Truly cretinous

Ed Miliband steps up his bid for the Labour leadership today by promising substantial tax cuts for any company prepared to guarantee a \”living wage\” of at least £7.60 an hour. The commitment is designed to appeal to the party\’s core supporters who believe New Labour took insufficient measures to combat low pay, despite having introduced a legally binding minimum wage that now stands at £5.83 an hour.

A company that agreed to set the \”living wage\” as its minimum rate – as opposed to the legal minimum – would pay lower rates of corporation tax.

Sigh.

The difference in take home pay between the minimum wage and the living wage is entirely the amount of income tax and national insurance charged on the wages of the low paid.

If you actually wanted to provide a living wage to everyone working then what you would do is make the income tax personal allowance and the national insurance threshold the same as the full time full year minimum wage.

There, all done, all sorted.

But of course these crazed lunatics campaigning for the living wage can\’t see this: perhaps they just can\’t manage the sums. Therefore we get the ideas like the imposition of a different corporation tax rate dependent upon wage rates.

Can we shoot them all, please?

15 thoughts on “Truly cretinous”

  1. Hahahahaha! Of course the companies to be penalised by this would be the likes of the supermarkets, and casual labourer-employers. Companies which employ the poor, in other words. They would be tempted to lay off many of their lowest-paid staff if they wanted to meet this. Meanwhile the big city investment banks, etc, would be rubbing their hands with glee.

    Are both brothers this moronic?

  2. Brian, follower of Deornoth

    There was I, planning to raise the wages of my employees. But now I can’t, because that would be ‘tax avoidance’.

  3. So, my last employer, who had mainly highly qualified and experienced techy people on wages well above the national average, would qualify immediately. And as Brian points out, no doubt be castigated by some as avoiding tax.

    Unless we had hundreds of bureaucrat to manage the system and ensure that it only applied to deserving employers aka Labour Party donors.

  4. I heard a good description of politicans years ago: “As the election date approaches, politicians’ discount rates approach infinity”.

  5. In the present situation, in which real wages in the UK and U.S have been declinng for a generation,with ordinary people over-borrowing and investing in property to get money, I would welcome any move to re-focus the debate on wages and not unearned income from house price inflation (once taxed under Schedule A).

    Tim adds: Real wages have not been declining for a generation in either the US or UK. Statistics fail I’m afraid, simply not true.

  6. Change the banding and then everyone gets it by right, and the act of the State handing over its bounty is no longer possible.

    Doing it the Labour way means the company knows who is “the boss”.

  7. @Tim
    If my contention about real wages is wrong,prove it. I have no particular attachment to the idea since I derived it from Stewart Lansley’s “Unfair to Middling” and Prof R Wolff’s “Capitalism hits the fan”,both accessible via Google.I was impressed that they both seemed to be saying the same-ish thing.
    Of course, whatever the real wage level is, disposable income will for young working households be reduced by extortionate rents and mortgages; Georgist argument.

    Tim adds: Umm, no. Your contention is the extraordinary one. You prove it.

  8. @Tim
    Its not my contention: it is derived from the works I quote.(I thought I made that plain).
    If you cannot be bothered to read the Lansley,which is a pamphlet,or take in Wolff who goes in for video lectures,then the conclusion is pretty inescapable.

    Tim adds: As we’ve all got access to the relevant statistics on these intertubes here quoting two people I’ve not heard of at me isn’t all that convincing. S9, I repeat, real incomes have not been falling in recent decades.

  9. from http://www.statistics.gov.uk/StatBase/Product.asp?vlnk=15236

    For full time workers:
    Median average pay in the UK in 1997: £268.90
    Median average pay in the UK in 2009: £397.30
    Annual average RPI in 1997: 157.5
    Annual average RPI in 2009: 213.7

    so in 1997 terms, the 2009 median full time pay is £292.82
    Thus pay in the UK has risen on average at 0.74% above inflation since 1997.

    These statistics only go back to 1997, but there is another set at http://www.statistics.gov.uk/StatBase/tsdataset.asp?vlnk=392&More=Y which go back to 1990, and include part time workers. This is an index, with 2000 taken as 100, so it only shows relative changes:

    1990: Earnings: 64.1 RPI 126.1
    2009: Earnings 137.5 RPI 213.7

    Equivalent 2009 earnings adjusted for inflation to 1990: 81.1

    This represents an increase of 1.4% per year over inflation.

    Ok, that’s only over 19 years, which may or may not count as a generation, but it’s not too far off, at least. And there’s no sign of any decrease.

  10. @RA
    Dashed unsporting of you to intervene on TW’s
    part like that.He is surely able to take care of himself.
    As far as I can see these figures, unlike say Stewart Lansley’s, don’t account for increased productivity.So the increased wages can’t buy all the the extra stuff produced.(And what princely sums are involved : a 24 quid increase in wages between 1997 and now-ish!The wonders of market force capitalism .)
    It is no use quoting price indices like the RPI which don’t fully express the full effects of house price inflation.
    Is it too much to expect people to read Lansley’s pamphlet ,which he prepared for the TUC? Of course I know in Worstall World people spend a lot of time in neighbourhood meetings debating what to do with the flooded unadopted roads outside their houses.May I suggest another quaint notion: privatised competitive bin collections?That way all the people who don’t sign up can fill the holes in the road with their rubbish .

    Tim adds: Provide a link to the pamphlet and I’ll read it.

  11. Apologies for the intervention. I just don’t like it when people are talking about something I find interesting, but neither seems to be willing to go get any data to back it up (and I can see both of your points, but wanted to move the discussion on – hence providing some data).

    I’m at work, so I can’t really check the figures from Lansley atm, but the RPI figures above do include the effect of housing. Perhaps not “fully” as you say above, but in that case could you cite a measure that does? Then at least we can argue with figures…

    I’m not sure how you’d want to take account of increased productivity. Are we to take productivity in each sector and calculate the wages in relation to it (in which case those in the public sector would likely be vastly overpaid)? Or do we take increases in productivity as a whole, and assume that all workers should benefit equally (which seems a little unfair)?

    I’ve looked for Productivity data, and it seems hard to get before about 2006. http://www.statistics.gov.uk/pdfdir/icp0210.pdf provides some information, but it’s of the form GDP per hour worked, rather than productivity. Still, it should be a reasonable proxy. That shows an increase in relative terms from 98 in 1990 to 139 in 2008. An increase of 42%. This corresponds with the RPI increase over the period 1990 to 2008 of 70%.

    I’m really not sure how it all goes together though. I enjoy reading about economics but I’m no economist. Considering an example – suppose a bread making company develops a way to get more productivity from their workers. This means they can make more bread for the same amount of effort. Thus, they could reduce their prices, or they could increase profits or wages, or they could do some combination of all three. The thing is, the increase in productivity is not directly proportional to the savings available.

    Suppose a loaf costs £1. 30p of that is raw ingredients, 20p is labour cost, 20p is transport costs, 15p is retail profit and 15p is manufacturer profit (numbers completely made up). For simplicity’s sake, we’ll also suppose that it takes two minutes work for a member of staff per loaf, so that member of staff is paid £6 per hour (20p x 30 loaves per hour).

    If labour productivity doubles, then it will take only one minute to make the loaf. This means that the labour cost is only 10p (assuming wages don’t change). This could be used to reduce the price of the loaf by 10%, to make increased profits for the company (an increase of 40%, from 15p to 25p) or to increase the staff wage (potentially as much as doubling it from 10p per minute to 20p per minute).

    But what has not been considered is the why. Why has the productivity doubled? Likely because the company invested in better tools to let the workers do their jobs. Why should the workers be the sole beneficiaries of this? Taking productivity increases and saying that wages should have risen at the same rate seems rather naive when you fail to account for why the productivity has been increased.

  12. @RA many thanks for the interesting argument which will take some time to ponder.First impression: who should get the benefits of increased productivity?Answer: as many people as possible to keep up purchasing power, otherwise the extra stuff ca n’t be sold.There is a lot to the old Major Douglas idea that where you get automated or even robotic production,you should distribute the necessary purchasing-power as an unearned income for all or National Dividend as he called it.
    @Tim
    Nothing fancy: I find that tapping in Stewart Lansley Unfair to middling into Google does the trick.The sub title is How Middle Income Britain’s shrinking wages fuelled the crash and threaten recovery.

    Tim adds: Well, on page 7, he’s got a chart showing how real wages have risen in the past 3 decades. So I’ll take that, your source remember, as proof that real wages have not declined in recent decades then shall I?

  13. @Tim
    Like the RA you have not taken rising productivity into account. Real wages have declined in respect of productivity in a ” sustained wage squeeze in which average earnings have been rising more slowly than productivity” Lansley .
    Since Lansley’s account assiduously plots wage levels against
    increased production,I wonder you failed to notice.Remember this argument broke out because I dared to suggest wages were too low in this country.Almost as taboo as suggesting house prices are too high.We need a high wage /low property price economy.Market forces have given us the opposite.

    Tim adds: That isn’t the same as a decline in real wages. Which was what I was arguing about. I know very well that wages haven’t tracked productivity increases….for the profit share of the economy has been rising. But that wages haven’t tracked productivity is not the same as saying that real wages have declined. It simply ain’t.

  14. @Tim
    Since you now agree that real wages have declined in respect of increased productivity, you are in agreement with Lansley whose basic point this is. May I tactfully point out that this agreement might have been reached earlier had you read Lansley’s pamphlet more promptly instead of protesting you’d never heard of him?
    The question is ,of course, given agreement about the weakness of average wage levels, what are the markets going to do to spontaneously generate more dispersed spending power?Also why are you calling people cretinous for recognising there is a problem with wage levels?

    Tim adds: Because that’s not what you said. You said “real wages have fallen”. They haven’t.

    And given the reason that wages and productivity aren’t directly linked (that the profit share has grown) this isn’t a problem either.

  15. I’m having trouble following DBC Reed’s argument that productivity gains without wage gains makes people poorer.

    Using Rational Anarchist’s example, the 10 pence saved could be split by adding 5 pence to the profit and deducting 5 pence from the price. (Note, his figures show that this hasn’t happened, some has gone on increased wages.) This leaves the worker with no more money, but he now can buy bread for 5% less than before, as can every other person in the country. Similar strategies in other companies make everything else cheaper as well.

    DBC Reed, are you saying that increased productivity leads to a desire to buy more things?

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