Increase in minimum wage reduced inequality - ESRI

[NoRegretsCoyote]

@Folsom

The problem with your idea is that your skill level is not a function of your age. It also varies from field to field.

I have a friend with two master's degrees who ditched in a well-paid office job at 33 to become a chef.

To get started she had to take minimum wage work as KP and took it from there. No one would have taken her on at whatever high minimum wage you have in mind for someone with 12 years' work experience in an office job.

 

[Folsom]

@NoRegretsCoyote I would respectfully beg to differ. At 33, assuming a starting point of 18yrs and continuous employment, your friend with two masters degrees would be able to command a minimum wage of €11.44ph - (15yrs in workforce @ €0.24c increase pa) as a chef.
The problem of course is why would an employer take him on over say, a 18yr for €7.84ph?
Attitude - I would suggest that a 33yr old in this situation should be able to demonstrate superior attitude?
Aptitude - two masters degrees?
Ability - your friend sounds like an intelligent person. Im guessing he has weighed up his ability to be a chef? And can present that ability to any prospective employer?

As for the 18yr old, who knows?

Certainly if I was an employer of a restaurant, and presented with the scenario above, for €11.44ph I would be inclined to plump for your friend. I can place value on his experience, skills, attitude, ability far easier than an 18yr old out of school.

 

[RETIRED2017]

There was a big study of the minimum wage introduced in Seattle a few years ago.

It found that it did indeed increase hourly earnings for those at or slightly above the minimum wage. Unfortunately employers cut back total hours.

It also led to much more automation. Firms were less likely to hire completely unskilled people, usually at the start of their careers.

I worked for an engineering company which by its very nature needed and hired low skilled people , retention of people in jobs which required low skill long term with as little as possible people turnover, led the company to pay the low skilled worker the same wage as there more skilled brothers and sisters,

What We found was There more skilled brothers and sisters kind of held a watching brief to ensure they did not fall through the system,which created a great work ethic,
motivating all co-workers to get the job done, and also made the job place more pleasant and fun place to work in,

Over time the higher wages low skilled workers found ways to lowering the cost of operations , higher up people would miss,

I just finishing work for another engineering company which started around two years ago, the had lots of different pay scales in the workplace, what a mess, you had people in low skilled jobs paid Minimum wages with very high turnover, most of it caused by people further up the food chain not having the skill set to do there own job resulting in large turnover of low skilled workers with positive work place attitudes slipping through there system,

I suspect higher wages Will Mean,less latte coffee for Retired , The byproduct will mean less housing needed for the staff who used to make my latte ,hopefully more money in retires pocket ,when he starts to make his own,no tax required to support and pay state pensions to the low paid people who used to make his latte coffee ,

 

[Purple]

I worked for an engineering company which by its very nature needed and hired low skilled people , retention of people in jobs which required low skill long term with as little as possible people turnover, led the company to pay the low skilled worker the same wage as there more skilled brothers and sisters,

That's interesting. I work in a manufacturing precision machining company and we don't want low skilled people. We have robots to do that work.

 

[RETIRED2017]

That's interesting. I work in a manufacturing precision machining company and we don't want low skilled people. We have robots to do that work.

That is very very interesting and I will tell you why, Some time ago you were on hear ,I will let you find your one post and have a look at it your self,

I think the subject was The amount of tax high earners were paying, You Quoted the % of sales to labour cost and how high Income tax affected this, the one thing that stuck out a mile was how low your sales were to they amount produced,or better again the cost of labour to sales, I would pick up on this kind of thing ,Working in costings involved figuring out what your opposition was up to,if the undercut you and the had high labour / overhead cost you left it to them ,to go broke ,

many a time I had the displeasure of walking through Robot graveyards, when they were clearing Machinery out after Companies going bust/closing down or moving out of Ireland ,seeing former so called top Employees who spent there time looking down there noses at work/workers the considered considered beneath them,Taking photographs before the machinery gets moved on , telling you how much it cost and it being sold for almost nothing now,when you ask them what the robots were used for if you hear they words used to replace low skill work ,you know in most cases why they are closing,

I have seen it and there is nothing better to watch , seeing co-workers helping low skilled youngsters who had being left sitting in front of a computer by companies who were well paid to deliver Employability ,

there real money is made by getting placements for people out of work with skills, leaving the people on low skill to drift along into long term unemployment, pushing up long term unemployment households ,

The mistake some companies make ,the only have so much money to invest in robots, Part of the mess I posted about above your post was highly paid people in charge of putting in Robots took the safe option and installed them in low skilled work stations with little overheads,

There overheads to labour was high running at four hundred and fifty % the calculated the ROI on the robots to overheads, roll on end of year overheads went up and wages had not moved,These people were very well paid and thought they were underpaid seeing all the money they were after saving the company ,They thought they could run Ireland and save the taxpayer a packet,

Anyhow the robots got reconfigerated to the higher skilled workstations for the want of a better word one year later there overheads are down somewhere between three and four hundred % of labour ,new recruits low skilled workers now being paid a higher wage and overheads away down,

 

[Purple]

Sorry RETIRED2017, but I really don't understand your post.

All I can say is that we are making double digit net profits in a manufacturing company and have no intention of making anyone redundant as a result of introducing more automation. What we will do is
increase turnover without increasing headcount. We will be increasing wages though, paid for by training people and improving processes in order to be more productive.


I don’t want to hire an 18 year old to load a machine when he or she has no real prospect of ever becoming more than a machine loader. The only thing restricting that 18 year old should be their ability and attitude, not crappy structures and dead-end roles within their place of employment.

 

[Philip S]

The assumption of a fixed increase in minimum wage is assuming the person is doing the same job the whole time. Take for example a tax trainee they will start on 25k per year or 12.82 per hour. There is two paths we will take they pass the exams and after 4 years are a senior and get promoted every 2 years until they make senior manager. After 10 years they are on 70k per year roughly. They skill level as increased and as result their pay as increased. If somehow they instead stay as a trainee for the 10 years and get the 2.5% increase each year they are on 31,222 after 10 years. But we assume the skills level has not increased otherwise they would have been promoted along the way.
But looking at someone stacking shelves in Tesco the same career prospects are not there. They might have fixed raises set in contract but staying in the same job might only lead to an increase of €2 per hour and it generally stops at that. With someone stacking shelves an increase in skill is unlikely to be the same as above example. If a skill increase does happen they could progress to cashier, shift supervisor right up to store manager. The increase is linked with the skill and new role and not simply a time factor.

 

[Firefly]

@NoRegretsCoyote I would respectfully beg to differ. At 33, assuming a starting point of 18yrs and continuous employment, your friend with two masters degrees would be able to command a minimum wage of €11.44ph - (15yrs in workforce @ €0.24c increase pa) as a chef.
The problem of course is why would an employer take him on over say, a 18yr for €7.84ph?
Attitude - I would suggest that a 33yr old in this situation should be able to demonstrate superior attitude?
Aptitude - two masters degrees?
Ability - your friend sounds like an intelligent person. Im guessing he has weighed up his ability to be a chef? And can present that ability to any prospective employer?

As for the 18yr old, who knows?

Certainly if I was an employer of a restaurant, and presented with the scenario above, for €11.44ph I would be inclined to plump for your friend. I can place value on his experience, skills, attitude, ability far easier than an 18yr old out of school.

Another employer, who may be just breaking even, may see the 18 year old as cheaper. Also, as neither candidates have any prior experience, both will need training, further adding to costs. What's more, it is more likely that an 18 year old will have more flexibility when it comes to days / hours of work than someone older, so it could easily be argued that in the above scenario, the 33 year old is now going to find it even more difficult to find employment.

Better to leave the market determine the fair rate in my opinion, otherwise we are just guessing on an appropriate minimum wage.

 

[NoRegretsCoyote]

Better to leave the market determine the fair rate in my opinion, otherwise we are just guessing on an appropriate minimum wage.

Exactly. Civil servants in office in Dublin don't, and can't, know the market conditions in every sector at every time.

It is much better left to individuals on the ground to work out what wage is feasible and what wage isn't.

 

[Early Riser]

It is much better left to individuals on the ground to work out what wage is feasible and what wage isn't.

Possibly at the level of basic economic supply and demand. But I am not so sure if this is desirable at the broader societal (human) level and especially as regards social cohesion. I suggest we all have an investment in this, not just the minimum wage worker.

As I understand it, the evidence for the impact of the minimum wage on employment relates largely to the unskilled sector and, more specifically, to youth employment within the unskilled sector. Certainly it is desirable that youth are given a chance to get started. But this sector is already very heavily populated by immigrant workers, some transient, some not. I suggest that the lower the minimum wage (or with the elimination of the minimum wage) the more employment in this sector would become almost exclusively immigrants. When saying this, I am not at all opposed to immigration in general, or to immigrants, but I wonder what creating a whole sector of the economy (low paid) almost fully populated by immigrants might do in terms of social cohesion. This is playing out more in other Western countries than ours but we shouldn’t think we are immune from it.

A couple of further points.

Low skills posts have the least likelihood of significant wage progression. A low wage entrant in a skilled sector can expect ongoing promotion and pay/salary rises. If the unskilled are going to be left behind with no minimum wage safety net, we risk perpetuation of a permanent underclass that will be disaffected and disconnected from society and its norms. This is a recipe for social disharmony at least – and quite probably conflict of one form or another (organised or unorganised).

Also, a permanently low skilled, low wage sector will mean a significant number of people increasingly dependent on state supports to meet basic living costs. This is hardly desirable socially (or economically?). Also, it means ongoing state subsidy (albeit indirect) for an employment sector which has access to a large immigrant pool of people to keep its labour supply constantly replenished without the normal pressures for wage rises (possibly even creating wage depression).

What an appropriate minimum wage level might be is a separate matter.

 

[NoRegretsCoyote]

Possibly at the level of basic economic supply and demand. But I am not so sure if this is desirable at the broader societal (human) level and especially as regards social cohesion. I suggest we all have an investment in this, not just the minimum wage worker.

As I understand it, the evidence for the impact of the minimum wage on employment relates largely to the unskilled sector and, more specifically, to youth employment within the unskilled sector. Certainly it is desirable that youth are given a chance to get started. But this sector is already very heavily populated by immigrant workers, some transient, some not. I suggest that the lower the minimum wage (or with the elimination of the minimum wage) the more employment in this sector would become almost exclusively immigrants.

So you think that no Irish 18-year old would work for less than a 25-year old Bulgarian immigrant?

Low skills posts have the least likelihood of significant wage progression. A low wage entrant in a skilled sector can expect ongoing promotion and pay/salary rises. If the unskilled are going to be left behind with no minimum wage safety net, we risk perpetuation of a permanent underclass that will be disaffected and disconnected from society and its norms. This is a recipe for social disharmony at least – and quite probably conflict of one form or another (organised or unorganised).

I am at a loss to how people turning up for paid employment creates disconnection from societal norms. If it's a choice between that or unemployment I know what I'd pick.........

Also, a permanently low skilled, low wage sector will mean a significant number of people increasingly dependent on state supports to meet basic living costs.

The alternative is unemployment. What would it cost the taxpayer?




People with zero knowledge of economics generally acknowledge that when the price of something goes up, people look for less of it. It's common sense.

Common sense gets suspended, and people jump through huge intellectual hoops however, to claim that minimum wages have no impact on how much employers choose to employ people!

 

[Early Riser]

So you think that no Irish 18-year old would work for less than a 25-year old Bulgarian immigrant?

I do think that immigrants will work for less than locals. I am not sure why this is contentious - it is long recognised.For example, Irish immigrants in 19th century America. In the absence of a minimum wage, and with a huge potential supply of immigrants, the effect is likely to be downward on wage levels in the unskilled sector. This might be good for anyone looking at the price of pizza. But increasingly large scale immigration does have societal consequences. We should, at least, also consider those. It is one factor in the Brexit effect, for example. Saying that the Irish 18 years old should just suck it up and take whatever is on offer does not change this.

I am at a loss to how people turning up for paid employment creates disconnection from societal norms. If it's a choice between that or unemployment I know what I'd pick.........

Increasingly large discrepancies between the highly paid and the lower paid does impact on the "social contract". At the very least, it creates a sector increasingly open to populist agitation. Whether you would choose to take the minimally paid job or not is hardly relevant. (Anyway, what people say they would do in a hypothetical situation has been shown to have only a very weak link to what they do when actually in the sutuation).

The alternative is unemployment. What would it cost the taxpayer?

But is not an either/or - that is the point. You can have an increasing very low paid sector (with state subsidies) and still have unemployment.

People with zero knowledge of economics generally acknowledge that when the price of something goes up, people look for less of it. It's common sense.

Common sense gets suspended, and people jump through huge intellectual hoops however, to claim that minimum wages have no impact on how much employers choose to employ people!

Hands up - I do have zero knowledge of economics and little of any common sense (whatever that is!). However, I am speaking as a member of society in which I have, like others, an investment. The economy is one important aspect of society, but far from the only one.

Even as an economic ignoramus I am aware of the potential impact of costs. However, I confess I am largely unread in terms of the empirical evidence of the impact of the minimum wage on employment rates. I have read a few reports which, if somewhat contradictory, were at least not as dramatic as economic theory (in my v. limited understanding of it) might suggest. Perhaps, you have looked at the available evidence more comprehensively and could give an objective summary?

 

[Folsom]

Another employer, who may be just breaking even, may see the 18 year old as cheaper.

That is a possibility, but not a problem. If the only criteria an employer takes into account when hiring staff is the labour cost, then its not hard to see why some businesses thrive and profit, and others are only breaking even and going under.

Also, as neither candidates have any prior experience, both will need training, further adding to costs.

Neither have prior experience at being a chef, but as already demonstrated, the 33yr old already has a proven track record at work, has ability, high intelligence, and a clear aptitude to want to be a chef.

We dont know anything about the 18yr old.

So the employer has a choice. Based on information provided I would plump for the 33yr old.

What's more, it is more likely that an 18 year old will have more flexibility when it comes to days / hours of work than someone older,

There is no basis to this. If anything, Saturday nights are traditionally the busiest trade times for restaurants.
Do I want a 33yr old committed to being a chef? Perhaps saving to buy a home, start a family? Or an 18yr old gagging to be with his/her mates for a party every second weekend?

Better to leave the market determine the fair rate in my opinion, otherwise we are just guessing on an appropriate minimum wage.

That would involve abolishing the minimum wage altogether?

 

[Folsom]

The increase is linked with the skill and new role and not simply a time factor.

Yes, this is true. But inherent in my point about a banded minimum wage is that qualified skills are not the only factor in determining a wage rate.
The application of any set of skills is variable from one worker to another.
Other factors such as loyalty, punctuality, reliability, trust, etc are also characteristics that also hold value and should carry an increasing premium over time that is greater than minimum wage. What that premium is valued at is subjective, but as a minimum a 2.5% increase or, €0.24c per hour by todays minimum wage, is, in my opinion, not an unreasonable task.

For anyone concerned about the cost to employers, there could be an easy workaround with employers prsi. As wage rates increase, employers prsi could reduce accordingly.

 

[NoRegretsCoyote]

@Early Riser

Standard economic theory suggests that an increase in the price of something means less of it will be demanded. Also common sense!

So theory suggests that minimum wages will decrease employment, especially of the lower-skilled. This has been studied statistically for thirty years and the results don't chime entirely with the theory. Many studies find no impact of the minimum wage on employment levels.

The problem is that it is extremely difficult to control for everything else that is going on in an economy (employment may be growing or shrinking). There are all sorts of different employer responses too if the cost of labour goes up: you can reduce fringe benefits and training, you can reduce bonus pay for overtime, you can reduce hours for part-time workers, etc. These won't be captured in a standard study that just looks at raw numbers in employment.

There is a very sophisticated recent study from Seattle where they have been putting in a pretty substantial minimum wage in recent years. It shows that firms don't actually fire workers they already have, they just pay them the higher hourly minimum wage. At the same time they don't take on as many new workers, and they reduce the hours of the workers that they have.

I think this discriminates against "outsiders", specifically, denying young people the chance to accumulate skills which can lead to better pay later on.

 

[Purple]

Most minimum wage employees are from middle income households. They include students and women who have worked exclusively in the home and are now returning to part time work.


I agree with Folsom’s point that if the wage level someone will work for is the main consideration when hiring then a business cannot thrive.

I have mixed feelings about a minimum wage. In reality our high levels of social welfare set a floor at which people are willing to work. That said I don’t like it when employers exploit people and without some safeguards exploitation would be more common. I have a bigger problem with collective sectoral wage agreements which rewards lower skilled slackers and punish higher skilled harder working people who happen to have the same job title.


Another thing to bear in mind is that higher wages encourage process efficiency, more training and skills development and better deployment of capital within business. In other words higher wages make businesses solve problems rather than just throwing more cheap labour at the problem.


The big downside of a high minimum wage is that it is harder for low skilled people to gain employment at all as their labour is simply not worth the wage that the employer is mandated to pay. This, along with high welfare rates, is the ultimate poverty trap.


How do we find a balance between the two? It strikes me that much of our social policy in this area is misguided in that we treat poverty as an economic problem whereas it is in fact a symptom of a social problem. In treating the symptom without treating the root cause we are simply administering a form of social live support, keeping people in a perpetual state of often intergenerational dependence. If we want a high minimum wage then we need a high level of minimum educational attainment.

 

[Early Riser]

So theory suggests that minimum wages will decrease employment, especially of the lower-skilled. This has been studied statistically for thirty years and the results don't chime entirely with the theory. Many studies find no impact of the minimum wage on employment levels..........

.......There is a very sophisticated recent study from Seattle where they have been putting in a pretty substantial minimum wage in recent years.

I agree - the results are inconsistent with classic economic theory. Such theory tends to be based on assumptions of human beings acting on a fairly consistent logical manner - somewhat as automatons. Behavioural economics suggests that they don't.
Classis theory also tends to assume an even an unchanging contextual baseline. But social contexts vary, societal norms vary, migration patterns vary, attitudes towards migration vary, social welfare and healthcare systems vary, educational systems vary, house ownership and rent costs vary, etc.

I assume that (as with most things) the effects of the minimum wage may be both positive and negative. The downside employment effects have not, so far, been as negative as some have predicted. But this may change - who knows? In measuring effects we need to consider wider measures than narrowly economic ones, eg, mental and physical health, family stability, impacts on children ,etc. Also, does it lead to employers investing more in their employees in terms of training, etc. to improve productivity, rather than treat them as cheap disposable commodities?

How do we find a balance between the two? It strikes me that much of our social policy in this area is misguided in that we treat poverty as an economic problem whereas it is in fact a symptom of a social problem. In treating the symptom without treating the root cause we are simply administering a form of social live support, keeping people in a perpetual state of often intergenerational dependence. If we want a high minimum wage then we need a high level of minimum educational attainment.

Agreed - broadly! But we should also view the minimum wage as a social policy rather than just an economic policy, and evaluate it in this broader context.

 

[Purple]

Agreed - broadly! But we should also view the minimum wage as a social policy rather than just an economic policy, and evaluate it in this broader context.

If so then can we acknowledge that we are placing a social burden on employers in asking them to pay wages which are higher than the economic value of their employees?

 

[Early Riser]

If so then can we acknowledge that we are placing a social burden on employers in asking them to pay wages which are higher than the economic value of their employees?

We might narrowly agree on that - provided we also agree that an employee is of a different status, morally and socially, as any other input cost, such as software, and that employers and employees exist and act in a social, cultural and political context to which they are responsible, and which is responsible to them.

 

[Purple]

We might narrowly agree on that - provided we also agree that an employee is of a different status, morally and socially, as any other input cost, such as software, and that employers and employees exist and act in a social, cultural and political context to which they are responsible, and which is responsible to them.

I agree with that. One of the factors at the forefront of our decision making process where I work is the fact that so many people rely on this place to pay their mortgage or rent. People are not a commodity.