

So the reality is that any idiot can create a job- the real trick is to create a job that pays a wage high enough to allow someone to live on it

And in that respect it seems that more and more business's are unable to achieve this- and so the wages they pay must be topped up by tax credits and housing benefits.

So if we were to define a job as a way to earn a living without the need for state subsidies then most people who work for Mcdonalds are technically unemployed because they are not paid enough to live on without state support.

So Mcdonalds could be viewed as an employment creation scheme in which the state subsidises the wage bill in return for a lower unemployment number- it's a win win- the Government gets lower unemployment and Mcdonalds shareholders and management get to keep more of the profits.

The only losers are taxpayers- but they are happy too because they hate unemployed people anyway and this way there are less of them.

:D ( I couldn't find a troll emoticon)

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How about if we bring in one of the other main tenets of capitalism: competition. If the business is able to make a very large heap of money because it is so profitable then more businesses will arrive to take a share of the lucrative business. The businesses will then compete with each other to continue to profit from the trade. One common result of competition is a reduction in the price of the products. Doesn't this add pressure to keep wages in line with market rates.

Thank you for a sensible reply that at least wants to engage on the issue.

I guess the problem with that is called "barriers to entry" - otherwise we'd all be out there running our own banking startups, wouldn't we?

Admittedly "barriers to entry" is not something that could happen in a "perfect" capitalist system, however in our perfect capitalist system (in which the state does not regulate or interfere in markets) it would be laughably easy for the established market players to undercut any new startup (even running at a loss for a while) to squash the competition before it started.

But what the heck do I know - apparently I'm just a left wing ideologist with a Che Guevara poster on my wall...

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  • 315 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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