Monday, February 16, 2009

Guardian Economics

Now I would never be so impolite as to accuse the Guardian of economic retardation, but for this there is no excuse...

The claim that protection for workers in jobs can come at the expense of workers with no job at all is not always wrong, but it emphatically is so in connection with the minimum wage in 2009. The rate of £5.73 for an hour's work is extremely modest, so modest that all the studies show it has had no employment effect. All respectable employers are more than happy to pay it. Besides, job losses today are not a product of wages - which are rising at a snailish 3% - but instead a collapse in demand

I'm sorry, what?

(1) How exactly can studies tell if the minimum wage has had an effect? Presumably only by the presence of job losses, since trying to measure the numbers of jobs not created due to the minimum wage is impossible?

(2) Job losses are not a product of wages, but rather demand? Er,...wages are a product of demand, sweety. It's all inter-related. But when wages are sticky, and the employer cannot negotiate pay downwards to respond to a fall in demand, then job losses will occur.

(3) Is it ok for the hundreds of workers who have taken a voluntary pay cut of up to 10% to do so because they earn higher wages, but it is not ok for a low paid worker to do the same to safeguard their job?

An employer cannot pay below the market rate - true value - of a job in the absence of a minimum wage. It is impossible, by definition. But a minimum wage raises the pay floor and therefore impacts on both labour demand and supply, again by definition since there is no point to having a minimum wage that has no effect.

So which is it? Either minimum wages have no effect and therefore are useless and should be scrapped, or they do have an effect and thus impose a cost on business. Which? You cannot have it both ways.


  © Blogger template 'Isolation' by 2008

Back to TOP