Thursday, 23 February 2012

National Minimum Outrage

I recently posted this on Facebook:

"When you set minimum wage levels higher than many inexperienced young people's labour is worth, they don't get hired. This is not rocket science." 

As expected, I got a bit of a response. I could have answered right there, but then there'd be a limited audience to that. This needs a bigger airing, so here goes:

CS: What do you think is a sensible minimum hourly pay?

Me: There isn't one. Young people with no experience and low skills have to compete with people who do. The only bargaining chip they have is the price at which they can offer their labour - and it's the one thing they're not allowed to do. As it stands, the distortion prevents them from working for say, £100-£150 a week - learning all the while - to doing nothing for a third of that. The longer they spend earning meagre amounts, the more they learn - the longer they spend on unemployment benefits the less likely that they'll ever skill up.

RS: When you set minimum wage below poverty level you subsidize the workforce of large corporations to reduce their wage bill and increase their profits. Higher tax is expected to be collected to pay the benefit bill. But doesn't always go like clockwork.

MR: How do you quantify how much one's labour is worth without giving the employer the scope to bring back slavery? First hand experience, 45hrs of back breaking labour every week for £90. Bargaining chip, yes, but with numbers so high, the lowest price can dip below £1. There has to be another solution. Mandatory labour as part of the agreement for unemployment benefits(with tiny wiggle room) might just give the younger ones the right push to skill up.

CS: There has to be a starting point, Banti. The current starting point is minimum wage. You want your starting point to be zero. People can't live on zero.

As RS rightly says, if you pay 50 pence per hour we, tax payers, have to subsidise those wages.

I'm for a living wage. I'd also be for the cost of living to come down so people didn't have to rely on handouts. But business owners would rather make fat profits and pay less. And landlords only think of themselves. You really need to stop demonising people who want to earn a decent wage to support themselves and look at other issues, Banti. How about increasing wages so we can decrease benefits? Or building more affordable housing?

MW: Hi Banti, my only query is that if the work has to be done the an employer will pay the rate. without a minimum wage, the taxpayer will always be helping out an employer with a pay packet through tax credits.

The odd thing is, they're all right from where they're standing. This is what makes any kind of debate difficult.

'Poverty' is quite the abstract concept here. Who decides where the poverty line lies? The worst of the worst in Europe pales into insignificance when compared to the kind of poverty that exists elsewhere in the world. The fact that wages have to be subsidised by the taxpayer (through tax credits and such like) to support an arbitrary figure we have deemed to be a living wage is a consequence of this kind of price-fixing and not the cause of it. Think about that.

No one has the right to quantify the worth of anyone's labour but the worker. And no, a starting point of zero would be ridiculous. You'd never get staff that way. Yes, there is scope for exploitation, although I wouldn't sensationalise it by calling it slavery. You sell your labour freely and without coercion. That is not slavery. And by the way, Workfare isn't a part of this argument. Different debate altogether.

You have to understand, wage levels are the largest determinant of the cost of any product or service. All inputs in any business - labour, materials, transport, etc. are affected by wage levels. Wage inflation is a false economy - increased money supply reduces real wages and any rises are negated by the resultant inflation and the cycle continues. Every year there are renewed demands for the NMW to be raised, when all along it alone has been the reason for it's need to be raised. It's flawed from the word go. This is in no way pure and unfettered capitalism, regardless of what people will have you believe. Capitalism does not work like that.

There seems to be a default setting of sorts in western Liberal thought, that all employers are this Mr Burns type of character sitting in a deep Chesterfield behind a mahogany desk, rubbing his hands in glee while he gloats over the misery of his 'slaves'. The media loves throwing that image out. Nothing sells better than a victim mentality. The fact is, most people are employed in tiny, really tiny businesses, little  mom-and-pop operations with less than 5 people. It is those that are hit the hardest. This distortion gives your Mr Burns a huge advantage. It makes little businesses - future competitors - unviable. Again, regardless of the stories you hear and the public protestations they make - big business will ALWAYS support minimum floor wages, they will ALWAYS support increased legislation and regulation. It unlevels the playing field - in their favour. It wipes the little guy out. Do remember, 20% of all wages are picked up by the government as National Insurance. (10% from the employer and 10% from the employee). 20% of all profits are subject to corporation tax, some 25-40% of all earnings are subject to income tax. Most of the rest that you take home are subject to a further denudation from VAT. The government rakes in more than you do for every Pound Sterling you take home to your family.

I'm not demonising anyone - far from it. I'm anti-coroporatism, anti-cartel and anti-big business. Most 'welfare policies' we cling to play right into the hands of Mr Big Corporate. Prohibition in the United States MADE the Mafia what it is today. There's something about legislating morality and charity that makes it all so very wrong. We've tinkered and toyed with economics and changed the environment faster than we can evolve ourselves. And some very smart people have made a lot of money from it. We all want the same thing in the end, but it's how we go about it that differs. The national minumum wage on paper is brilliant. And it's one hell of an easy sell. Social engineering of this type is like trying to combat global warming by shutting down plants here and setting them up in China. As long as there are people in the world who think the UK NMW is a fortune compared with what they earn - it will always be a distortion and nothing more. 

Most other issues, like affordable housing, are closely tied to this one. The fact that people (or the state on their behalf) will pay a given rent keeps prices high. Instead of demand dictating prices and rents, it's artificially imposed prices and policies. That is what makes housing and house prices unaffordable.

And then the question of a 'living wage'. Again, it's an arbitrary figure. You only need to look at the successes of one immigrant community - who generally shunned benefits (or weren't allowed access to them) compared to the failures of one who saw it as a natural right to see how that turned out. Are we all pretending we don't KNOW that there are people that work well below the NMW? The government turns a blind eye to the grey economy - the only truly libertarian, market force-led form of business that has created untold opportunities for wealth & job creation in the UK. No one dare speak about it, but it's there, churning away, working away, without complaint. And it produces real wealth.

There are no easy solutions, but every one of our (developed world's) problems - deprivation, poverty, economic exclusion are due to bad policy. The blanket NMW is just one of them. Germany does not have a blanket NMW policy. It lets industry sectors decide. It seems to work for them. Of course as a nation, we're too far gone to obliterate any of it now, but we must move towards a freer economy. This will a require a major rebalancing, but it is inevitable. As long as a worker in another country can produce something cheaper than we can, the NMW will always be an artificial and unsustainable construct, benefiting only big business. As long as it's more profitable to come to the UK and work for what WE consider a pittance than stay where you are and till your fields, the NMW will work against us. The perverseness of the system is best illustrated by what the benefits cap is trying to address. As a normal working person, you choose where you live based on what you can afford. As someone wholly supported by the state, you're under no such compulsion. Who in their right mind would deem that a fair deal?

Coming back to my initial Facebook post: Faced with an inexperienced youth with no skills and someone with references, experience and the capacity to do the job, which one would the employer choose, if the remuneration has to be the same for both? The youth loses out time and again and is added to the scrapheap. Before you know it, the youth is an adult, still inexperienced, unlessoned, unschooled, hovering on dependency on the state, and sadly, in most cases it's forever and even more sadly, generational.

Murray Rothbard said it best when he said, "In truth, there is only one way to regard a minimum wage law: it is compulsory unemployment, period. The law says: it is illegal, and therefore criminal, for anyone to hire anyone else below the level of X dollars an hour. This means, plainly and simply, that a large number of free and voluntary wage contracts are now outlawed and hence that there will be a large amount of unemployment. Remember that the minimum wage law provides no jobs; it only outlaws them; and outlawed jobs are the inevitable result."

If you liked this post, or were appalled by it, you might want to read this.
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