Paul Johnson, writing in the Times about the minimum wage (“Why it’s a gamble to follow Ikea on higher pay”) talks some sense but puts the cart before the horse:
It is a bet that forcing companies to increase wages will force them to increase productivity. If you have to pay £9 an hour then you’ll be forced to invest in the training and the machinery to ensure you get your money’s worth. Indeed this could be one of the reasons why productivity in France is so much higher than in the UK. With high minimum wages and extensive labour market regulation French companies can only survive by being highly productive. On the other hand that same regulation probably partly explains higher French unemployment.
Of course French workers are productive. The people who would have been the least productive French workers aren’t workers at all. Thanks to the minimum wage they’re unemployed, except for a little light rioting.
However Mr Johnson’s penultimate sentence cannot be faulted:
The minimum wage as it stands is widely seen to have been a success.
Everyone loves a feelgood story, and to increase the minimum wage feels so good. How vividly one imagines the joy of the hardworking night cleaner as he counts the extra in his meagre pay packet! In contrast, how dim and watery is the mental picture of the, um, potentially-but-not-actually hardworking unemployed person who might theoretically have benefited from a job at the till at a supermarket but now there’s an automated checkout machine instead. She’ll never know. The supermarket chain are not such fools as to announce that the reason for them scaling back their hiring plans is that they would rather not pay their employees any more. They will present automation purely as a benefit to the customer. The customers will continue to curse at the words “unexpected item in the bagging area” and moan about what a pity it is that they don’t have real human beings at the till like they used to, especially since that nice Mr Osborne put up their wages.
An afterthought: Oh, and about that hardworking night cleaner… six months after he was interviewed by the BBC saying what a wonderful difference the extra pay would make to his life, he was let go. Nothing personal, but what with the rising wage bill, the only way for his employers to keep within budget was to cut the frequency of cleaning. The BBC were long gone. Warmhearted people continued to feel good about how companies were finally being made to pay a “decent living wage”.
And why unemployment in France (10.4% April 2015) is almost twice that in the UK (5.4%b April 2015). Is that a success, you fuckwit Johnson?
“That Which is Seen and That Which is Not Seen.”
Opportunity cost is the most invisible of costs. It is one of a few questions that can be posed to people who eschew economics for feelings:
1. If I throw a rock through your window I create work for a glazier, why is that not a good thing?
2. At the ballpark the hot dog vendors have a monopoly, so, since they can charge whatever they want, why does a ballpark hot dog not cost $10,000?
3. Why have the price of computers gone down despite the fact that their capabilities have skyrocketed?
4. Why do vendors sometimes drop their prices? What benefit accrues to them for selling the same thing for less?
5. If the minimum wage is so beneficial to society, why not set it at $150 per hour?
Questions to make the economically ignorant think a little about their assumptions.
Well, we wouldn’t need a minimum wage if we had maximum prices for everything, we could just chase the other end of this economic pantomime horse and make food, fuel, housing, holidays, cars, films, electricity etc. cheaper by outlawing high prices.
£3 an hour could buy you a world of goods, champagne if you wish (21 units alcohol max. for men, 14 for women mind).
What could possibly go wrong?
“On the other hand that same regulation probably partly explains higher French unemployment.”
The only thing wrong with that sentence is the inclusion of the words “probably” and “partly”.
GDP per capita is a better measure of the productivity of society as the unemployed are included in the stat.
A lot of things can wildly distort that, Peter. For example being a major oil producer and exporter.
The Gods of the Copybook Headings will not be mocked.
http://www.kiplingsociety.co.uk/poems_copybook.htm
That, and the fact that the added value of government employees is equated to their cost: that’s how GDP takes into account state expenditure. So all those useless, feckless, brain-damaged fonctionnaires who occupy France’s many, many state bureaucracies are counted as contributing towards the overall production: if the state pays €30k per year for somebody to count paper clips, by definition the claimed added value is €30k and the employee is deemed productive. This is multiplied hundreds of thousands of times across the country and voila! France is very productive. That these clowns are usually a net drain on productive endeavor is something the French will never acknowledge, but these are a people who think the sole purpose of a company is to provide French people with comfortable employment for life.
I see so France is an economic model to follow…..
Well that East German lady who is now Chancellor of Germany clearly thinks so – as she is introducing a minimum wage law (and so on) into Germany.
Why should Germany be an exception to E.U. mass unemployment?
Everyone should have mass unemployment – this is the way to European unity!
As for British writers who think that wages should be set by government edicts – not supply and demand.
As I (and many others) have often said……
If someone really thinks that prices (and wages are prices – the price of certain forms of labour) should be set by government edicts, not supply and demand, they are beyond reason.
It is no good throwing books by Walter Williams or Thomas Sowell at them.
Well it might do some good to literally throw the books – as long as they are heavy and one targets the head.
“That violates the non aggression principle Paul”.
No it does not.
After all these people believe in the use of violence (for example to impose wage rates by the threat of force) so it is legitimate to use force in defence (defence of one’s self and of others) against them.
By the way – hat tip to my enemies at the Economist magazine…..
Even they accept that whilst minimum wage laws might not have much effect if the mandated minimum is very low – if the rate is increased (as with the “living wage”) mass unemployment is made inevitable.
Years ago The Economist had a piece on productivity, and they had as an example two hotels owned by the same chain (I forget which one) – one in New York and one in Paris. The New York hotel hired five people to wash dishes. In Paris there was an expensive industrial dishwasher. This was strictly a green-eyeshades decision, too. Because of the legal environment five guys were cheaper in New York but the machine was cheaper in Paris. Not only were five Frenchmen out of jobs that never existed, but the Paris hotel had to charge guests more to cover the added cost.
If you’re an economist the French hotel is better because the employees they do have are more productive.
There are lots of misunderstandings about productivity which make this kind of thing worse.
The productivity of capital can be increased with little change to the productivity of labour. Take Eric’s example of the dishwashing machine in the Paris hotel. It’s probably very simple to use. That means that the people using it learn no useful skills. Total productivity is increased by increasing capital productivity. That helps all of us in the long run, but it doesn’t do anything in particular to help those with the fewest skills.
On the other hand, suppose there’s a job that two people do now. The minimum wage is raised. The company employing decide that it would be better to train one person to do the job better and fire the other one. In this case productivity is increased, but it comes at the cost of extra unemployment.
It’s this latter type of increase in productivity that those who are hopeful about the minimum wage are expecting. What will happen will be a mixture of both types.
This whole ‘work’ thing is being overcome by events: Vonnegut was off by seventy years or so, but eventually “Player Piano” will prove out. We had better study what happened to slave-based economies in the past, because that, with automation playing the role of slave, is what’s in our future.
I believe ‘bread and circuses’ was a considerable part of it, last time around.
Tim Newman’s point is the same one I’ve been making for years: government expenditures should not be included in the GDP calculation. At the very least an alternate formulation of GDP should be provided which excludes government spending. That way it would be apparent whether any reported GDP growth is the result of real private-sector expansion or mere government waste. But just try to find that data anywhere. It’s almost like they don’t want us to know, or something.
Every discussion of the minimum wage should include the fact that it was invented as a eugenics measure to create unemployment among social undesirables.