Minium wage to be increased to €9.15 from €8.65

[Purple]

Doesn't this rather strengthen Newtothis' point in that we cant live in the past.

Getting hung up on the minimum wage sounds a bit Downton Abbey.

No offense but that sounds very middle class.
The minimum wage is the point at which the wage graph starts. It doesn’t flatten it out, rather it increases all wages proportionately over time.

No employer will pay someone more than their labour value to the business; if an unskilled person can only generate X for a business then they will not be paid more than X.

At the moment that means that some unskilled people are unemployable. This increase means that that number of people has increased. If we want people to get paid more then we need to make sure they can earn more. That can only be done through education and training.

 

[T McGibney]

Doesn't this rather strengthen Newtothis' point in that we cant live in the past.

Getting hung up on the minimum wage sounds a bit Downton Abbey.

Only Downton Abbey as your selective quote omitted my key point:

The inescapable fact is that higher labour costs for entry-level work positions are making those positions redundant and businesses are automating their systems and processes to eliminate those positions.

In other words, as labour costs rise, there is less demand for labour. Ergo, more unemployment. Sad but true.

 

[Purple]

In other words, as labour costs rise, there is less demand for labour. Ergo, more unemployment. Sad but true.

I’d say it’s more the case that the demand for unskilled labour decreases and, more crucially, the value of unskilled labour decreases in relative terms.

For example; 100 years ago men dug trenches on building sites by hand. Now they are done for the most part using machines. If a machine is 20 times faster than a man then the total cost of employing that unskilled man (wages, taxes, facilities, insurance, etc) must be 1/20th of the cost of employing one skilled man who can drive the machine plus the cost of the machine.

 

[T McGibney]

I’d say it’s more the case that the demand for unskilled labour decreases and, more crucially, the value of unskilled labour decreases in relative terms.

Note that this applies to skilled labour too. Essentially any labour function that can be satisfactorily automated.

 

[Purple]

Note that this applies to skilled labour too. Essentially any labour function that can be satisfactorily automated.

Agreed but most skills can be applied in different areas.

 

[newtothis]

No employer will pay someone more than their labour value to the business; if an unskilled person can only generate X for a business then they will not be paid more than X.

You said: “People should be paid what they are worth”

I pointed out that: “No, the employer pays what they need to pay in order to hire and keep the right people” and “The reality is that staff have to be paid somewhere close to the going rate for the job (which has nothing to do with what the person is "worth" by the way).”

To which you seemed to agree, saying “Wage rates are set by market value in the real economy”

Now, you are back to “if an unskilled person can only generate X for a business then they will not be paid more than X”, which sounds suspiciously like your first position (i.e. they are paid what they are “worth”).

So, which is it?

It’s an important point: if wages are effectively set by the market rate, there is limited scope for anyone to achieve competitive advantage by adjusting wage rates, as they are determined by external factors which are the same for everyone. Having a minimum wage is just another influencer on those rates, by setting a floor potentially above where it might otherwise be. There are plenty of other external factors that influence pay rates to. The point is they are external, and well beyond the control of most companies, especially smaller ones.

For export markets, the argument against a minimum wage would have some merit if exporters depended on staff on minimum wage, but I suspect there are very few of those left. Exporters dependent on low-skilled manufacturing have long since departed these shores. Today's exporters have their wage rates influenced much more by those in Silicon Valley rather than the minimum wage locally.

 

[Purple]

You said: “People should be paid what they are worth”


I pointed out that: “No, the employer pays what they need to pay in order to hire and keep the right people” and “The reality is that staff have to be paid somewhere close to the going rate for the job (which has nothing to do with what the person is "worth" by the way).”


To which you seemed to agree, saying “Wage rates are set by market value in the real economy”


Now, you are back to “if an unskilled person can only generate X for a business then they will not be paid more than X”, which sounds suspiciously like your first position (i.e. they are paid what they are “worth”).


So, which is it?

I don’t understand what you are saying.

People are paid what they are worth. That “worth” is determined by the market price for their labour. Labour is a saleable commodity. The price of a house or a bicycle or a bag of apples is determined the same way; they are all worth what people are willing to pay for them. When demand outstrips supply prices go up, think bricklayers during the boom. When supply outstrips demand prices go down, think bricklayers after the boom. If labour prices render the labour activity uncompetitive or make an alternative more economical then the market will change, think about how buildings were designed differently in order to minimise the need for expensive bricklayers during the boom. I don’t get how you are not getting this.

It’s an important point: if wages are effectively set by the market rate, there is limited scope for anyone to achieve competitive advantage by adjusting wage rates, as they are determined by external factors which are the same for everyone. Having a minimum wage is just another influencer on those rates, by setting a floor potentially above where it might otherwise be. There are plenty of other external factors that influence pay rates to. The point is they are external, and well beyond the control of most companies, especially smaller ones.

The problem with everyone getting a pay increase is that nobody is better off. All is does is increase costs in line with wages. It’s like everyone on the terrace at a football match taking a step backwards; everyone is higher up but nobody has a better view.

For export markets, the argument against a minimum wage would have some merit if exporters depended on staff on minimum wage, but I suspect there are very few of those left. Exporters dependent on low-skilled manufacturing have long since departed these shores. Today's exporters have their wage rates influenced much more by those in Silicon Valley rather than the minimum wage locally.

High wages throughout the economy make us uncompetitive. Increases in the minimum wage have a knock-on effect on wage costs generally ergo increases in the minimum wage effect exports. By the way, where I work unskilled people start at the minimum wage. The business is almost all export focused.

 

[newtothis]

People are paid what they are worth. That “worth” is determined by the market price for their labour. Labour is a saleable commodity. The price of a house or a bicycle or a bag of apples is determined the same way; they are all worth what people are willing to pay for them. When demand outstrips supply prices go up, think bricklayers during the boom. When supply outstrips demand prices go down, think bricklayers after the boom.

But that's exactly what I am saying! Wages are determined by the market. What I don't understand is you saying "if an unskilled person can only generate X for a business then they will not be paid more than X". This is simply not the case: what they are paid had very little or nothing to do with X, what they can do for an individual company; rather, it is largely determined by what they would be paid by the rest of the market.

 

[Purple]

But that's exactly what I am saying! Wages are determined by the market. What I don't understand is you saying "if an unskilled person can only generate X for a business then they will not be paid more than X". This is simply not the case: what they are paid had very little or nothing to do with X, what they can do for an individual company; rather, it is largely determined by what they would be paid by the rest of the market.

You are not getting it; if an unskilled person isn't worth €9.15 then they are unemployable. They are trapped in unemployment and are part of the dependency class. Increasing the minimum wage won't mean they get paid more, it means they are even less likely to ever get a job. The gap between the worth of their labour on the open market and what the law says they must be paid means that they cannot get a job. That's what the middle class urbanite socialists in the Labour Party don't get.

 

[Gerry Canning]

I don't really get this? By that logic, economies (or localities) without highly profitable businesses should be better off than those with them? I don't accept that for a second.

Obviously were societies have more wealth from business they are financially better off.
But,
From what I have read on studies of societies,it is accepted that were the wealth is spread more widely/ fairly that these societies are more cohesive/happier.
Too much income disparity would seem to me to create a disaffected underclass.
Too little income for the hard -workers creates dis incentives for workers.

I think the only people who have the levers to control that balance is Government.

 

[newtothis]

You are not getting it; if an unskilled person isn't worth €9.15 then they are unemployable. .

I get that OK, but it's not what you said. The decision to employ someone is determined by whether the person is needed, and by whether the company can afford them or not. Whether they can afford it or not depends on the cost, an externally determined factor. The cost has nothing to do with the value they bring, which is what you said.

Your analogy of the football terrace is actually a good one: the objective of the minimum wage is to bring everyone up to a level where nobody is destitute; as you point out their position on the terrace doesn't change relative to the rest of the people on the terrace. That is, it doesn't affect the competitive position of anyone in the market.

Competition in exports is different, but in common with the rest of Europe, we're not competitive at low-cost, low-value industries in any case: the people competing for exports are all much further up the terrace, and outside the influence of the minimum wage.

 

[Purple]

I get that OK, but it's not what you said.

No, that is what I said. If you "get that" then you wouldn't have posted the rest of what you said.

The decision to employ someone is determined by whether the person is needed, and by whether the company can afford them or not. Whether they can afford it or not depends on the cost, an externally determined factor. The cost has nothing to do with the value they bring, which is what you said.

The decision to hire a particular person is determined by whether that person can bring a value to the business which is greater than their cost to the business.

Your analogy of the football terrace is actually a good one: the objective of the minimum wage is to bring everyone up to a level where nobody is destitute; as you point out their position on the terrace doesn't change relative to the rest of the people on the terrace. That is, it doesn't affect the competitive position of anyone in the market.

That shows a fundamental lack of understanding of what drives cost in an economy. If everyone gets a pay increase of X them costs will go up by a corresponding amount, i.e. the value of the pay increase will be cancelled out by the corresponding increase in the price of goods and services. The only way your theory works is if there is no knock-on wage increases further up the pay graph in the economy as a whole. That of course is not the case.

In short the cost of living is a reflection of wages, not the other way around.

Competition in exports is different, but in common with the rest of Europe, we're not competitive at low-cost, low-value industries in any case: the people competing for exports are all much further up the terrace, and outside the influence of the minimum wage.

We have to compete within Europe and the rest of the developed world. We have very high wage costs relative to our competitors. That, along with very high income tax rates on relatively high earners is very damaging to the export economy. This is especially the case for Irish owned export businesses who do not avail of our questionable tax system for multinationals.

 

[Protocol]

We have very high wage costs relative to our competitors.

They are high, but not very high. See here:

http://ec.europa.eu/eurostat/web/products-datasets/-/tps00173

[broken link removed]

 

[Protocol]

http://ec.europa.eu/eurostat/statistics-explained/index.php/Hourly_labour_costs

Hourly labour costs, average for the whole economy, enterprises with 10+ employees

Irl is under 30 euro, with low er PRSI.

Nine countries have higher labour costs.

 

[Protocol]

Plus labour costs have not been rising in Ireland, 2013-14 change:

 

[Protocol]

Here are hourly lab costs, excl agri and public admin:

 

[Purple]

That's all well and good Protocol but we are on a little island, off the coast of another little island, off the coast of Europe. Our geographic disadvantage is massive when it comes to transport costs and, crucially, subcontracting low value add processes to cheaper locations. In short the Germans can get stuff made in Eastern Europe much easier that we can.
We should be cheaper than the UK at the very least.

 

[newtothis]

We have very high wage costs relative to our competitors.

They are high, but not very high. See here:

http://ec.europa.eu/eurostat/web/products-datasets/-/tps00173

[broken link removed]

At last: someone with evidence to back their claims!

 

[newtothis]

In short the Germans can get stuff made in Eastern Europe much easier that we can.

What a bizarre statement! You're saying that Germany is more competitive than Ireland because they can contract out to other countries at a cheaper rate?

 

[Purple]

At last: someone with evidence to back their claims!

Yes, good to see for once.

What a bizarre statement! You're saying that Germany is more competitive than Ireland because they can contract out to other countries at a cheaper rate?

No, I'm saying that's part of the reason, particularly in the manufacturing sector. Rich natural resources, first mover advantage in industrialisation, better education, a better culture of quality, a massive domestic market and easy access to an even bigger "local" international market are some other reasons. They all mean that we have to have lower wages just to compete. German companies have plants all over the world but their Mittelstand companies, the backbone of their economy, make all sorts of products in Germany. Do you seriously think a medical equipment manufacturer in Germany is making all of the component parts locally? 50% of Czech Republic's exports to Germany are of this nature.