The impact of social transfers on labour productivity

[joe sod]

That would be true if the Irish workers were actually getting the 388 euros per hour as wages.

But, of course, they're not. The 388 gets divvied up between the workers, who provide the labour, and those who provide the capital and/or the enterprise. We don't tax, or tax fairly lightly, the slice that goes to the providers of capital/enterprise; that's the core of our strategy for attracting inward investment. Hence it's the slice that goes to the workers that gets taxed

That's the reason why I'm bringing up the whole issue of labour "productivity " which you yourself introduced into the debate and you were so vehement about. It's a completely ludicrous statistic. You said that if technology and investment results in more production or higher value output well then the workers are more productive. I used examples above to illustrate how ludicrous that is when you bring it to its logical conclusion.
In reality we should be using the median wage as the true reflection of Irish worker output, then when you compare that with welfare rates you get the true reality of what is happening here.

 

[Protocol]

Productivity in Ireland 2022 - 2023 - Central Statistics Office

www.cso.ie

Productivity in Ireland 2022 - 2023​

 

[Purple]

Productivity in Ireland 2022 - 2023​

Very stark when you see it like that.

 

[Purple]

Most countries have tax systems that incorporate a mix of the two kinds of tax. The optimal balance between income taxes and capital taxes is a much-debated question with no clear, demonstrable answer.

Just on this; while the number of billionaires in the world is increasing at an unprecedented rate and their wealth is also increasing at an unprecedented rate while simultaneously housing affordability is deteriorating across the developed world and the amount of labour required to buy an asset is increasing (a 35 or 40 year mortgage instead of a 20 year mortgage is just that; the manifestation of more work needed to acquire an asset.), it seems obvious to me that there’s something fundamentally wrong with the system as it is.
Because of our taxation system even HAP is just using working people’s money to rent the use of capital from a cohort which is disproportionately made up of really wealthy people. It’s a transfer of wealth from labour to capital. I’m not talking about small landlords for whom that rent is personal income, I’m talking about institutional investors. There’s nothing inherently wrong with the structure, the problem is how we tax it. At the moment our taxation system exacerbates the problem. If we taxed wealth then that problem would be greatly diminished.

 

[TomEdison]

No more than our politicians, particularly our pseudo-socialist ones, conflate wealth and income so they also conflate labour productivity with overall productivity, and so the destination of the wealth it creates... and tax accordingly.

I don't think the tax stratgegy is based on confusion. It's a rational strategy; they tax the labour income because they can't tax the capital income, for the reason already mentioned; the capital is only here because, and for so long as, we tax it and the income it generates at low or nil rates.

The rational course in this situation is (a) to tax labour income, and (b) to pursue strategies that will raise wage rates so that the capacity to tax labour income is increased and the burden of the labour taxation is easier for the workers to bear.

And, lo, we do have a relatively high-wage high income-tax economy, which is the outcome you'd expect if this rational strategy were pursued successfully.

 

[TomEdison]

That's the reason why I'm bringing up the whole issue of labour "productivity " which you yourself introduced into the debate and you were so vehement about. It's a completely ludicrous statistic. You said that if technology and investment results in more production or higher value output well then the workers are more productive. I used examples above to illustrate how ludicrous that is when you bring it to its logical conclusion.

That is how labour productivity is conventionally measured, as the examples you yourself produced show. You may call it ludicrous but I think your're pretty much on your own there.

When you give a navvy mechanised tools instead of a shovel and a pick his productivity is increased; that's literally productivity 101. And we don't suddenly redefine productivity just because the magnifying effect of capital investment on labour output is 1,000% or 10,000% rather than just 100%.

 

[TomEdison]

Because of our taxation system even HAP is just using working people’s money to rent the use of capital from a cohort which is disproportionately made up of really wealthy people. It’s a transfer of wealth from labour to capital. I’m not talking about small landlords for whom that rent is personal income, I’m talking about institutional investors. There’s nothing inherently wrong with the structure, the problem is how we tax it. At the moment our taxation system exacerbates the problem. If we taxed wealth then that problem would be greatly diminished.

The rental market as a whole is a mechanism for transferring wealth from labour to capital . The problem here isn't really the HAP subsidy; it's the very high rents. Workers living in rented accommodation transfer a large, and ever-increasing, share of their income to the owners of that accommodation.

So I think it's a mistake to say that "there’s nothing inherently wrong with the structure, the problem is how we tax it". It;s the structure itself that effects the wealth transfer, and this wouldn't change signficantly if HAP were abolished. There may be a problem about how we tax it but, if so, the problem is likely to revolve around how the tax system underpins or reinforces the structure, rather than incentivising change. (Which is an interesting question, and worth exploring. And HAP might be apart of it, but my guess is a pretty small part.)

 

[Purple]

I don't think the tax stratgegy is based on confusion.

Either do I. I think it's based on outdated assumptions.

It's a rational strategy; they tax the labour income because they can't tax the capital income, for the reason already mentioned; the capital is only here because, and for so long as, we tax it and the income it generates at low or nil rates.

The rational course in this situation is (a) to tax labour income, and (b) to pursue strategies that will raise wage rates so that the capacity to tax labour income is increased and the burden of the labour taxation is easier for the workers to bear.

And, lo, we do have a relatively high-wage high income-tax economy, which is the outcome you'd expect if this rational strategy were pursued successfully.

This is a international problem. What we do and how we tax capital will have no read bearing on the problem. Just as we can't fix climate change in Ireland but rather contribute to a global solution so we cannot fix this problem in isolation.

 

[Purple]

That is how labour productivity is conventionally measured, as the examples you yourself produced show. You may call it ludicrous but I think your're pretty much on your own there.

When you give a navvy mechanised tools instead of a shovel and a pick his productivity is increased; that's literally productivity 101. And we don't suddenly redefine productivity just because the magnifying effect of capital investment on labour output is 1,000% or 10,000% rather than just 100%.

The problem is calling it labour productivity rather than just productivity or even output per hourly unit. Calling it labour productivity implies that it is the labour input which is the dominant factor determining the productive output when increasingly it is the capital input which determines the output. This is part of the reason we tax labour instead of capital.

 

[TomEdison]

This is a international problem. What we do and how we tax capital will have no read bearing on the problem. Just as we can't fix climate change in Ireland but rather contribute to a global solution so we cannot fix this problem in isolation.

It's a global problem, but we have to deal with it in a way that takes account of our context. We tax labour income heavily because we tax capital income lightly because we don't have the luxury of choice; we cannot tax capital income heavily. Other countries do have some choice about that but we don't.

The problem is calling it labour productivity rather than just productivity or even output per hourly unit. Calling it labour productivity implies that it is the labour input which is the dominant factor determining the productive output when increasingly it is the capital input which determines the output.

We call it labour productivity to distinguish it from capital productivity.

Suppose an enterprise has a workforce of 20, and €5,000,000 of capital assets. It generates earnings of €4,000,000 per year.

- The labour productivity of that business is the ratio of earnings to the labour input. (Conventionallly expressed in as an hourly rate, to faciliate comparison. If the workers work 2,000 hour/year, that's a total of 40,000 hours so the labour productivity of that business is €100/hour. (But not all fo that will, or can, accrue to the workers as wages.)

- The capital productivity (or return on capital, as it's more commonly called) looks at the ratio of earnings to capital, expressed as a percentage — in this case, 80%. Again, not all of that accrues to whose who provide the capital (the shareholders) as dividends.

It is not implied that the labour productivity is so called because labour is the sole or dominant factor in producing it. If the business had the same 20 workers but no capital assets then it would produce nothing, and labour productivity would be nil. Similarly if it had the capital but no workers it woudl produce nothing, so the return on capital is also not solely or predominantly due to the capital assets. Both measures depend on the combination of labour and capital.

 

[Purple]

- The labour productivity of that business is the ratio of earnings to the labour input. (Conventionallly expressed in as an hourly rate, to faciliate comparison. If the workers work 2,000 hour/year, that's a total of 40,000 hours so the labour productivity of that business is €100/hour. (But not all fo that will, or can, accrue to the workers as wages.)

Yes, that's understood. My point is that it's an increasingly meaningless measure. In that hypothetical very capital intensive factory it would be much more meaningful to measure energy cost per hourly output. The labour input is neither a meaningful cost or an influence on output.

Where I work, in a small manufacturing business in Dublin, we used to have a person at each machine. When they walked away from the machine it stopped. Now we turn the lights out on a Friday afternoon and turn them back on when we come in on Monday morning and the production has continued unabated.