Cutting the minimum wage to get competitive

P. Breathnach

Sleazus wrote: »

Which helps your local store and the old lady who runs it (along with maybe three or four part-timers). The factory up the road employs a few hundred workers, but can't get local granny to stock their product because the can't reduce the price low enough to sell it. That's a few more on the live register.

Funny: my local economy is not principally comprised of grannies and part-timers. As a matter of interest, I have been out this morning supporting the local economy, and the only granny I encountered was a part-time helper in her son's shop. It's not fair to caricature local enterprise; we are discussing real people with real needs.

I didn't disagree that higher wages might help the local shop - though I'd argue if the granny paid her staff less, she could cut prices and thus those with reduced incomes could continue to buy from her - but I did argue that local means more than the corner shop, and the benefits of the proposal extend far beyond that.

If you cut people's incomes by, say, 10% then prices might fall by 1-2%.

So, higher minimum wage and granny profits, hundreds suffer. Lower minimum wage, granny profits, hundreds suffer less. That's the economy at the moment. We can't make things magically better for everyone, but we can limit the extent of the suffering felt by all.

Of course there is a balancing act to perform. But it doesn't help people strike a good balance if we express disrespect for any category of participant in the economy.

I don't think that seeking that people work for less than €300 per week would contribute greatly to our economic recovery, and I suspect that the social cost of whatever small contribution it makes would be higher than I would like. It's the relatively large numbers pulling in €1000+ per week that are the real wage-cost challenge.

techdiver

P. Breathnach wrote: »

It's the relatively large numbers pulling in €1000+ per week that are the real wage-cost challenge.

There are not that many people making that money and those who are arew working in highly skilled areas and deserve it based on their skill levels.

Like it or not highly qualified people deserve to be paid for the job they do. That's the way the world works whether you like it or not.

Ass

All minimum wage sectors should be equalised. Minimum wage in retail is only €7.40 or something like that. I don't know how anyone can live on that.

wrightao

greendom wrote: »

If an entrepreneur can't afford to pay someone €8.65 an hour (pretty paltry wage, let's be honest) then his/her business idea isn't good enough. Try harder

Its unfortunate that you frame the problem in those glib terms. It is apparent that you are not in business in the small or medium enterprise sector. Employers are not pinatas, and in any event, they are not engaged in enterprises solely to hire others. If you knew the realities of running a business on a day to day basis, I imagine you would think differently. Say for a minute, we do look at it in your view, if employers don't have a good enough idea, why would people bother to work with them? Maybe the potential employees have a better idea to put in place that will allow them hire others on the minimum wage. People are making sacrifices, the tired platitudes of "they made it in the boom" is simply a heads you win, tails I lose argument and not relevant anymore. If employers cant cut their costs and save jobs, well more jobs will be lost. Ever defeating cycle.

P. Breathnach

techdiver wrote: »

There are not that many people making that money and those who are arew working in highly skilled areas and deserve it based on their skill levels.

Like it or not highly qualified people deserve to be paid for the job they do. That's the way the world works whether you like it or not.

I don't know how much the highly skilled aircraft technicians in SR Technics were being paid, but I suppose it was in the €1000 pw ballpark. Would reducing the minimum wage have saved their jobs?

Overall, reducing the minimum wage would not have a huge impact on our competitiveness (I accept that it would have a small one); reducing pay levels across the board would make a more significant one.

P. Breathnach

Ass wrote: »

All minimum wage sectors should be equalised. Minimum wage in retail is only €7.40 or something like that. I don't know how anyone can live on that.

I think you are mistaken.

Sleazus

P. Breathnach wrote: »

It's the relatively large numbers pulling in €1000+ per week that are the real wage-cost challenge.

Yes, I'd cut their wages too. Everybody should shoulder the hurt. And I'm not sure about "relatively large numbers" though I couldn't find any up-to-date statistics.

I think it's a false perception that those on higher incomes "don't feel the pain". They also have mortgages and debt. They have families to feed. And if they get a few bob more because their job requires a specialist skill set, is that not reasonable?

Ass

P. Breathnach wrote: »

I think you are mistaken.

Nope. I'm not mistaken.

thebman

I think some people here are mistaken our high minimum wage as a good thing that helps to redistribute wealth.

It does not.

Despite having one of the highest industrial wages, we remain one of the most unfair societies when it comes to redistribution of this wealth. It is all focused at the top on a minority. Lowering the minimum wage won't effect this as the cost of goods should fall with it so people should be no worse off. You need to reduce dole at the same time though.

kevteljeur

P. Breathnach wrote: »

The Swedes seem to be considerably less tax-resistant than we are.

Although it's entirely subjective, I think we've taken the tax breaks we've been offered year in, year out; we've had a monthly Lotto-winner tax culture which in the short-term makes everyone happy but in the long run weakens the state. Expensive cars on bad roads, I call it. But now we're used to paying very low tax and spending everything we get, a lot of it committed to debt repayment. That's very hard to get out of as a mindset since as a population we're now used to instant, low-cost gratification.

In the years to come, we'll hopefully get closer to a higher tax regime (especially on corporate tax) and a more stable state finance system, with heavier regulation. That will bring better state services (we can only hope). Maybe in 2-3 years we'll get past the outrage of the state actually taking our money and keeping it (like everyone else, such as Sweden) and see it as part of a healthy, strong government system.


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P. Breathnach

Ass wrote: »

Nope. I'm not mistaken.

http://www.citizensinformation.ie/categories/employment/employment-rights-and-conditions/pay-and-employment/pay_inc_min_wage

Ass

P. Breathnach wrote: »

http://www.citizensinformation.ie/categories/employment/employment-rights-and-conditions/pay-and-employment/pay_inc_min_wage

http://www.labourcourt.ie/Labour/Information.nsf/447a09a9deaa452280256a1b0052dc2e/42dace709bf1ef47802569e0004017ab?OpenDocument

congrats on not reading ur own link, i guess

P. Breathnach

Sleazus wrote: »

Yes, I'd cut their wages too. Everybody should shoulder the hurt. And I'm not sure about "relatively large numbers" though I couldn't find any up-to-date statistics.

I think it's a false perception that those on higher incomes "don't feel the pain". They also have mortgages and debt. They have families to feed. And if they get a few bob more because their job requires a specialist skill set, is that not reasonable?

A few bob more seems very reasonable to me, even a good few bob.

It's not easy to find data on pay distribution, and my €1000 pw is not a carefully-measured point, rather a rough indicator. But I do know quite a few people who are paid that sort of money (and more). In general, they are highly qualified, highly skilled, and work hard.

If we take it that social welfare rates are the baseline -- how much one needs as a minimum to get by -- then there is room to argue that people don't actually need five times that much. If we take minimum wage as the baseline, then €1000 pw is about three times as much. I think the differentials are a bit too big.

P. Breathnach

Ass wrote: »

http://www.labourcourt.ie/Labour/Information.nsf/447a09a9deaa452280256a1b0052dc2e/42dace709bf1ef47802569e0004017ab?OpenDocument

congrats on not reading ur own link, i guess

I didn't look at that particular page, but minimum pay law does allow for training rates in just about all areas. The rate for an adult retail worker after the first year is €8.64. I don't see the €7.40 rate.

Ass

That's as of October 2009. Currently it's €8.43 after your first year.

thebman

I think the reality we have to wake up to is the government (Fianna Fail) have been running us on similar policies to the United States when we have been asking to be run on similar policies to the rest of Europe in particular Sweden as least from listening to people here and elsewhere.

Stable, long term growth should be our target and not continue the boom/bust cycle that leads to massive finance problems for so many.

InFront

greendom wrote: »

We really shouldn't go down the road of chasing the lowest common denominator. We'll never come close making the min wage low enough to compete with eastern europe anyway, let alone the far east or 3rd World

We're not trying to compete with the third world. We're trying to compete with fellow EU states, the US and Canada for a mixture of highly and medium skilled jobs in particular. such as in research and development. Currently our wages are out of sync with the rest of Europe who also have skilled workers but lower wages.

So it's the 2nd highest in Europe. Something for Ireland to be proud of for once.

If I were a company looking to invest in Europe I would take one look at Ireland and see wages that are higher than almost everywhere else and wonder why are Irish people more worthy to employ than the Germans or the Swedish workers?
In a small, open economy like Ireland's where international competitiveness is most significant, the adverse effects of minimum wage are most emphasised. The minimum wage as we have it should never have grown to the magnitude that it did. That is textbook economics - we a re a small market that is deeply dependent on foreign investment and we have too many competitors to be "proud" of our high wages when there's nobody actually willing to come and pay it.

Let's not go for this knee jerk, short term, ill-thought out and pointless idea

Knee-jerk is what I would call an emptily populist idea that's easy to spin like "cutting minimum wage is an attack on the poor". No, it isn't. The minimum wage isn't necessary to protect the low paid from exploitation, there are other methods. One that I am particularly in favour of is this:

• Instead of taxing those on min. wage, take them out of the tax net and cut the minimum wage by 3% in the first year
• Freeze employers' PRSI contributions
• In certain key industries and in certain key Irish regions cut the minimum wage burden on employers dramatically
• Introduce an employment subsidy for these lower than minimum wage earners. This would be funded by the exchequer and brought about by a reduction in social welfare/ dole costs and a slight increase on tax at the upper levels of earnings

All minimum wage sectors should be equalised.

No they shouldn't. A one-for-all minimum wage is an extremely blunt way of doing things that fails to take any heed of regional differentials or market trends across vocations. Most progressive countried like Sweden, Germany, Denmark and Belgium recognise this.

On a side note it should be pointed out that while everyone is talking about Sweden as always being a great source of inspiration economically (with some good reason) this was not always the case. In the early 1990s Sweden was going through a financial crisis like we are now, it was their single biggest crisis since the great depression. Their biggest mistake at that time was doing nothing about their high wage labour force at a time when labour demand was most elastic. They did nothing about it until the late nineties and it was to their detriment until a change in minimum wage policy came about (among other things).
Currently in Sweden, many employers who are non signatories to collective wage agreements do not have any limits placed on them regarding minimum wage. Government does not set minimum wage for the people in Sweden at all.

jimmmy

P. Breathnach wrote: »

I don't know how much the highly skilled aircraft technicians in SR Technics were being paid, but I suppose it was in the €1000 pw ballpark. Would reducing the minimum wage have saved their jobs?

Possibly not, but if they reduced their wages about 20% they would have been better able to compete with other highly skilled aircraft technicians internationally.

Many people on the minimum wage are struggling to get by, especially people with kids / mortgages. Its a scandal that there are so many people who they support ( by paying whatever taxes they do pay eg vat ) who are getting far far bigger pensions from the government than the minimum wage is.

P. Breathnach

jimmmy wrote: »

... Its a scandal that there are so many people who they support ( by paying whatever taxes they do pay eg vat ) who are getting far far bigger pensions from the government than the minimum wage is.

This is not the public service pensions thread.

InFront

We could introduce a new public pensions levy to subsidise a minimum wage burden relaxation on employers for, say a five year period. This could be a fair way of asking public service workers to invest in private enterprise and the future of the economy from which they draw their income.

Hasschu

There is something not quite right with sticking it to the poor. The minimum wage should be frozen at its present rate until the average EU minimum wage catches up. There is nothing magical about Ireland or Irish workers that defies the iron laws of economics. Low corporate tax rates promote prosperity but they are not a magic carpet that will carry all 4 million of us to the promised land of milk and honey where wine flows out of underground wine aquifers.

InFront

So what are you proposing, sit wait and see what happens? What makes you think wages in Europe are rising or will rise to our level?

kevteljeur

Hasschu wrote: »

There is something not quite right with sticking it to the poor. The minimum wage should be frozen at its present rate until the average EU minimum wage catches up. There is nothing magical about Ireland or Irish workers that defies the iron laws of economics. Low corporate tax rates promote prosperity but they are not a magic carpet that will carry all 4 million of us to the promised land of milk and honey where wine flows out of underground wine aquifers.

The problem with low corporate tax rates is that it's a cheap and easy trick that any state can replicate. Now they have done that, Multinationals are upping and moving their business to those states, which also have the added benefit of much lower wages.

The flip side is that those countries have a much lower cost of living and services, and the workforce isn't necessarily as motivated to do a good job. But they do it well enough to be attractive to the 'bean counters', and the end product remains the same, possibly cheaper to sell.

The focus in Ireland, in my opinion, should be on native industry and to be competitive that native industry needs a competitively-priced environment. That means services and workforce, the whole lot. If the business is doing well in that environment, then high corporate tax wouldn't be an issue because it would balance out. So a lower minimum wage would be part of that because the higher corporate tax would come back to those workers as better state support and a lower cost environment for them to live in...


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Hasschu

What will happen is Ireland will be suffering deflation well into 2010. Wages will at best not increase and at worst decline at a rate greater than deflation. Deflation destroys demand as everyone sits back waiting for prices to decrease further. As demand declines unemployment rises, leading to further declines in government revenues. This is the point where either the ECB or IMF will impose conditions on the Irish gov't in return for loans. I have it on good authority that in Kerry and Cork counties skilled labour has been working for less than half what they were getting 2 years ago. I didn't go so far as to probe whether this was above the table, under the table or to the side of the table. The fact is that wages are dropping and have been for over a year. Dole payments are spent less than 5 km from home and 100% gets spent. Whether its going in the pub the church the grocery store or the bookie shop does not really matter what matters is it is being spent. Unemployment is likely to continue to be the biggest problem facing Irish workers and neither god nor man will be able to save the country if unemployment payments are cut.