Increase in minimum wage reduced inequality - ESRI

Purple

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Firstly, it is not a handout, it a wage paid for labour served. By using reductions in employer prsi to offset against increases, it merely facilitates a transfer of income from state coffers to the person who actually earns the income - all at no additional cost to the employer.
If they are being paid above the economic value of the work they are doing and the gap between the economic value of their labour and the wage they receive is funded by a tax reduction for the employer then it is a handout. I've no problem with handouts persay (the non contributory pension and the majority of the pensions that public servants receive are handouts in that the people who receive them don't pay for them) but call it what it is.

People with serious intellectual or psychological issues are worthy of some protection and reward. Particularly if they are prepared to do the low-paid work that others aspire too, and do, leave behind.
I agree. Is this the best way of doing it?

My local supermarket employs two disabled people. One with Downs Syndrome. He has been working there for four years. I dont know what rate of pay he is on, but as a shelf-stacker I would imagine it is, or close to minimum wage.
Its possible he may be on a wage considerably higher, perhaps €11 or €12 an hour. Which after four years service is reasonable in my opinion and, if he has only ever worked four years, is already earning outside a banded minimum wage.
But if he is not, then the point of a banded minimum wage is to afford rights to such employees that would otherwise not be in a position to effectively extract a reasonable reward for service, loyalty, attitude, to their work.
I pitched a band of €7.84ph - €15.68ph. It should be noted that the €15.68ph will only ever be reached after 40yrs in employment. So all things remaining equal, an 18yr old who starts work today stacking shelves all their life (due to intellectual issues) can look forward to an income of €15.68ph in the year 2059.
What I like about your proposal is that the employer has to apply for it so it is less open to abuse than other forms of welfare... but it is still welfare.
It really is about reducing inequality for those who remain in low paid income (for whatever reason).
That I have a problem with. If someone can't earn more than the minimum wage then by all means help them. If you won't earn more than the minimum wage because you are lazy or whatever then you should get nothing. The same applies to welfare in general though; help those who can't help themselves but if someone just chooses not to work and uses our social safety net as a hammock then give them nothing. I would have no problem with them literally starving to death.
 

Folsom

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If they are being paid above the economic value of the work they are doing
Im not sure how you have deduced that. Currently, if I employ someone I have to pay, a minimum of €9.80ph. Im not going to do that if the economic value of their labour is less or equal to that. In fact, for it to be worth my while, the economic value of the work performed would want to be double what I pay.
The mere fact that I can get someone to do the work below its economic value is my reaon for hiring.

is funded by a tax reduction for the employer then it is a handout.
By that reasoning any tax deduction, tax credit, etc is a handout.
To mean, a handout is receiving something for doing nothing.
Working and receiving a pay rise by virtue of the State not imposing a tax on it is not a handout. The money belongs to the employee and the employer. It is the State that extracts the 'handout' otherwise known as tax.

I agree. Is this the best way of doing it?
I dont think it is the best way, but I think it is a better way than a blanket single point minimum wage.


but if someone just chooses not to work
I am talking about people who choose to work, not those who choose not to. They dont get a wage.
 

Purple

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Im not sure how you have deduced that. Currently, if I employ someone I have to pay, a minimum of €9.80ph. Im not going to do that if the economic value of their labour is less or equal to that. In fact, for it to be worth my while, the economic value of the work performed would want to be double what I pay.
The mere fact that I can get someone to do the work below its economic value is my reaon for hiring.
Okay, so you agree that a high minimum wage can create an underclass which is unemployable?
The minimum wage is €9.80. I can hire an unskilled person for €9.80. Under your system if I hire an equally unskilled person who happens to be older then I will still have a new wage cost of €9.80 but the State will top up their wage by means of a tax deduction elsewhere in my business. I call that a handout. It also means that as a person becomes more experienced and better at their job I don't have to give them a real pay rise; I can just get a bigger handout/ tax break which I use to top up their wages. Now that I think about it I don't like your idea at all; it is a poverty trap and way too open to abuse by employers.

By that reasoning any tax deduction, tax credit, etc is a handout.
To mean, a handout is receiving something for doing nothing.
Working and receiving a pay rise by virtue of the State not imposing a tax on it is not a handout. The money belongs to the employee and the employer. It is the State that extracts the 'handout' otherwise known as tax.
The economic value of their labour is €9.80 as that is the cost to hire a different person of equal skill (or lack of skill). Everything after that is a handout.

I dont think it is the best way, but I think it is a better way than a blanket single point minimum wage.
In that scenario I agree.

I am talking about people who choose to work, not those who choose not to. They dont get a wage.
No, they get a handout. Your guys get a wage and a handout.
 

Folsom

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Okay, so you agree that a high minimum wage can create an underclass which is unemployable?
From page 1.

QUOTE="Folsom, post: 1603984, member: 107325"]I don't disagree that if the minimum wage is pitched higher than what employers value the labour then that is a cause for a poverty trap.
So im not arguing that €9.80ph is too high or too low, im saying a single figure rate is inadequate in itself for reducing inequality.[/QUOTE]

The minimum wage is €9.80. I can hire an unskilled person for €9.80. Under your system if I hire an equally unskilled person who happens to be older then I will still have a new wage cost of €9.80 but the State will top up their wage by means of a tax deduction elsewhere in my business. I call that a handout
You call paid labour a 'handout' all you want. But the reality is is that the wealth is generated by the employer and employee, not the State.
The State is a third actor imposing its taxation upon that wealth. It does so by whatever means it wants to. It could be a reduction in employer prsi contributions as mentioned, or it could be by way of tax credits - which every employee gets. Or it could increase the marginal taxation band every year for next five years, meaning those workers who pay 40% are also going to get 'handouts' by your reasoning.
Or, in practical terms, it can be understood that the wealth created is created by the employee and employer in co-operation with one another. The State does not create the wealth.

It also means that as a person becomes more experienced and better at their job I don't have to give them a real pay rise; I can just get a bigger handout/ tax break which I use to top up their wages.
Why would you think that the case? We have already established that most people will work their way out of minimum wage, be it through education, training, experience, better performance.
Why do you assume that good workers will settle for minimum wage?
I am talking about a fringe element of workers, who for whatever reason, have found themselves in low paid minimum wage employment on a long-term basis.
Further to that, im only interested in workers who, for whatever reason, have not been able to command a wage rate outside of a banded minimum wage, but still turn up for work, still perform, still do the job.

Now that I think about it I don't like your idea at all; it is a poverty trap and way too open to abuse by employers.
Thats unfortunate, as you appear not to have understood the concept.

The economic value of their labour is €9.80 as that is the cost to hire a different person of equal skill (or lack of skill). Everything after that is a handout.
Its not. The €9.80ph is the price you pay for the labour. The economic value is the value of the end product.
If I buy a set of products for €30 and turn them into 100 units of tasty apple tarts, chocolate buns and crispy biscuits and sell them all at €3 a piece, what is the economic value of my labour?
 

Purple

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You call paid labour a 'handout' all you want. But the reality is is that the wealth is generated by the employer and employee, not the State.
Okay, so should any of us pay taxes so? Giving someone money back/ not taking money that would be taken from anyone else is a handout. The labour would be paid at €9.80 if not for a tax break therefore anything above €9.80 is a handout and is not paid labour.

By the way, wealth is generated by those engaged in internationally traded good and services. There is a massive social benefit from what doctors and teachers an police and public servants do, as well as an indirect economic benefit, but no direct wealth creation.

Why would you think that the case? We have already established that most people will work their way out of minimum wage, be it through education, training, experience, better performance.
Why do you assume that good workers will settle for minimum wage?
If they will get up to €15 by virtue of just turning up each year then they are getting their pay rise funded by tax breaks for the employer. That doesn't seem right to me but I'm a bit of a socialist.

Thats unfortunate, as you appear not to have understood the concept.
No, I understood it alright.

Its not. The €9.80ph is the price you pay for the labour. The economic value is the value of the end product.
You are right; €9.80 is the real economic cost. The cost beyond that is borne by other tax payers rather than the employer.
 

Folsom

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Okay, so should any of us pay taxes so?
Whether we pay taxes or not, how much, on what, is down to the legislature. In general taxation is desirable. What is not often desirable is the manner upon which it is imposed.
But its a first for me to hear anyone claim that a reduction in tax on labour is a 'handout'.

By the way, wealth is generated by those engaged in internationally traded good and services. There is a massive social benefit from what doctors and teachers an police and public servants do, as well as an indirect economic benefit, but no direct wealth creation.
That is a very simplified interpretation of wealth creation.
Wealth is created in many forms. In monetary terms its convenient to use the point of sale as the determining factor.
However, the creation of new wealth is the indirect result of previously created wealth through the generations, as well as innovation applied today.

If they will get up to €15 by virtue of just turning up each year then they are getting their pay rise funded by tax breaks for the employer. That doesn't seem right to me but I'm a bit of a socialist.
Ok, I think the €15 is causing too much rankle with you. The €7 - €15 was a pitch based on todays €9.80. It was only an example based over 40yrs - it is not set in stone.
The core point is that the minimum wage be adopted over a band and not a single point.
The actual band can be determined later.

Using real PRSI contributions, it transpires that there is already appears to be a plethora of what you call 'handouts' in the PRSI system.

www.welfare.ie/en/downloads/sw14_19.pdf

But without wanting to get bogged down, sticking to employers prsi today, an employer contributes 8.7% prsi on weekly earnings up to €386 or €9.89ph for 39 hours. In total costing €10.75 an hour for minimum wage workers.
An 18yr old can be paid €7.84ph under the NMW.
So it probably doesn't take a scientist to figure out that this could act as a banded minimum wage (im not endorsing the amounts, merely the concept of a banded minimum wage), whereby an employee, for whatever reason, finds themselves in a lifetime of low paid minimum wage worker can, for every year of employment from age of 18, can expect an incremental wage increase between €7.84ph and €10.75, all other remaining even.
The cost of this to employers can be offset against employers prsi contributions within this band - just as other tax benefits, credits, rates and 'handouts' are applied under the numerous circumstances attached.


You are right; €9.80 is the real economic cost. The cost beyond that is borne by other tax payers rather than the employer.
I think you are getting mixed up between 'market value' and 'economic value'.
 
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Purple

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However, the creation of new wealth is the indirect result of previously created wealth through the generations, as well as innovation applied today.
That's what I said; other factors have an indirect impact by creating the environment for wealth creation. The wealth itself is only created through internationally traded goods and services.

The cost of this to employers can be offset against employers prsi contributions within this band - just as other tax benefits, credits, rates and 'handouts' are applied under the numerous circumstances attached.
You use the word "offset", I use "handout". It's the same thing. There is a net cost to the State and no net cost to the employer. In normal circumstances nine times out of ten that minimum wage employee would get a pay increase anyway, the cost of which would be borne by the employer. Under your proposal in every case that cost would be borne by the State.

I think you are getting mixed up between 'market value' and 'economic value'.
I just clarified that I was talking about market value. Are you one post behind all the time?
The economic value will change by the day. The market value is more constant.
 

NoRegretsCoyote

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No its not what I wrote. I wrote that corresponding increases in a banded minimum wage could be offset against employers PRSI contributions, not the employees contributions.
It doesn't matter whether it's labelled employee or employer PRSI. If the government said that employers PRSI was being abolished and employee PRSI was going up by the same amount, nothing would happen. Your employer would just increase your gross pay by the same amount and your net pay would not change. Google the term 'tax incidence'.


I would suggest it is primarily down to other factors as investment sentiment has improved since 2012.
That said, as an indicator, it can be shown that increases in the minimum wage have not adversely impacted on employment opportunities since its inception.
The cognitive dissonance here is massive. Yes, the macroeconomy drives employment growth, but you cannot claim that microeconomic factors like the NMW play no part. Indeed both things can be true.

So I ask - if the NMW has no impact on employment, can't we all get rich by raising it to €100 an hour?
 

Folsom

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In normal circumstances nine times out of ten that minimum wage employee would get a pay increase anyway, the cost of which would be borne by the employer. Under your proposal in every case that cost would be borne by the State.
We are going around in circles.
We have already established that most people work their way past minimum wage rates of pay. 7.8% of workforce find themselves in that bracket. Even within that bracket 50% are under age 25, suggesting only 4% of workforce remain long-term on minimum wage rates.

What I proposed is a reform of the national minimum wage as it is currently structured.
The ESRI claim increases in the minimum wage reduced income inequality. I agree it does, a minimum wage goes someway to reducing income inequality. I do think a blanket single point is however, by itself insufficient and that a banded minimum wage would be more effective.

Currently the minimum wage of €9.80ph does two things. Firstly, it prevents employment opportunities for low skilled workers where employers deem it not worthwhile, or loss making to pay €9.80ph for labour in exchange for the return on capital.
Instead, through social transfers the State picks up the tab, a cost on the State.

Secondly, where an employer does deem it worthwhile and profitable to employ someones labour, the minimum wage sets a bar upon which the labour extracts a minimum portion of the capital generated, regardless of how much capital is generated.
This is a cost for employers where there is available labour willing to work for less than €9.80ph.

If you want to reduce income inequality further then it will involve a transfer of income from one source (tax payers and or employers) to another source (minimum wage and low income earners).
If there is another of doing it, im all ears. But other than that, the only other option is that some prefer not to reduce income inequality.

So any talk of 'the cost to the State' or 'why should employers have shoulder the cost' is redundant.

Having said all of that I proposed a banded minimum wage over the a typical lifetime of employment rather than the current single point (I should correct myself here, there are two points below the €9.80 for 18 and 19yr olds - in effect, the banded minimum wage already exists, but it somewhat cosmetic).

Under such a banded scheme that I proposed, it would take someone until they are 27yrs of age to reach €9.80ph. This would be a benefit to employers engaged in employing cheap labour - the quid pro quo however, is that the minimum wage would continue to rise, entitling a low paid worker an incremental bigger slice of the capital pie that they help generate. This is the reward for loyalty, continued employment, punctuality, etc,etc.

In reality, most 27yr olds have already worked their way out of minimum wage rates of pay through, educational qualifications, experience, application etc as already shown in the earlier RTE link - so NONE of this would apply to them.

Instead, it will only apply to the 4% of workforce who remain for whatever reason, in low paid employment, be it psychological or intellectual disabilities, be it middle class students or housewives returning to the workforce.

If I employ someone today for €5 to carry out a task that generates €15 return for me , €5 is the market value of their labour, €15 the economic value - labour plus capital investment. The State intervenes and obliges me to pay €9.80ph - that is an additional cost borne by the employer. If I decide it is no longer worthwhile, the job is lost and the State bears the cost.
 

Folsom

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So I ask - if the NMW has no impact on employment, can't we all get rich by raising it to €100 an hour?
I never said it has no impact. I said the minimum wage has had no adverse impact on employment since its inception.
Google 'adverse' and then start over.
 

NoRegretsCoyote

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I never said it has no impact. I said the minimum wage has had no adverse impact on employment since its inception.
Google 'adverse' and then start over.
No serious economist has ever suggested that it has a positive effect on employment. The question is whether it has an adverse effect, or none at all.

Therefore the term 'adverse' is generally considered redundant when talking about the impact.

It would be great if you could answer my question though:)
 

Folsom

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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.
So there is no real concrete evidence that states that minimum wage will negatively impact on employment levels, positively impact on employment levels or have no impact on employment levels at all.
There are however studies that suggest and/or indicate that minimum wage levels, if pitched too high, can negatively impact on employment levels.

In Ireland's case, there are indicators that suggest, since its inception, that the hourly rate of the minimum wage has not impacted negatively on employment levels.
This can be seen from, other than a brief period that you identified earlier, the increasing employment levels in Ireland over the prevailing period. It is arguable that employment levels could have been even greater had there been no minimum wage imposed. Equally it can be argued that the minimum wage impacted positively in attracting thousands of workers into the economy, particular from abroad.

So I dont know, like the other economists, what impact, positive, negative or neutral, the minimum wage has on employment.
What I do know is, that if it is pitched too high (eg €100 to answer your question) that it will have a negative impact. But I also consider that Ireland's minimum wage rate has never been pitched too high as the corresponding employment levels show increasing levels of employment over the period since its introduction, indicating either a positive or neutral impact, but not a negative impact.
We dont know what the optimum minimum wage rate is. Even if we did know, it could change tomorrow.
So the minimum wage band that I suggested, was merely a suggestion. It was a suggestion that facilitates employers to pay a lower minimum wage for inexperienced low skilled workers for a longer period until such time that their participation in the workforce (albeit low skilled participation) is eventually rewarded with a higher minimum wage or until such time as they train, educate, etc themselves into positions that command higher rates of pay - which most people do.
 

Folsom

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You've contradicted yourself in successive sentences.

I'm out.
Good, because if you cant tell the difference between concrete evidence and evidence that suggests or indicates, or if you cant make a distinction between a minimum wage and a minimum wage that is pitched TOO HIGH, then its pointless carrying on.
 

Purple

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I pitched a band of €7.84ph - €15.68ph. It should be noted that the €15.68ph will only ever be reached after 40yrs in employment. So all things remaining equal, an 18yr old who starts work today stacking shelves all their life (due to intellectual issues) can look forward to an income of €15.68ph in the year 2059.
Okay, last try; If I employ someone on the minimum wage and want to keep them they will, inevitably, get a pay increase. Your proposal means that I never have to fund that pay increase. It also means that an older person on the minimum wage is trapped working with their current employer because a different employer looking for low skilled minimum wage employees will just hire a younger, lower paid, "minimum wage" person.
 

Folsom

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Your proposal means that I never have to fund that pay increase.
Not at all. Firstly, my proposal is merely a suggestion proposing a concept of a banded minimum wage, instead of a single point minimum wage. The purposes being to assist with reducing income inequality - which I think it would assist in doing, albeit open to valid criticism on the points made, not on assumed points made.
Some leeway should be afforded insofar that it is not practical to detail every aspect within the pages of this forum. But I will endeavour to offer more detail of this concept.

I pitched a band of €7.84-€15.58ph. I have already acknowledged that if minimum wage is pitched too high that that would impede negatively on employment levels. However, I think it has been established that we dont know what level the minimum wage would have to be at for it to be 'too high' and impact negatively on employment. I think it can be reasonably argued that Ireland's minimum wage rate has not impacted negatively on employment levels, therefore not at the 'too high' point?
If that much is agreeable then we can carry on. If not, you can stop reading now.

So taking some realtime figures (which I only using for example, I am not advocating these figures).
The current minimum wage is €9.80ph. Employers prsi liability, on €386 weekly earnings is 8.7% on top of that, bring the hourly cost for an employer to €10.75ph for 39hrs.
So, for ease of reference, lets adjust the banded rate from €7.84 (being the starting point for an 18yr old) to €10.75ph. A difference of €2.91ph. Divide that over a 40yr working life and it amounts to €0.07c increase every year.

An employer takes on an 18yr old for low skilled work, say shelf-stacking in a supermarket. The employer pays €7.84ph plus 8.7% prsi, €0.68c or €8.52ph in total. The employee continues working and by law will now be entitled to a minimum of €7.91ph in her second year of employment, third year €7.98ph and so on, as long as the employee is stacking shelves in agreement with the employer. All the way up to €10.75ph.
(After higher rates than €9.80ph, the State will fix the employers prsi so that the overall cost is no greater than €10.75ph for employing a shelf-stacker, meaning as the employees hourly rate increases €0.07c a year beyond €9.80ph, the employers prsi liability will be reduce by €0.07c).

However, the employee may, from 2nd yr in employment, show aptitude, application, initiative to learn, train, educate etc in which case s/he is now moving beyond mere shelf-stacking and is able to command, or market, a higher hourly rate of pay beyond the minimum in their own right. Meaning by year two the employer may need to pay, say, €9.00ph to retain the services of this young prospect.
This means the employee is out of the minimum wage band by virtue of them being only in their second year of employment. Within this minimum wage band it would take a minimum wage worker 16yrs at €0.07c annual increases to reach €9ph - this employee has reached that wage in two years, so is not considered to be a minimum wage worker. By third, fourth and subsequent years the employee is earning beyond levels attributable to those years on a minimum wage band.
This is the reality for 92% of workers currently, and long-term, some 96% of the workforce.
We are left with 4% of the workforce, for whatever reason, intellectual, psychological, housewives returning to labour market, students who spent excessive years at college and not in workforce, etc who find themselves only able to command a minimum wage - that wage being set on a band over 40yrs which they will be entitled to receive in pay as long as they are employed, and unless they train, educate, apply themselves to market themselves for an hourly rate of pay beyond the minimum wage band.
I hope that explains better the concept. If so, I will deal with your second point, if not, best to leave it here.
 
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