You can't just hand wave the Living Wage away with higher productivity

productivity.jpg

This is a drum which one of us has been banging for some time now. You cannot just wave away the effects on unemployment of the Living Wage by muttering about productivity. Increased productivity is using less labour.

Nida Broughton at the SMF says:

If businesses can increase productivity there is less likely to be a risk of higher unemployment as a result of the introduction of the National Living Wage.

This is true only in a very particular sense. In other senses, increasing productivitymeans raising unemployment.

As Chris Dillow goes on to point out, productivity is the amount of output we get from a particular input of labour. Or, of course, it's possible to reduce the amount of labour and get the same output. Thus the problem if people say that business can simply deal with higher imposed wages if only they increase productivity.

If it takes us currently the labour of 10 people to make 100 hamburgers an hour, and we raise wages and thus effort is made to raise productivity, perhaps through automation or by the manager buying a whip, we then have 5 people making 100 hamburgers an hour. Or perhaps we have 10 people making 200. We have now raised productivity and sure, the late nite eatery can now afford its higher wage bill.

But note what else has happened. We are either using half the labour we used to in order to produce the same number of comestibles, or we are using half the number we would have used to make the larger amount.

Thus the argument that productivity increases will take care of higher wages is not an answer to the insistence that higher imposed wages will cause the use of less labour. Far from being a rejection of the point it's just an explanation of that very same point, the reason why it will happen.