The Minimum Wage and Paying People What They are Worth

MinWage

The idea of a minimum wage appeals to those on the left with no understanding of business or economics. They believe that a minimum wage helps to ensure that “Greedy Corporations” don’t “exploit” the low skilled workers by paying them “less than they are worth”.

Consider the difference between the market price of an apple and the “worth” of an apple.

You can’t demand that we pay an amount for apples that reflects “what they are worth”, because the amount would be different for each person, zero for those who don’t like apples and hundreds of pounds for those who couldn’t imagine life without their daily apple.

Instead we all pay the market price of an apple, which is the price at which those who have apples to sell value the money on offer more than the apples and those who wish to buy the apples, value them more than the money they give up.

The same is true of wages, the market wage rate for a job is the worth of that job. The idea that the market wage rate for low skilled workers is less than they are worth is meaningless. Less than they are worth to who ?

There is no “true/divine/absolute” scale of worth, against which wage rates can be measured and found to fall short of.

The statement “paid less than they are worth”, is simply another way of saying “I want more!”

The idea behind the minimum wage is to increase the living standards of the low skilled worker, above that which they can earn from voluntary agreements with employers in a free market. It fails completely in this objective.

What it actually accomplishes is a net lowering of living standards for low skilled workers…..

The reason that businesses employ people is because they generate more profit for the organization than they cost to employ. A profit motivated employer will continue to recruit more and more people until the extra profit gained by adding another person is less than they cost to employ.

A minimum wage law increases the cost of employing low skilled labour. This means that the point at which employers stop taking on additional staff comes sooner. So less low skilled workers are employed.

It gets worse, the increased cost of low skilled labour means that in some circumstances it tips the balance, making it more cost effective to replace the low skilled workers with machinery, rather than pay them at the new higher rate. This leads to more low skilled workers losing their jobs.

It gets even worse, the increased cost of low skilled jobs means that employers have to pay a rate that in the open market can attract a higher skilled employee. They therefore re-design jobs to include some low skilled work and some higher skilled work to justify the higher rate. Lacking the higher skills means that jobs suitable for those only with low skills disappear and more low skilled workers lose their jobs.

It gets even worse, for some companies that employ large numbers of low skilled workers the increase in their costs can make their whole business model unprofitable and they go bankrupt. This leads to the closure of the types of businesses that employ large numbers of low skilled workers, so more low skilled workers lose their jobs.

The net result of a minimum wage is that a far greater number of low skilled workers become unemployed whilst a minority earn a higher hourly rate.

I have been accused (in comments on a previous post) of not providing any empirical evidence for any of this. To me the logical clarity of the process does not require any. If you accept that businesses are motivated by profit and you put up the cost of labour then the above is inevitable.

However, let me answer the critics, by considering empirical evidence and the law of gravity.

If I understand the law of gravity, I do not need to show empirical evidence that a particular apple will fall from a particular tree to the ground. Once I understand the nature of the forces at work it is clear that objects with mass will always be pulled towards the earth by gravity.

If I stand at the top of a tower on a windy day and drop a feather it may go upwards. This does not mean that gravity has been empirically disproved and no longer exists! It means that other factors, such as the wind have overcome the force of gravity.

If I drop a pea, it may not fall to the ground, because gravity is still overwhelmed by the wind. It does not mean that gravity is not having an effect, it just means that the effect is difficult to isolate in the observation.

However the larger the object I drop, the more the impact of gravity can be seen. If I drop a cannon ball, you can be sure it will fall to the ground and the effect of gravity will be clear to all.

Empirical evidence in the social sciences is worse than dropping a feather on a windy day, you simply cannot isolate all the variables at work, so it is impossible to see which factors are causing what effect. (Which is why Keynesian economists are so confused)

In the case of the minimum wage:

If the minimum wage is less than the market rate it is not expected to have any impact.

If it rises just above the market rate it is like the feather in the wind. It has a negative effect, but it can’t be seen because of the greater effects of changes in industry, technology, demographics, etc, etc, etc.

The higher the rate is set above the market rate the more strongly the negative impacts can be seen.

But a simple thought experiment can sweep away all the confusion:

Imagine that the minimum wage was set at £100 an hour. (Dropping the cannon ball).

Does anyone really think that we would all become rich, or would the things I highlight above, inevitably happen and all but the most skilled and valuable employees would find themselves unemployed ?

If you still want empirical evidence, how about this:

minimum-wage-teen-unemployment

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  • Anonymous

    Well put.

    • Tuesday Kid

      No it wasn’t.

      • Bellevue

        Tuesday Kid,  it seems to me that the blogger has given you a lot of good advice and all you do is say ‘its not fair! its too hard’.  Why dont you just try some of the things suggested?  I mean 21p per day….. how hard is that?

        • Tuesday Kid

          See above and I’ll tell you.

  • Tuesday Kid

    I don’t agree. Having had to live off minimum wage there’s no way you could have any sort of life and live off a lower hourly rate. I’d very much like to see data on how companies have to lay off workers because the minimum wage is costing them too much.

    A lot of minimum wage jobs are also crap soul destroying jobs, people working for minimum wage earn every penny and a lot of the time deserve a lot more.

    • I am sure that it is difficult to live on a minimum wage and that such jobs are in many cases soul destroying, that is because they are very low skill jobs. 

      If all you can contribute to society, after more than a decade of state funded education, is the ability to pull a pint, mop a floor or flip a burger then I am not sure what kind of life you think you “deserve”. 

      The way to earn higher wages and have more rewarding jobs is to develop higher level skills that command higher wages in the marketplace.Join a Library and read one book a week in an area of business that interests you. In a year you will have read 52 books on the subject and will be a theoretical expert, offer to work on minimum wage for someone in the area for 12 months to get some practical experience and at the end of it you will be able to command a much higher wage and get a more rewarding job.

      • Tuesday Kid

        What you’re not accepting is that I’m not saying these jobs deserve high pay. However they are making a necessary contribution to society. Someone has to do these jobs. And they’re not enjoyable. You deserve the sort of life where you can have enough left over after bills to do something you enjoy. And that’s hard enough even with minimum wage.

        It’s also unrealistic to say that you can get a job based on what books you’ve read. I can use Microsoft office better than most people I’ve worked with who are supposedly qualified to use it, but I have been turned down for jobs because I don’t have a mickey mouse piece of paper like an RSA or OCR.

        Also who says I have had a state funded education? A lot of people who talk about what the state does neglect to mention that it is people like me who are in employment that comprise the purse of the state with our taxes. I am entitled to my opinion on what it should be spent on.

        • First point, nobody “deserves” anything they don’t earn.

          Second point, If you have skills that can be certified then why not just get the qualifications and the job?  The examination fee for Microsoft Office Specialist is £75. Most exam fees are less than that.  The road to higher wages is clear before you but you choose not to take it. From your comments on “Mickey Mouse bits of paper” it appears that you have something of an attitude problem which is holding you back.  Your life today is nothing more than the end result of all the decisions you have taken in the past, if you don’t like it there is only one person to blame and one person who can change it. If you stop complaining and take some positive action its actually really easy!

          Third point, my issue with education is that if it takes over a decade to get through it, you would like to think that people would be equipped with skills that could command more than the minimum wage. The fact that many are not means it can’t be very good! (And yes I had a state education)

          • Tuesday Kid

            You’re the one with the attitude problem. I think that people working minimum wage do deserve the pay they get.

            Secondly if your minimum wage job is putting you in a situation where you are scrapping pennies together to make pounds then where is the £75 for an exam coming from. I don’t have an attitude problem. I’m merely recognising that actual experience is not valued as highly as an overpriced exam which, in my experience of working in offices with people who have it, doesn’t actually denote excellence.

            Thirdly I agree with your point on education, but it should attack the education system rather than the people who have been let down by it. Someone has to do minimum wage jobs, these jobs should afford people a basic standard of living that includes something more than just paying off their bills every week.

            Cutting the minimum wage would only increase the instance of the sorts of riots we saw in august. And rightly so. If you’ve ever pulled a pint or made someone coffee you should know that it’s a demanding job, and society depends on the people doing it.

          • Where is the £75 coming from? 

            Well let’s see, you could talk to your employer and ask if they will pay the exam fee if you pass. (I am an employer and have paid exam fees to many employees on that basis).  

            If not, then you need to find 21p per day for a year. Could that be possible ?

            Could you perhaps, give up smoking, drink less alcohol, go out less, skip the Mars bar, cancel the SKY TV subscription, don’t buy a paper, walk to work, delay buying those new trainers, eat beans on toast instead of McDonalds, etc, etc.  I do not believe that anyone in the UK can’t find 21p a day by making some sacrifices. 

            You could also look at grants 
            http://skillsfundingagency.bis.gov.uk/training/, You could even borrow the money and pay it back when you have the higher paid job. 

            There are so many ways to find £75 to lift you out of the minimum wage, low skill zone that even if I were to try and list them all I never could.Like many people who fail to achieve, you only ever focus on the obstacles. Everything worth having in life is beset with obstacles, the trick is in overcoming them. If you start look for solutions, rather than problems and excuses, you will automatically become more valued at work and in life.

            The idea that it is right to riot and steal, kill innocent people and ruin their livelihoods because you are too useless to earn the life you want in a free market, is so obviously stupid that I can’t think of anything to add.

          • Tuesday Kid

            First off, you’re making some pretty inaccurate assumptions . I’m no longer on minimum wage. I was and I’m using my experiences of having been on minimum wage to tell you why I think your argument is wrong.

            This 21p a day figure is pretty fanciful too. There were many times on minimum wage when I tried to put money aside (a lot more than 21p a day). Something necessary always came up to spend the money on.

            I think the crux here is that you’re an employer. I’m guessing one who’d like to find ways to save money and you’d love to cut it from the people doing, so called, undeserving work.

            I think your opinion is sincerely held but ultimately full of the holes I’ve pointed out.

          • You said:

            ” I can use Microsoft office better than most people I’ve worked with who are supposedly qualified to use it, but I have been turned down for jobs because I don’t have a mickey mouse piece of paper like an RSA or OCR.”

            If you are no longer on minimum wage then what excuse do you have now for not getting the qualifications that would push you even further up the pay scale ? 

            Unfortunately you misunderstand the difference between opinion and reason. You are of course entitled to hold any opinion. You are free to believe in the tooth fairy and Santa Claus if you wish, that is your right. 

            However, you have provided no reasoned argument to attack the logic of my position. Your “argument” is simply that people deserve to be paid “enoug”h to have money left over after they pay “their bills”.  But you provide no reasons for this position and show little understanding of the economic or moral consequences of forcing people to pay others more than the fair market price.

            There is no point trying to reason with you as your thinking is shallow and your opinions based on emotional appeal rather than logic.

            I have been an employer and an employee, I have worked for far less an hour than the current minimum wage and as an employer all my employees earn more than the minimum wage. Neither of these things are of any importance to my points.

          • And what you don’t accept is that minimum wage is the fair market price
            (and only just).

            You fail to accept that these jobs you see as  low skilled are ones
            which someone has to do. That also wages should afford people who are
            actually in work a certain standard of living.

            “If you are no longer on minimum wage then what excuse do you have
            now for not getting the qualifications that would push you even further
            up the pay scale ? ”

            What you’re failing to see is that maybe this qualification is no use to me in my current position. I’m just making a point about how low skilled and high skilled work is measured in an inaccurate way.

            And if we’re talking about the difference between reason and opinion where is the evidence to back up what you’re saying?

            Give me some data.

            You say: “A minimum wage law increases the cost of employing low skilled labour.
            This means that the point at which employers stop taking on additional
            staff comes sooner. So less low skilled workers are employed.”

            That’s one way of looking at it. Another is that because of a minimum wage law less employers are able to exploit low skilled workers. They have to be realistic about the capacities of their business and increase income income in other ways.

            Or maybe you’d like to see things like poorhouses return? Or Britain could become a nice big country of “low skilled workers” sewing footballs?

  • OK, I get all of this. It makes perfect sense. It’s correct.

    The problem I have is that a minimum wage (or sub-minimum wage) existence is only made possible by the benefits system. That’s before taking into account that the worker needed to be cared for/educated for many years prior to working, and will need to be supported (all being well) for many years after.

    So it is all well and good me believing that a worker is only worth £3 an hour.. but that is significantly less than the real cost of that resource. It’s a state-subsidised resource.

    I wonder what would happen if all in-work benefits were scrapped. Would unskilled workers offer their services for below the current minimum wage.. or would they decide it’s not worth bothering and they may as well exist on out-of-work benefits?

    Does removing the state inteference in the wage market from both sides of the deal result in the cost of unskilled workers rising?  (After all, whilst some unskilled jobs could be cut.. others cannot. All those nice shiny offices in London still need cleaning.)  Do we then have to chop back on out of work benefits so that they’re low enough that people will go out and work for wages at (or below) the current level?

    • Interesting questions. The first thing to point out is that the price/value of something in the market-place has virtually no relationship to its cost. I may make a hand crafted widget for improving the suspension on a horse and cart that takes me 10,000 hours of skilled labour and uses the finest and most expensive materials. It is not likely to be worth much as there is little demand. The factors that determine price (value) are supply and demand, not cost. The fact that we spend a lot of money to produce people with very low value skills is a sad reflection on our state run education system.

      The Libertarian answer to the impact of benefits on wage rates is simply that there should be no benefits at all for people capable of working who choose not to. If you provide people with the choice of deploying their limited skills and earning £3 and hour or doing nothing and getting £4 an hour then the rational decision is not to work and live off the productive efforts of your neighbours. The marginal reward of working is such that it might take £7 or £8 an hour to tempt people to give up a life of low income leisure for one of higher income but less leisure time.

      If such benefits were eliminated and the cost savings fed back to workers through a reduction in income tax I believe that the market rate for some low skilled jobs would probably rise above the current minimum wage level. The reason being that increased incomes for tax paying workers would lead to an increased demand for low skill jobs like, home cleaners, casual gardeners, pub staff, waiting staff, etc, etc. as they spend their increased income. This increasing demand would push wage rates up in some cases. 

      In other cases people with low skills would undoubtedly earn less, but the answer to improving incomes in these cases is to improve the skills of the people to make them worth more to employers, rather than pay them inflated rates to do low skill jobs, or worse still to do nothing at all. 

      • Charlie

        ” The fact that we spend a lot of money to produce people with very low value skills is a sad reflection on our state run education system.”

        I have listened to many from business sector state that the skilled workforce they need is not there and this is definitely a sad reflection on our education system.

        Employers need to get into schools locally and give input. so the schools are delivering young people with the skills they require.

  • PTM

    I don’t believe that a reasonable minimum wage harms busines. See this article:

    http://www.retail-network.org/index.asp?s=pubnews&newsID=40

    tThis confirms the CBI was against any minimum wage in 1997, as they believed it would wreak havoc on the economy and private enterprise.

    It later changed tack, and there was indeed no detrimental effect.

    I reckon your comments about “low skill” jobs show that you oppose a minimum wage as you hold some positions as being so lowly that people don’t deserve to be recompenses for them.

    I remember the bad old days pre-minimum wage when jobs were advertised for £1.50 an hour, a ridiculous level for any job even in the mid to late 90s…

    • I agree that a reasonable minimum wage doesn’t harm business. A reasonable minimum wage is one that is below the market rate for the position and therefore has no impact!

      I have explained why empirical data can be misleading, but if you follow the logic of what actions a profit seeking employer would take when faced with an increased labour cost the logic is irrefutable. 

      An appeal to the authority (http://www.nizkor.org/features/fallacies/appeal-to-authority.html) of the CBI does not weaken my argument.

      I oppose a minimum wage because it interferes with the freedom of people to make voluntary agreements between themselves on any basis they see fit, without the intervention of the State. As with most forms of State intervention it actually harms those it is designed to help.

      If a minimum wage of £7  is a good idea, then explain why a minimum wage of £1,000 an hour isn’t a better idea?  

      What new problems does this higher rate introduce that were not present on a smaller scale at the lower rate ? 

    • Would you rather I sat on the dole or did volunteer work for nothing?

      • Rob Dies

        They’d rather you volunteer because then their work gets done and they didn’t have to pay for it.

  • Peter Crawford

    If you were on minimum wage as I am near enough, what would improve your lot for the better ?  An increase of 50p for the minimum wage or a tax regime that slashed VAT to nothing and increased the Income Tax threshold to a level where those on poverty line (currently about £11 000 per year  –  a figure agreed on by some very well paid civil cervants, oh the irony).  I know my answer.
    Regards Pete 

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  • Frank Davis

    OT, but my 2 bits.

  • Micheal Planck

    You’ve completely missed the point of the minimum wage.

    What are you going to do with members of society that you have deemed completely unproductive? Let them starve? Guess what – they won’t starve quietly. They’ll kill you and take your stuff.

    Now, sure, because you’re a super-competent uber-libertarian Master Race type, you’ll be able to defend yourself. But realistically speaking, you don’t live in a Jon Woo movie. Sooner or later one of the bad guys will get lucky and you’ll be dead.

    So now we see that the minimum wage is the price people charge to play nice with society. And guess what? The more stuff you have, the bigger share they want. Why? Because they can.

    You get what you pay for. If you want people to behave a certain way, you have to pay them to do it. Civilization is a certain kind of behavior, so to get people to play along, we have to pay them. Frankly, it’s been worth it: the more a society pays people to behave, the better the place to live (Sweden); the reverse is also amply demonstrated (Somalia). It even turns out that paying your neighbor a healthy wage for doing nothing more than refraining from violence makes you so productive that you’re better off than you were before.

    The minimum wage is the price we pay people to not kill us. Paying that wage is way cheaper than maintaining the kind of police state necessary to avoid paying it. “Millions for defense but not one penny for tribute” sounds great, but in real life it doesn’t work so well. Especially when that tribute acknowledges basic facts like your fellow human beings have intrinsic worth, and your productivity is partly due to their existence.

    The rest of your article is full of simplistic bullocks, but really, it doesn’t matter. The central point you’ve missed is that people have options, and one of those options is to bash your face in, and you can’t expect public morality to defend you while you simultaneously dodge your moral duty to the public.

    • You make an interesting and valid political point about the risks of civil unrest in an unequal society. I will address this more fully in a future post.
      However, your argument only makes sense when applied to the minimum wage IF the minimum wage makes the poor better off. 

      The Economic argument in the post shows that the minimum wage doesn’t make the poor better off as a group, it just makes more of them unemployed.

      • Rob Dies

        A minimum wage wasn’t needed before the federal reserve printed the dollar into oblivion. Now the law can’t keep up with inflation. The minimum wage of 1965 is over $21/hr in today’s money. Today, a minimum wage worker is only making enough in an 8-hour shift to buy 12 1/2 gallons of gas (after taxes); not quite a full tank in the barges the working poor are forced into in the US. Meaning if someone works a 40 week, that person has to work 2 days for the means to get to work! Nevermind the other expenses.

        So you’re right, the minimum wage is doing harm, but to abolish it in this economy would be suicide.

    • Alex

      As much as I understand your point … “What are you going to do with members of society that you have deemed
      completely unproductive? Let them starve? Guess what – they won’t starve
      quietly. They’ll kill you and take your stuff” … I have to point out that, erm, present circumstances suggest that so long as you give these people enough to subsist upon, they don’t actually rise up at all.

      I live in the North and we have had chronic unemployment for thirty to forty years. Yet, the unemployed youth of the areas near me, they don’t riot. They are, essentially, incredibly passive; they cope with their lives, even thought they don’t realise they do this, by drawing dole, getting pissed and taking drugs  — to the point where the overdose rates in a local town to me are unbelievable.

      I, personally, would call this a form of psychological “starving”, and all these people are doing it very quietly indeed.

      I live near families where no one has worked for two generations; there’s no revolution brewing, there’s really hardly any crime and now, even in urban centres, the ones that get involved in “taking your stuff” et all tend to end up with serious injuries inflicted by a rival criminal group.

      The thing here is that, historically, revolutions are sparked, run and managed by people from the middle and upper-middle classes who use the working class and under-class are a means of mob violence and/or cannon fodder. Rarely do those deemed unproductive in a new paradigm rise up on their own.

    • Michael,

      I am unemployed and living on benefits right now. I would rather work for a living, but the government makes that ILLEGAL.

      Turning to crime is a definite possibility if the government blocks my attempts to better myself at every turn.

  • One question we need to be asking, why do we need a minimum wage in the first place. The minimum wage is an act of political expediency, a palliative measure if you will to appease the resultant consequences of past mistakes of interventionist economics and central banking monetary policy. The question we should be asking is why are people in lower incomes unable to afford basics such as food? Remember money is the other half of every monetary transaction we make in life…when governments and central banks attack the integrity of the money, and mess with prices….the people most impacted by this are the lower income groups. Political interventionism and central monetary supply leads to inflation. Inflation destroys the middle and lower income groups. Thats why we need a minimum wage as a palliative cure from the ravages of past inflationary and fiscal stimulus attempts by government and central banks. Protect the integrity of the money that people toil and work for and people in lower income and middle incomes will be better off. If the left want true redistribution of wealth this is how it will be brought about, by cutting the problem at the source….not by reactive legislation of an arbitrary minimum wage to cover up the true causes and to appease an electorate for political means and career motivated politicians…cart before the horse.

    Someone mentioned the dreadful days when there was a wage of £2.50 an hour…well I worked as a student in Tescos during those times, before a minimum wage…and was able to have much better nights out, clubs, beer…than I could now if working in a Tesco now…its not the wage…its the prices of a night out…in real terms my wage was higher before the minimum wage than now if I was student. Its the ridiculous inflationary policy of the last 20-30 years that have meant that prices of goods have gone straight up.

    • ^^ Exactly. This.

    • Rob Dies

      This +1

    • Steve Williams

      I remember earning £3.75/hr not more than a decade ago at 16 years old.

      I think the only way you could abolish minimum wage is to have a steeper progressive tax rate for individuals, and higher corporation tax for larger companies. That way, those increases can be used to prop up those on lower incomes. However that seems to bother the well-off more than the minimum wage does.

  • Van

    Excellent analysis. The wailing socialists can express all the outrage they want, but the economic facts say that the minimum reduces the opportunities for employment for low skilled workers.

    If you want empirical evidence of this, look on for Youtube for Peter Schiff video on American Samoan and how the forced introduction of a minimum wage has destroyed their economy as surely as if the US congress had dropped a bomb on the place.

    Want more? Here in the the UK the last Labour govt introduced the NMW at £3.50ph in 1999; it has risen 40% above inflation and now stands at a staggering £6.08ph (about $10ph).  As a result, youth enemployment is now over 20% and still rising; and still these beauraucrats cannot see that their policies have caused this.

    What happens if the minimum wage is rase to $100/ph? Would we all have our living standards raised? No, we would all be unemployed!

    • English viking

      Astonishing that you think 6 quid an hour is ‘staggering’.

      Perhaps we should pay the proles in bags of rice, eh?

      • Van

        Pay people what they are worth, not more. 

        And yes, it is staggering compared to the minimum wage rates in most other countries with comparable per capita incomes.

      • I have been unemployed for years now. I would welcome the opportunity to work for a lot less than that per hour!

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  • Eaglemobler

    It is only a matter of time before the minimum wage becomes the maximum wage for a very great many people.

    Then we’ll see what happens when a body is thrown off a tower, windy or not.

    Your logical clarity is clear as mud, and depends on extremes to falsely ‘prove’ your assumed conclusion.

    This comes from an inveterate Labour-hating natural Tory.

    • Not much of a counter argument is it, more of an expression of feelings and an admission that you can’t follow the logic. If you think any step in the reasoning is incorrect, state your case and we can seek the truth together. I am happy to examine counter arguments, but you have not given any.

      • English viking

        It is extreme to suggest that the minimum wage should be 100 quid an hour – that would bankrupt most (certainly not all) companies.

        Why not set the minimum at a level each individual company can afford? Why allow a company to make literally billions, whilst the people that made it get next to nothing?

        Companies should be made to pay a certain percentage of their profits in either wages or end of year bonuses, or face heavy taxation to the same amount. That would produce real motivation in the staff, and would generate greater loyalty in the workforce too.

        Shareholding should be modified so that shareholders are responsible for losses, too. That would do away with casino style speculator who aim to get rich off the back off the sweat of the poor people stacking shelves at Tesco, for example.

        • I see now, you have no understanding of economics!
          Lets examine some of the nonsense you propose:

          “Why not set the minimum at a level each company can afford?”

          Well, that would mean that office workers doing exactly the same job would earn very different amounts. If they worked in a company that was making bumper profits, as a result of somebody else’s efforts, they would earn a lot. If the company was losing money through no fault of theirs they would have to be paid less than the current minimum wage!

          Nobody would be able to get a mortgage because their incomes would be very volatile in line with their employers profits. 

          People would all want to work for the most profitable employers so competition would be cut-throat. The best employees would end up working for the most profitable companies and be paid close to a market rate. The worst employees would only be able to find jobs with low profit businesses and would earn low wages.

          So, the unproductive still earn a low wage, probably below the current minimum wage, and the productive still earn a high wage. All your plan has done is add uncertainty and extra costs to the businesses involved.

          “Why allow a company to make literally billions, whilst the people that made it get next to nothing?”

          Companies that make billions are generally very large companies with lots of shareholders. Take Tesco, last year it made profits of £3.5 Billion. Each share in Tesco made just 35.9p and would cost you £4.03 to buy.

          So an investor in Tesco got a return of just under 9%. Now, investing in a business is risky, you can lose all your money, so why would you bother to invest if the return wasn’t significantly higher than a bank account offering say a 5% return ?

          Most companies last year offered a return per share less than a bank account and many investors lost money.

          If people didn’t invest in businesses, there would be no jobs at the minimum wage, or any wage. Jobs exist because people start businesses, they usually need outside investors to fund them.

          And who owns these shares? Not some moustache twirling evil capitalist caricature, mostly it’s ordinary working people through their pension funds, endowments, ISAs and insurance policies.

          “Companies should be made to pay a certain percentage of their profits in either wages or end of year bonuses, or face heavy taxation to the same amount. That would produce real motivation in the staff, and would generate greater loyalty in the workforce too.”

          Investors returns would be lowered (as explained earlier) and people would invest their savings in less risky ventures, like savings accounts. 

          New business start ups would reduce and existing businesses would fail because much of the “profit” you complain about is actually re-invested in developing new products, investing in new manufacturing facilities, etc, etc, etc. Starved of profit to re-invest companies would be overtaken by competitors and go broke. Lots more people would be out of a job.

          “Shareholding should be modified so that shareholders are responsible for losses, too. That would do away with casino style speculator who aim to get rich off the back off the sweat of the poor people stacking shelves at Tesco, for example.”

          Shareholders are responsible for losses up to the total amount of their investment. Would anybody invest in shares with an uncertain return and unlimited liability for losses ? Only a complete idiot!

          So we eliminate all investment in shares in businesses and increase unemployment,  just to stop pension funds making an “unreasonable” 0%-9% return on shares to give their policy holders a half decent living in their retirement years !

          Most stupid political ideas from the left,  come from a total lack of understanding of economic reality. The best cure for Socialism is an introductory course in Austrian economics !

          • English viking

            Please tell me which bank offers 5% today?  0.5, maybe.

            A return of 9%? For doing nothing? When the guy (or gel) which made the dosh gets FA?

            If I was able to deprive you of at least 9% of your wages, when you had to get out bed when it was cold, when it was dark, when you wanted to stay home to see your kids, or your wife … is that OK? Just because you can?

            ‘Investment’. That’s a lie. An investment implies a risk.

            These people risk next to nothing, then they rape you, then you cheer.

            Unless you’re one of them.

            Read ‘The ragged trousered philanthropist’.

            No. Really. Read it.

            PS Please don’t delete me, as you have others.

            PPS You appeared to imply that I was lacking in the head Dept. in your previous post. If you promise not to delete me, I’ll show you that I’m not.

          • Scottish Widows Bank 5 year Fixed Term deposit offers 4.6%. http://www.moneysupermarket.com/savings/fixed-rate-bonds/

            “A return of 9%? For doing nothing? When the guy (or gel) which made the dosh gets FA? ”

            The 9% is a very good return. Most investors will have done much worse, hence my 0% – 9% range. Actually many investors lose money. What is the average return on the FTSE since 1999 – less than zero!

            You appear to subscribe to the discredited Marxist Labour theory of value. (Probably picked up from the Ragged Trousered Philanthropist).

            It is not the shelf stacker or the office cleaner, or the factory worker that creates the wealth of production. It is the entrepreneurs, the innovators and the investors. 

            Investors do not “do nothing” for their return, they do the following:

            1. Consume less than they earn to create savings.
            2. Risk these savings to create businesses with an uncertain future. 
            3. They Allow people to be paid a fixed amount for their labour, without taking on any of the risk of an uncertain business venture.
            4. They allow people with a short time preference to be paid weekly or monthly, when the profit from the venture may not appear for 5, 10 years or more.
            5. Provide funding so that innovators, inventors, etc with great ideas and no money are able to turn their ideas into reality for the benefit of us all.

            The “guy who made the dosh”, by which I assume you mean the shelf stacker, burger, flipper, pint puller, or other “socialist hero” on the minimum wage, actually adds very little value in the economic chain. The value of what they add is reflected in the market rate for their labour.

            “If I was able to deprive you of at least 9% of your wages, when you had to get out bed when it was cold, when it was dark, when you wanted to stay home to see your kids, or your wife … is that OK? Just because you can?”

            Employees are not deprived of their wages by investors, they voluntarily contract to work for a rate of pay that reflects their worth in the market. 

            The fact that other people in a business venture get rewarded for their contributions does not deprive them of anything. 

            Without investors creating businesses, there are no jobs and no wages, people would of course then be free to stay home in bed and see their wife and kids, at least until they all starved together in the glorious socialist Utopia.

            ‘Investment’. That’s a lie. An investment implies a risk. These people risk next to nothing, then they rape you, then you cheer.

            Of course investors risk the money they invest:

            1 in 3 businesses goes bankrupt in the first three years. 

            The stock market has hardly been an easy ride, in 1999 the FTSE 100 stood at 6000, today over a decade later it is lower at 5557. A negative nominal return for a twelve year  investment is hardly a free ride. After inflation it represents a sizeable loss for everyone who invested.

            What about the investors in Woolworths, MFI, Allied Carpets, ZAVVI and all the other businesses that have gone broke during the recession?

            To say that investors take no risk is to simply ignore reality and impose unthinking socialist dogma in its place.

            Read ‘The ragged trousered philanthropist’. No. Really. Read it. 

            I have read the “Ragged Trousered Philanthropist”. There is little point in holding any set of views if you have not exposed yourself fully to opposing views. (something I wish more socialists would try)

            The book is an entertaining read and a passionate exposition of working class views in the period, but it is full of economic fallacies and misunderstandings. 

            If you really want to learn economics I would suggest that a disgruntled, socialist painter & decorator turned author is perhaps not the most reliable way. 

            Try  “Man, Economy & State” by Murray Rothbard, or “Human Action” by Ludwig von Mises.

            The link below provides a nice simple introduction to economics that should rectify the errors you picked up from the Ragged Trousered Philanthropist.

            It explains the role of savings, investment, capital, etc. You may be surprised to learn they exist among consenting adults without the need for evil robber barons, dastardly slum lords, malicious moustache twirling capitalists or any of the socialist stereotypes you have managed to saddle yourself with.

            I only delete comments that are abusive or demonstrate a refusal to engage in the argument and just restate a discredited point repeatedly. 

            Be polite and answer the arguments put forward and you run no risk of deletion 😉

          • English viking

            Fair enough, I’ll try to remain civil.

            I must point out that I am not a socialist. I loathe the Labour party (which is not socialist, BTW). I also hate the Tories, and the Lib-dems are just not worth moaning about.

            I hate the political system and the parties that run it in the UK. I have no axe (or sickle) to grind on that score.

            I don’t know how I would classify my political views in one word, in fact I don’t think I can be classified, as I think some parts of socialism obviously true, and others so obviously false, the same as with capitalism. On the whole, I think capitalism is better, but only just. They are both terrible systems that promote the worst in human nature.

            I guess I would just like things to be fair. Is it fair to pay a man only just enough to keep him alive so he can continue to make you money? Is it fair to pay shareholders more than your staff (Tesco, for example)?

            I understand that some members of society (it does exist, contrary to what Thatcher thought, who BTW was an excellent PM) do not possess the wit and wherewithal to be CEO of a blue-chip company. Some will always be fence-menders and shelf-stackers, and their skills, or lack of them, will be reflected in their pay, but there is NO good reason that that pay should amount to around 12 grand a year. That is a joke. That is exploitation. That is tantamount to slavery.

            You say that people are paid what they are worth – not so. People are paid the absolute minimum the company can get away with (there are some good exceptions, John Lewis for example) because there is no alternative. You can flip burgers for MW at Maccy D’s, or flip ’em at Burger King for the same pittance. The people you apparently hold in such contempt for their lack of skills contribute an enormous amount to the nation, and to your life personally. Someone on MW cleaned the bog you shat in at the pub, someone on MW pulled your pint, washed your plate, cleaned your car, etc, etc.

            Highly skilled and/or innovative people should be paid/generate more, I’m all for that. All I am saying is that poorly skilled/educated people should not be paid FA.

            BTW When I say poorly skilled/educated, I mean the decent sorts that actually work. Don’t have me down as a chav-sympathiser, eh?

            PS I employ 6 people, so I know what I’m talking about.


          • You say that people are paid what they are worth – not so. People are paid the absolute minimum the company can get away with (there are some good exceptions, John Lewis for example) because there is no alternative. ”

            Employees want the maximum pay they can get away with. Employers want to pay out the minimum they can get away with. Neither is wrong in their approach.

            They settle on the level at which the employee cannot find an alternative position that pays more (his maximum) and at which the employer cannot find anyone to work for less (his minimum). That is the market price and the DEFINITION of what a person’s labour is worth.

            It is meaningless to say that something is “worth more” than its market price, “worth more” to whom ?

            If it was worth more to anyone then they would pay it, and it would become the market price !

          • Charlie

            “The “guy who made the dosh”, by which I assume you mean the shelf-stacker, burger-flipper, pint- puller, or other “socialist hero” on the minimum wage, actually adds very little value in the economic chain.”

            I’m still reading up on the Libertarian view so bear with me ( so far i’m finding some very interesting comments btw)

            Regarding your comment in quotes above. .

            Not only are these people in the production chain, they are also customers. So they seem to add tremendous value to the economic chain.

          • You need to snap out of the right-left paradigm.

            “Government” is just the name we give to the dominant criminal racket in a given territory.

            Its not a tool for making the world fair. Its a device for extracting loot.

        • Don’t forget that the *really* profitable companies are those with government patronage.

          That goes on regardless of the party in power.

    • Is there any difference whatsoever between the two main parties?

      You couldn’t put a Rizla paper between them on any substantive issue. Its all rhetorical bollocks and business-as-usual.

      “Meet the new boss. Same as the old boss!”

  • dan

    is it possible, that collectively, ‘the workers’ could be paid less than they are worth?  I seem to recall an argument by hazlitt  (from ‘economics in one lesson’)  debunking this assertion, but can’t seem to dredge up the particulars. In the united states it seems the barely educated read the new york times and believe all the spread the wealth schemes and monetary shenanigans espoused by paul krugman.  although i consider myself a staunch monetarist, hayeckian or whatever you want to call me (but evidently not libertarian, because that just means i’m too mean spirited to want to help the poor) i’d imagine keynes would roll over in his grave if he knew how his ideas have been distorted.  

    • It is not possible in a free market for anyone (individually or collectively) to be paid less than they are worth. Simply because the only valid measure of what they are worth is the free market price they can command.

      Libertarians are not too mean spirited to help the poor, most support voluntary giving and charity in all its forms. They object to forced redistribution by the state, which is simply theft from one group to bribe a larger group to vote for them.

      • Actually, the voting part isn’t even a requirement. Its your compliance they want. Votes are irrelevant.

        • Rob Dies

          I would disagree with you, but after seeing the shafting Ron Paul got last year, I have to agree.

    • Rob Dies

      Small quibble: The American uneducated don’t read the New York Slimes. They do, however, spend MASSIVE amounts of time in front of the TV, the people on which tell them and show them the wealth distribution dream. Same thing, bigger population. Hence our problem with electing leaders that aren’t completely crooked.

  • Jonno

    I agree with Michael Plank. It’s all about society functioning. Take all the wealth to the few (as has been happening increasingly) and you’ll leave people with no purpose and society will breakdown. Those left in the wilderness will craete their own society – it’s called survival!

    The min wage does not meet the cost of living. The UK is going to become a crime ridden hell hole to live unless we get a government capable (and willing) to make it a more equitable place. 

  • Jonno

    To add to my previous comment, I live in an affluent area and the wealth divide is staggering/ obscene. Not much to do with brains (many are as thick as pigmuck) usually just good fortune and knowing the right people/ having the right family background – mind most of them will always associate their wealth/ success with being somehow intellectually superior ….they’re not bright enough to realise the truth!

  • Van

    The defenders of NMW are missing the point entirely. 

    However low wages would be without the NMW, it is better than having no job at all. There would be jobs that exist that low skill workers could do, instead of no jobs at all. Low wage is still better than no wage.

    Jobs do not appear out of thin air – they are created by employers, and so when looking whether to create a job or not, an employer needs to justify that that job will be worth an income to them of £6.8ph + eomployers’ NI + other administrative costs – let’s say about £15k pa.  If that job is on’y worth £13k, or 14k THEY WILL NEVER CREATE THAT JOB.

    -THIS- is why the youth unemployment rate is so high. Their skills are not yet worth the income or the risk to an employer.

    This spurious argument that “people should be paid what they are worth” is nonsense. They are worth what an employer is willing to pay them. If they think they are worth more, then they are very free to leave and to find a better paying job. The free market prevents exploitation of workers. 

    To argue otherwise is to ignore the laws of economics.

    • Josoap1

      Rock on mate,minimum wage, what a laugh , I have my own business , just a little one, I have my own business because I considered myself unemployable, shit education u c, I was not privalidged, im from council estate in brum, I have just employed a supposed mechanic, he came with nvq paperwork 3″ thick, I put him on trial for 3 months, he is absolutely useless defo not worth minimum wage, I can’t pay him any less than minimum wage, so he’s gotta go, he causes more problems, then he’s worth, & he’s not the 1st n I’m sure he won’t be the last, but this means I can’t expand my business, minimum wage was not about giving the under dog a better state of living, it’s about them paying tax, n national insurance, government don’t give a shit, what ur state of living is, DONT U LOT GET IT they just want the tax money, so what’s the answer to my problem then, I’m quite comfortable, I could walk away tomorrow, but what about my current employees, do I just make them all redundant, as we can’t cope with the work load we have, but can’t afford to take on any more staff for minimum wage, I see no future for my business, iv put 7 days a wk in for 30 + yrs,
      I think minimum wage stinks & will be the down fall of the small business, it’s hard enough to find people with a bit of common sence, let alone a skill

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  • Excellent post. I am a prime example of this.

    Peter Schiff made an excellent video where he outlined all kinds of jobs that no longer exist because they are not economically viable at the US minimum wage.

    The situation is much worse here in the UK. When I try to explain to people that I would be willing to work for less than the current minimum wage, they all think I’m mad.

    But if talk about working as a volunteer for ZERO money they have no objections. WTF?

  • Totheleftofcentre

    Let’s see.  You’re arguing that we shouldn’t have a minimum wage because it will improve the conditions of the lowest paid workers in our economy.  The only way I can see this being true is if you were also comfortable with some fraction of your population living in effective poverty.  Let see if I can do a similar thought experiment to what you have done.  Currently in the UK, the minimum wage is regarded as below a living wage.  Let’s agree that defining a living wage is difficult, but the minimum wage is (I would argue) at least close to the minimum needed to survive effectively.  Remember that we (in the UK) are probably not allowed to live in shacks on the edges of cities.  We can’t just drive any old clunker.  You must send your children to school. There is a cost to belonging to our society (I accept that you may want to get rid of all such legislation but let’s accept that it currently exists).  If the current minimum wage is too high and is supposedly damaging our economy, then presumably you’re arguing that some people should be earning even less.  I can’t see how this would be better for them.  I think your point is far too simplistic.  Yes, there must be a level at which the minimum wage would indeed be damaging.  That doesn’t, however, suggest that a minimum wage is itself a problem.

    • Rob Dies

      Minimum wage workers already are living in poverty. In the US, you don’t get out of poverty until you’re making $15/hr full time, and we don’t have all those demands from society (yet).

      It can be argued that your (UK) government intrudes waaaayyyyy too much and regulates too much and if they would butt out you could afford to do less. In fact, with all the affluent people that live there, they could make up the difference easily if the poorest weren’t taxed at all.

  • Neil Harding

    Ok, 1st thing to state is that there is some truth to your logic but that this doesn’t mean a min wage is not useful in some circumstances. A min wage is not the best way to redistribute wealth or alleviate poverty, we need a land value tax & citizen’s basic income to do that. It is true that increasing cost of labour should decrease demand for labour but we need to remember that high wage economies have already lost low wage jobs that can be relocated to liw wage countries.

  • Neil Harding

    What’s left is generally retail, state, carer jobs etc. Wages so low they are not livable cause all sorts of extra costs for society. So it might be better to pass these costs on to consumers, taxpayers etc. Mechanising jobs is a good thing if it replaces these poverty pay jobs. Extra wealth generated can be used to create better paid jobs. Redistribution is the key. Not economically efficient to pay very low wages.

    • Rob Dies

      Redistribution penalizes the successful. Why work your tail off if you can sit back and let someone else pay your bills? That’s not fair to the productive members, and its not fair to the people getting paid to do nothing because they’re effectively being told by the state that they’re useless.

  • Neil Harding

    Yor example of £100 an hour min wage would obviously fail because it is set above the mean wage but if you set it just below median wage of £12 an hour. It should help redistribute. Your whole logic is based on an assumption that a person is a fixed unit of labour. But the same person can produce more just by simply being paid more – more motivated, less likely to move jobs. etc. Labour is a strange phenomenon.

  • Rob Dies

    One purpose of the minimum wage is to force employers to pay their employees. Companies like McDonald’s and WalMart would gladly pay in store credit if they could get away with it. The law says they have to pay in dollars and a specific quantity or else face fines and criminal charges. It stems from the US’s history of slavery. There *are* employers that would rather own slaves than pay employees and the law is there to protect those employees.

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