Raising the minimum wage means lowering the workers' perks and conditions

As Adam Smith himself pointed out all jobs pay the same really. When you take account of what's needed to do them, the terms, the conditions, the "disagreeableness" of them, add in the wages and they're all paying much the same amount. Which has an interesting implication for those who would raise the minimum wage:

There are many other forms of compensation, including fringe benefits, relaxed work demands, workplace ambiance, respect, schedule flexibility, job security, hours of work and so forth. Even a limited accounting indicates that these nonmonetary benefits amount to a substantial percentage of the total compensation employees receive, nearly 30 percent over and above wages of all workers and 20 percent over and above wages for restaurant workers, on the average.

Employers compete with one another to reduce their labor costs, and that competition is expressed in a variety of ways in labor markets — certainly in money wages, but also in terms of fringe benefits, work demands and all other forms of nonmoney compensation. Workers also compete for the available unskilled jobs. The competition among employers and workers will not disappear with a wage increase but will merely be redirected into the components of compensation packages not covered by the wage mandate. Wage floors, therefore, restrain competitive pressures in only one of the many ways in which businesses compete. With a minimum-wage increase, employers will move to cut labor costs in other areas. As such, employers are likely to reduce fringe benefits and/or increase work demands.

We can indeed raise that minimum wage and there will of course be job losses from doing so. It's even possible to insist that the benefits to those who have their wages raised outdo the disbenefit to those who lose their jobs although that's not something I'd be keen to try to prove to the newly unemployed. But we do also have to insist that raising the minimum wage is going to reduce those other terms and conditions under which people work. Might be as something as simple as insiting that the staff buy their own darn teabags, could be more stricness about breaks, or trady arrival, a bit more slavedriving to pressure mor work out of that newly more expensive labour.

But there will be that something that will compensate for those newly higher wages.

Another way of putting this is that a higher minimum wage might move wages but it's not going to change the total compensation on offer. And it's that insight that allows us to suggest something rather more interesting. As we know, employers' national insurance is some 13.8% of wages above the threshold these days. And yet it's clearly part of total compensation. So, what we could do is stop charging that tax upon incomes for those below, say, the full year full time minimum wage of £12,500 a year or so and we would expect that to feed through into wages. For we'd not, again, have changed total compnesation but we would have changed the non-wages part of it.

Another way of making the same point is to say that we don't have minimum wage poverty we have tax poverty. The government is simply taking too large a part of the wages of the working poor.

The New Economics Foundation has been speaking to the papers again

Those masters of economic logic, the new economics foundation, have been talking to the newspapers again. Gothenburg, a city in Sweden, has decided to experiment with shorter working days for the city employees. At which point nef says:

Anna Coote, Head of Social Policy at the New Economics Foundation, a UK-based think tank, welcomed the proposals. “Shorter working hours create a more committed and stable workforce,” Ms Coote told The Telegraph. “There are indications you can make savings by reducing working hours,” she added, citing an experiment in Utah where public sector workers were given a three-day weekend.

According to OECD data, there is a correlation between shorter working hours and greater productivity. The Greeks are the hardest working members of the OECD, putting in more than 2,000 hours a year compared with the Germans’ 1,400, but their workers are 70 per cent less productive than their Teutonic counterparts.

Yes, this is absolutely true, there is a correlation between higher productivity and shorter working hours. However, it is not that working shorter hours makes you more productive, although that could happen, sure. Your last hour of an 18 hour working day is unlikely to be as productive as your first of a one hour working day.

The causation is really working the other way around and for a well understood economic reason too. The average wages in any society will be determined by the average productivity of labour in that society. Thus a higher average productivity means a higher average wage. And we're well aware that most human beings are, most of the time, both greedy and lazy. Meaning that we'd all like to get as much of whatever with as little effort as we can manage. And that laziness also means that as we become increasingly rich we take more of that wealth as increased leisure, that being the point and purpose of going to work in the first place, to be able to afford the things that we want.

Thus more productive labour, in that richer society, works shorter hours. Not at all the other way around, working shorter hours makes you more productive.

There is actually a reason why Giles Wilkes named the nef "not economics frankly".

Is the government helping exports?

Is the UK Trade and Investment (UKTI), is a net hindrance or help to exporters?  UKTI can surely point to successes but could its expenditure of over £400M p.a. (up 70% since this government took office) be better spent? The 2013 research into UKTI commissioned by Daniel Kawczynski MP is important, valuable and deserves more attention. It provides insights into the strengths and weaknesses of UKTI as it now is. UKTI can point to successes but overall the emerging picture is one of excessive bureaucracy and ineffective communications. The reports recommendations are sensible but they are not radical enough.

UKTI should become a separate stand-alone agency, integrated with Chambers of Commerce, and its HQ should be cut from 500 to 50.

The UK [potential] exporters and receivers of inward investment should be put in charge.  They should be asked what help, and especially contacts, they want, as distinct from being told how to do their business.  These should be communicated directly to overseas posts.

Overseas UKTI staff are bogged down in paperwork. OMIS and other statistical reports and surveys should be scrapped. Successful exporting and inward investment are a matter of personal contacts, not sitting at computers especially as, in this www age, [potential] exporters have access to the same on-line data.

Measuring UKTI performance by the number of contacts allegedly made, and/or number of exporters, should also be scrapped. The quality of the contacts, i.e. the additional exports arising, matters; the quantity of contacts, which may be no more than unreturned phone calls, does not.  The ineffectiveness of communications within UKTI and with [potential] exporters and overseas FCO posts is probably the biggest complaint by the private sector and within the lowere echelons of UKTI.  The only metric that matters is how much trade has been added, whether directly or indirectly.

UKTI is not delivering the exports we need.  The UK’s share of exports is declining whilst the cost of UKTI soars. It requires drastic overhaul.  The Kawczynski report is important and valuable. It provides insights into the strengths and weaknesses of UKTI as it now is and suggests useful improvements but more drastic change is needed.

I feel all dirty somehow, seeing who it is that I'm in bed with

There are times when who supports an idea that you support means that you've got to reconsider your support for that idea. At the risk of Godwinning, that Adolf liked dogs is not a reason to either like or beat up dogs. But his support for anti-smoking is a reason to look askance at certain of the anti-smoking zealots. For his views on this were that smoking deprived the State of that valuable resource of men fit to fight and there's very definitely more than a whiff among today's zealots of people not being allowed to do things they wish to do because of the cost to the State of their doing so.

Which is what makes me cringe slightly over my support for the idea of a basic citizens' income. It's the sort of thing that The Guardian seems to be supporting:

The society our politicians are shaping is defined by the idea of "something for something". What would happen if, instead, we were given something for nothing? A new campaign for a "citizen's income" asks exactly that. Replacing the costly, complex benefits system, a citizen's income is an unconditional payment granted to every individual as a right of citizenship. It's not a high figure – barely enough to survive on alone, and below the minimum wage – but it is designed to prevent all of us from falling into poverty traps. Compellingly, it removes the stigma from state support. There is no difference between a student, a person managing life with a disability, a pensioner and someone struggling to find stable employment if we all share the same basic starting point.

Further supporters can be found here and here. That I support an idea supported by the Leader of the Green Party, by a professor from SOAS, by the usual list of concerned Europeans, yes, this does give me pause for thought. Given that all are usually staggeringly wrong about everything am I wrong to be supporting this idea?

And, having re-examined the idea I come to the conclusion that I'm not wrong in supporting it after all. For one very simple reason.

Their support is all about justice, equity, redefining the relationship between work and leisure and yadda yadda down the list of progressively desirable goals. My support is grounded in that good old idea of economic efficiency, you know, that thing that progressives never actually bother to consider.

My starting point is that whatever else happens in this world there is going to continue to be some version of the welfare state. People are going to continue to be taxed in order to provide handouts to that mixture of the incompetent, unlucky and lazy that make up the current list of recipients. There simply isn't going to be a Randian revolution where the entire idea gets chucked onto the ideological scrapheap. Given this I'd prefer to have a welfare state that was economically efficient. And the greatest inefficiency (quite apart from the incompetence with which the money is actually doled out) is the way in which benefit withdrawal rates and the taxes charged to the lowly paid lead to vast marginal tax rates on those lowly paid earning a little more money.

There are millions who face marginal rates of 60% and up, still hundreds of thousands looking at 80% and even some unfortunates with marginal rates over 100%. And yes, I do indeed believe in the Laffer Curve argument, it's just that I believe that it applies to all of us, not just the highly paid. Who in heck would bother to work another 10 hours a week if their disposable income would fall (something seriously possible in our current system)?

So, it's for this reason that I support the cbi. Simply because it would be staggeringly better than the current monstrosity of a welfare state that we have.

Which means that I'll just have to hold my nose and put up with those who also support the idea I suppose. I mean, seriously, me agreeing with a prof from SOAS? Did anyone think that a universe with such a distortion in it could continue to exist?

The progressive approach to immigration looks a lot like the conservative one

In a way, it’s refreshing that Yvette Cooper’s speech on immigration today has identified ‘free market liberals’ as the main advocates of freer immigration policies. There aren’t many of us, though, so we usually have to rely on immigration liberals on the left to win the argument over there for decent reforms to take place. Unfortunately, it looks as if they're losing too.

Cooper’s main claims are that immigration reduces native wages and job opportunities, puts public services under pressure, and low-skilled immigrants are exploited by British firms.

The first two of these claims are basically wrong and the third is a little dubious, as I’ll try to show, but even if they were true they would only justify restricting low-skilled immigration. There is basically no decent economic argument against skilled immigration, and I’m doubtful whether even the most wild-eyed worrier about the cultural ‘Islamicization’ of Britain has Pakistani doctors in mind. But, without any explanation, Cooper says that Labour will keep the cap on skilled immigration (despite her admission that “top businesses are worried they can’t get the high skills they need”). Oh well.

On low-skilled immigration, the main focus of the speech, Cooper suggests that liberals support immigration “as cheap labour to keep wages and inflation low”. Ignoring that this is a straw man worthy of the Wizard of Oz, it’s also untrue. According to the impact assessment published by the Home Office last month, low-skilled immigration has, at most, a minor impact on native wages, which in a flexible labour market like Britain’s is temporary anyway. And on the ludicrous idea that anyone supports immigration to keep inflation low, see Lars Christensen – under inflation targeting, a positive supply shock like immigration will lead to more inflation.

The public services point is old and well-worn, and it hardly needs repeating here that immigrants pay more in tax than they cost in services – a phenomenon which over the next few decades will mean the difference between a national debt of over 180% of GDP (in a zero net migration scenario) and just over 50% (in a >260k/year net migration scenario). Presumably nobody really thinks that more high-skilled immigration would have a negative fiscal effect, but I suppose it’s possible that liberalizing low-skilled immigration a lot could change this. In that case, charge immigrants a fee to reside in the UK or restrict access to public services. There is no problem with immigration to which strict immigration controls are the best solution.

The final point is the one that Cooper focuses on the most, maybe so that the dreary conservative orthodoxy of her policies is less obvious. Undoubtedly, some genuine exploitation does take place – Cooper gives the example of agencies advertising in Poland for jobs that turn out not to exist, virtually forcing the victims into grim jobs that they did not sign up for. It may be that the law needs to be strengthened to punish people who defraud immigrants in this way. But there will be negative consequences too – by raising the risk for legitimate employers of employing immigrants, this kind of law will make it harder for immigrants to get legitimate work. The danger is that, as in the case of the Modern Slavery Bill, laws designed to prevent truly terrible crimes will end up curbing whatever legitimate work the government decides it wants to stop as well.

To be fair, there are two positives in Cooper’s speech: taking students out of the net migration figures would be good for the education sector, and taking refugees out is humane. But the fact is that Labour has accepted the “logic” of the net migration cap, is making no reforms to high-skilled immigration, and is basing low-skilled immigration policy on anecdotes instead of evidence. Liberals beware: the ‘progressive’ approach to immigration is starting to look an awful lot like the conservative one.

CEOs make less than doctors, you know

This is a rather amusing point being made by Mark Perry over the Pond. CEOs actually make, on average, rather less than doctors do. This is, as you will clearly note, not the usual story we get told about our times:

It should be noted that USAToday’s analysis includes the CEOs of only 200 of America’s largest multinational companies in the S&P500. According to the US Census, there are more than 27 million private firms in the US, so the 200 firms reported by USAToday represent only one of every 135,000 private firms in the US, or 0.00074% (less than 1/1000 of 1%). Note also that USAToday compares the annual wages of ALL full-time employees working at more than 27 million companies to the CEO pay of executives at only 200 companies.

We can get a more accurate and complete picture of CEO compensation by looking at wage data just released by the Bureau of Labor Statistics in its annual report on Occupational Employment and Wages for 2013. The BLS report provides “employment and wage estimates by area and by industry for wage and salary workers in 22 major occupational groups,” including the category “chief executives.” In 2013, the BLS reports that the average pay for America’s 248,760 chief executives was only $178,400. The 200 S&P500 firms reported by USAToday represent only one out of every 1,243 firms in the country that have a CEO at the head, and that small sample of 200 would represent only 0.08% of American CEOs, or less than one-tenth of one percent of all CEOs. The larger sample of CEOs reported by the BLS gives us a much better understanding of “average CEO compensation.”

That some CEOs make those very large multiples of the average wage is entirely true. But in the US economy it's a vanishingly small percentage of those who do that job. And it is worth noting that that average CEO pay is, in hte US context, about that of a dentist and rather lower than the average doctor.

It wouldn't surprise me at all if this were true here in the UK as well. GPs are, as we know, on a pretty good deal these days. £110,000 a year is commonplace, earned without really breaking into a sweat in that job. And it wouldn't surprise me, as I say, if the average CEO (or perhaps Managing Director we might say here) pay in the UK was below that.

Which leads to an interesting question. Do we actually collect the statistics that would allow us to prove this?

Apparently Nigeria now has a larger economy than South Africa

The government of Nigeria has had a quick look down hte back of the couch and appears to have found and extra three quarters of the economy just lying there. Well over $200 billion's worth in fact:

Nigeria’s economy surpassed South Africa’s as the largest on the continent after the West African nation overhauled its gross domestic product data for the first time in two decades. On paper, the size of the economy expanded by more than three-quarters to an estimated 80 trillion naira ($488 billion) for 2013, Yemi Kale, head of the National Bureau of Statistics, said at a news conference yesterday to release the data in the capital, Abuja. That compares with the World Bank’s 2012 GDP figures of $262.6 billion for Nigeria and $384.3 billion for South Africa.

That's how shall we put this, a fair old difference, isn't it?

Much of the chuntering on about this is over how it makes the debt and taxation loads look much smaller, they being numbers that haven't changed. But the much more important one is to grasp the point this makes about economic planning.

We do actually know that this sort of mismeasurement is commonplace right across economies. It's not just the way that it's very difficult to measure the size of black (ie, innately illegal) economies, or grey (legal, but hiding from taxation), it's that we're only ever doing statistical sampling of an economy when we try to measure how large it is. And over time our statistical methods, if we don't change them, are going to get further and further out of whack as the structure of the economy changes. To take an absurd illustration, we we tried to measure transport in the UK using the methods of 1880 we'd note more rail and very fewer horse drawn journies but entirely miss the rise of the motor car.

So, given these problems a rebasing every now and again isn't that bad an idea. We in hte UK end up chaging some part of our statistical methods with just about every release of the statistic (hyperbole alert!) and other places devoting less attention to the problem might, as here, do it only once in decades. All of which is just fine but let us now add this to another current preoccupation.

We've managed to hunt down and shame into silence most of those who argue that planning an economy is either desirable or even possible when we're operating at the technological frontier. But there's plenty about who insist that poor countries must plan, must have the joys of the central plan as we did not so that they can become rich by the method that we did not. Even on the face of it that looks like a pretty silly argument they're using but add to it the news from today.

Nigeria's just found that extra $200 billion down hte back of the couch. How in heck can you plan and economy when your estimate of what's actually in that economy is out by 40% or so?

Quite: exactly the places that leftoids tell us must be using planning are exactly the places where the Socialist Calculation problems hits hardest. No one's got a clue what is currently actually happening: so how in heck can anyone plan what should be done next?

The plan: it's working, it's working!

Madsen has long pointed out that we here at the ASI have a slightly strange job. We think up odd ideas which are regarded as those of idiots howling in the wilderness. Some years later they're mainstream and everyone is wondering why they weren't brought in earlier. What intrigues me is that one of those very strange ideas which I am (at least partially) responsible for is becoming mainstream, indeed is being enacted.

Back when the Living Wage was first proposed I did the calculations that showed that that Living Wage, post tax, was actually what the minimum wage would be if not tax were paid on the minimum wage. While the numbers have all moved around a little this is still true: a no income tax and no NI minimum wage would be higher than the post tax Living Wage.

I also said that this was mad and have been stamping around shouting that it's insane that people working part time on said minimum wage are part of the taxation of income system ever since. With repeats ever time the Living Wage or minimum wage calculations are done again.

That the idea of equating the tax allowance with the full year minimum wage got into the UKIP manifesto, given my background, is really not a surprise. But that it's now entirely mainstream is most pleasing:

The Treasury released research showing that Britain now outstrips Germany, which had the most generous personal allowance system in 2010, after a series of increases in the personal allowance which stood at £6,475 in 2010. It will increase to £10,000 from Sunday, the start of the new tax year, and will increase to £10,500 next year – a month before the general election. The higher allowance on Sunday will represent a tax cut of £700 a year for more than 26 million people and will mean that three million slip out of paying tax altogether. The Lib Dems, whose first pledge in their manifesto for the 2010 general election was to increase the tax free personal allowance to £10,000, have pledged to increase it to £12,500 in the next parliament if they return to government. This would raise the prospect of exempting workers on the minimum wage from paying income tax.

Calling it "generous" that the State does not reach so harshly into the pocketbopoks of the working poor revolts me. But the direction of travel is to be applauded. And it won't matter a damn that it will be some votestealer that gets the plaudits for such an obviously sensible move. The world will still be a better place for it.

Yes, of course we should abolish inheritance tax

This really isn't one of those difficult questions: yes, of course we shoud abolish inheritance tax. Or at the very least this is an easy one: we should abolish the inheritance tax that we actually have.

The Conservative party would be better off scrapping inheritance tax altogether rather than increasing the threshold to £1m, the Institute for Fiscal Studies has suggested.

Yes, quite. It's doesn't raise very much, it's wildly unpopular and distinctly distorting (as people pile into those assets that are not subject to it like farmland).

Let's think back to what the original point of this tax was (and this pops up in that new book of Piketty's as well). It was to prevent the great dynastic fortunes from being perpetuated on down through the centuries. There is, after all, something that might be considered not entirely fair if one person today is born with the whole silver cutlery cupboard in their mouths just because ggg to the nth power grandad was a murderous Norman bastard. Or perhaps we should revise that to a successfully murderous Norman etc.

But our current inheirtance tax doesn't actually do that: the great landholdings aren't actually subject to it and anyone with that sort of money can get around it entirely with trusts and so on. It doesn't actually do what it was set up to do.

What it does do is hit the bourgeois. Yes, I know, half a million, a million, that doesn't sound all that bourgeois but these days it is. 30 years of socking money away into ISAs will get you there (plus some compounding), not even including what has been happening to house prices. The tax hits those estates of those who have worked, saved and been successful, and doesn't hit the estates of those dynastically rich. It simply doesn't do what it says on the tin.

Now some might argue that we should be taxing those bourgeois pots: for there are those who don't have one for micturation let alone a pot to spend. But that's rather to miss what a nest egg does for people: it provides freedom in this life. Not total and absolute of course, not while we are still in this vale of tears that humanity is condemned to. But a bit of capital does indeed provide freedom. And the sort of amounts that those bourgeois inheritances provide seem to be just about the right amount too. Enough to aid, enough perhaps to be able to do anything, but not enough to do nothing with one's life.

And the concept that we should tax away such freedom just seems most terribly odd. We should rather be hoping that all can gain such freedom from the immediate trials of having no assets.

Personally I'm not actually worried about inequalities of wealth. But I can see that some might worry about the position of the Duke of Westminster while there are those without a £10 note to their name at the age of 21. But the current system takes from those bourgeois, leaving the Duke alone, and still does nothing for those without the tenner.

The inheritance tax system as it is just doesn't do anything of any value for us as a society. We should therefore abolish it. You know, like Sweden has just in case Polly wants to scream at us about the Nordics.

The latest bright idea about the housing shortage

The latest bright idea from those who would solve the housing crisis seems very much less than bright to me. Here's Polly detailing it:

But land prices are the key. Oxford economist and housing expert Professor John Muellbauer calls for a national land bank, the state acquiring land for garden cities or any building at current land use value and, once given planning permission, selling on to builders, keeping the windfall added value.

Err, yes. The current high price of housing is a result of not much housing being built. OK, so we're OK with that analysis. Polly then tells us that simply building more won't help: in direct violation of this supply and demand thing that we know abouit economics. And then the solution is that the State should be the person buying the land for development. But our problem is that it is already the State that decides what can be built and where.

For that is indeed our problem. The majority of the price of a house, anywhere anyone actually wants to live that is, is in the value of the chitty that allows you to build a house on that particular plot. These chitties are, we might note, State issued. So our problem is simply that said State won't issue enough chitties so as to bring the scarcity value of the chitties down. And our solution to this is to allow the State to collect the value of said chitties?


The solution is, of course, as we here have been saying for some years now, simply to keep issuing those chitties until the scarcity value is exhausted.  It's absolutely true that certain locations will still have scaricity value but housing as a whole won't. Or, if you prefer, the solution is not that the State should be more deeply involved in the planning of housing but that it should laregly withdraw from such planning of housing.