This is a bit silly from the CBI

Companies benefiting from the economic recovery must pay their long-suffering workers more next year, the head of the CBI in an unprecedented attack on firms he accuses of keeping “far too many people stuck in minimum-wage jobs”.

John Cridland, director-general of the CBI, Britain’s biggest business lobby group, will criticise many of the 240,000 companies he is paid to represent for failing to pass on their new-found prosperity to employees. He will tell employers – who in the FTSE 100 are paid 136 times the national average – that they must ensure that all citizens benefit from the recovery.

In an unusually forthright new year message, Cridland says businessmen and women must do more to help those paid the least. “The recovery is taking root and business leaders have a spring in their step compared to this time last year, but this is no time to rest on our laurels,” he will say in his annual message to business leaders. “As the financial situation of many firms begins to turn a corner, one of the biggest challenges facing businesses is to deliver growth that will mean better pay and more opportunities for all their employees after a prolonged squeeze.”

Pay isn’t determined by how profitable a company is….if it were then when a company makes losses then all should get pay cuts, yes?

Rather, pay is determined by the alternative employment opportunities, and the wages there, that the workers have. Which, in a time of high unemployment ain’t much.

But as unemployment falls then those alternatives get better and pay rises will quite naturally start to rise above the inflation rate.

This is something that we can quite happily leave to the market unadorned.

It’s also worth noting that all economists agree that the recent falls in real wages are what has stopped the unemployment rate from exploding……which is an interesting point of agreement. For the flip side of that is that of course rising wages have unemployment effects.

So, next time you see someone saying that a rise in hte minimum wage will have no employment effect, try and find out their views on the above. If falling wages reduce unemployment then why won’t mandated higher ones cause it?

6 comments on “This is a bit silly from the CBI

  1. Not as silly as the idea that industry in aggregate should lower real wages continuously thereby lowering aggregate demand for its own products in a self-reinforcing downward spiral. Would have thought Henry Ford and the helpful Karl Marx had got this sorted years ago.The knack is to see that the increase in real wages is covered by increases in real productivity thus avoiding inflation. (All commonplace 1970’s observations but surely better than pre 1870s observations : before Joseph Chamberlain showed the hopeless impracticality of laissez faire now revived by impractical revivalists of Gothic Economics)

  2. The CBI?

    What with the Royal Society going down the toilet, where are our national safe havens for the sound of mind?

  3. John,

    The CBI has always been a petty-corporatist & protectionist parasite factory. It is just that, in the 1970s, they sounded like the voice of wisdom compared to what we were hearing from politicians and unions (to the extent that they were separable).

  4. There you go Tim, DBC Reed has offered you those ‘commonplace observations’ from the 1970s that Howard Reed, the TUC and of course the nation’s No 1 Economics Blogger himself have been offering. (Funny thing though, I always thought that commonplace 1970s observations involved IMF interventions, inflation, strikes and industrial decline).

    So, we force employers, large and small, to pay their employees more. They will be able to afford this because Britain will turn into a land of milk and honey overnight (no figures necessary; the assertion is proof enough). Those same employers will then find increased demand for their product or service (even if said product was entirely for export) that will more than compensate for the increase in their cost base.

    Of course ‘the knack’ is to ensure its all matched by an increase in productivity, so no inflation (aah, those commonplace 1970s observations). This productivity increase will happen by magic as well. So all sorted…if you’ve got the knack of course.

  5. So the Seventies ride again in a nice outburst of paranoia from the camply monickered Ironman.The employers are going to be forced to raise wage levels(see above)! Exactly how is the CBI, an independent business-serving organisation working on a voluntary basis going to force anybody do anything ? It was a suggestion merely ,meant probably to modify opinion and save the sorry Coalition which has subsidised the private sector employers as best it can with low interest rates, lashings of QE and other lending schemes, only for them to present a cost of living crisis on a plate to Ed Miliband. Lets not forget that Gordon Brown had to introduce the hardly generous Minimum Wage and then Family Credits years ago when the employers staunchly repudiated any notion that they were part of a national economic system working for the common good.
    The Iron lady solution to the problems of the Seventies was to smash the unions (might have been useful now in maintaining demand) and reward non working by encouraging homeownership through selling off council houses (might have helped job mobility now ,especially with computerisation) creating an economy where demand stimulus money is diverted straight off into successive property bubbles and ensuing collapses.
    (The present mess of widespread market failure is the long delayed fruition of Thatcherism . She insisted you can’t buck the market : its certainly bucked her good and proper.)

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