Is it time for wage increases?

TheBigShort said:
Perhaps a rolling average 3% deficit would be more realistic, say over a seven year business cycle?
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Say I'm minister for finance for an unpopular government. If I borrow this money today, I leave the next guy that much less room to work with.

Do I need to spend the money, or can I just set it on fire?
 
TheBigShort said:
https://www.bloomberg.com/amp/news/...-decent-pay-shows-ecb-can-t-slow-stimulus-yet

I think what Draghi might be saying here, is that wages are inflationary. And if you are pursuing an inflationary policy then wage increases would help.
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The second bit is incorrect.
Oil prices and international competition, coupled with a lack of growth in productivity in the Eurozone is the reason for wage stagnation. If we want high paid jobs then we need high skilled people who are more productive. The only thing that creates wealth is productivity.
 
Firefly said:
With the public sector getting a pay rise over the next 2 years we are going to see inflation here I'll tell ya.
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And do you think, in the context of the ECBs asset purchasing program, that some inflation would be desirable?
 
Purple said:
Of course we shouldn't; we are already spending far more than we take in taxes. Borrowing even more for day to day expenditure would be madness.
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But why are trying to limit the topic to public sector wages. The topic refers to wages in the round.
A substantive increase in minimum wage would be a good starting point.
 
TheBigShort said:
But why are trying to limit the topic to public sector wages. The topic refers to wages in the round.
A substantive increase in minimum wage would be a good starting point.
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I'm not. I was just giving an example.

Why do you think an increase in the minimum wage would be a good thing?
 
In a growing economy like ours, wages increases are good. Stimulates further economic activity and minimises any potential disproportionate transfer of wealth to capital over labour.
 
Public sector pay increases in a vacuum are not good. Pay increases across the economy are required. Starting at minimum wage.
 
TheBigShort said:
Can you elaborate on that pls?
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Pro-cyclical means that when things are going well you spend even more money and when things are not going well you tighten your belt. It is generally agreed that counter-cyclical policies are better, when the economy is growing you keep money back and when things are not going well you have the resources to put into a depressed economy. We have the worst of both worlds here - during good times people are looking for higher wages and lower taxes and then when the bad times come the same people are demanding more being spent when it's not there.
 
TheBigShort said:
Can you elaborate on that pls?
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It was summed up well my Charlie McGreevy; "When I have it I'll spend it".
It's what got us into this mess in the first place. The EU, as well as individual EU finance Ministers (more notably the Dutch one) were warning us about this since the mid 90's.

Government policy should be to minimise the swings. We did the opposite for 15 years.
 

Yes I see what you are saying, but I am talking about something a bit different.
One, it is not limited to public sector finances for a start.
Two, when an economy is growing, that is, the value of what we produce in goods and services, our outputs, is growing at a faster rate than the cost of the inputs, costs of productions. This creates wealth. I am talking about how best that wealth is shared throughout the economy. To my mind, the concept of trickle-down (or trickle-up, as I prefer) economics leads to a disproportionate amount of this wealth lending itself to capital over labour. This is bad, as instead of actually trickling down, this new wealth is spread through the economy in the form of credit expansion (the pressure is on the Central Bank again to loosen limits on mortgage-lending). This is not good, preferably a greater proportion of any newly created wealth should distribute via wages increases. This ensures a greater spread, greater participation in the workforce, less reliance on welfare etc.
 
It very much depends on where the wealth is being produced within the economy. If it is just Pharmaceutical companies churning out XXXXXXXXXXXXXXXXXXXX, vials and powder and declaring their profits here then it’s a bad thing. If it is the indigenous sector, specifically the SME sector engaged in internationally traded good and services, then yes, pay increases are no harm as long as they do not exceed the increase in output.

What happened during the boom was construction, which creates no net wealth for the country, and the State Sector, which also creates no net wealth for the country, became the main drivers for economic growth and wage inflation. That in turn created a consumer boom which led to wage growth, as well as an increase in rents and property values. None of these created any net national wealth either.

During the early 90’s the majority of the jobs created in Ireland were in the internationally traded good and services sector. They are the engine of the economy. Wage and cost inflation outside that sector has the knock-on effect of wage pressures within that sector and so we lost competitiveness and so lost the fuel that powered Ireland Inc. We must learn from the mistakes of the past and ensure we don’t do the same thing again.


I am not suggesting that those wealth creating jobs are more important for the country but they are the driver of the real economy. Certainly an efficient State Sector helps and the Sate can help create the conditions in which wealth is created. It just can’t create the wealth itself.


We should have a target getting into and remaining in the top 5 most productive economies in the world.

In order to do that we need a fair income tax system, a great education system, good transport infrastructure, good Broadband access and a simple and efficient taxation system.

We are not doing too badly in any of those areas, though we could and should be doing better. We just have to make sure we make decisions based on where we are, not where we’d like to be.
 
TheBigShort said:
Yes I see what you are saying, but I am talking about something a bit different.
One, it is not limited to public sector finances for a start.
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The state of the public finances (whether good or bad) has a profound effect on the rest of the economy and cannot be ignored, especially when the capacity of the government to spend anything depends on it.


I understand the point you are making. In relation to the PS pay rises though, given the gap that already exists between the private and public sectors would you not think that the same money could be spent by reducing income taxes for everyone rather than giving pay rises to the few?
 

No, because any tax cuts will disproportionately favour those who pay most taxes. And if public sector wages are greater than private sector wages then effectively increasing the (purchasing power) gap even further, whilst simultaneously leaving a bigger hole in public finances.
Alternatively, a wage increase, will tend to have knock on effects throughout the economy, spurring wage increases elsewhere, inducing demand, reducing reliance on welfare, increasing tax take, reducing wealth gap as more capital is transferred to labour.
I'm not saying that there is no time ever for tax cuts, just not now. The focus should be on reducing wealth gap. Increasing wages can help that.
 

If group A has higher wages than group B and you cut taxes for both then group A will still take home more money as they earn more, I get that. But if instead you just raise wages of group A only, are you not increasing the gap further?
 
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