Sunday, 30 May 2010

Ed Milliband asks for a 'Living Wage'

"You need a statutory minimum wage which is mandatory, but I think we need to go beyond that. We can call upon employers, local councils and others to do better than what’s legally required and pay the living wage ... And frankly, why are we doing this? Because justice and a belief in dignity at work says that people shouldn't be paid poverty pay if employers can afford to pay them a decent living wage. That’s why we’re going to be campaigning for it, and it’s going to be a central part of my leadership campaign as well"
Ed Milliband, proposing a 'living wage' of £7.16 an hour

Minimum wage. It sounds like a great idea. A free lunch for all, justice for the poor, increase peoples purchasing power. However it creates as many questions as it sets out to solve. What is a living wage? What level should a minimum wage be priced at? 10p an hour? £100 an hour? Could I argue that my wage is not adequate for my personal wants and desires? Is the pay of an Asian worker on less than a dollar a day a working wage? Was it fair that our ancestors had to send their Children to work from an early age often under dangerous and hazardous conditions? Was it fair that my Granddad left school at 15 and signed up for the second world war at 17, yet myself and my father enjoyed a University Education? What is fair? If we raised peoples wages, wouldn't prices just rise, justifying yet further increases to offset these rises? If its that easy to make people more prosperous why don't we just keep pushing this price ever higher.

When confronted with the issue of a minimum wage 99 people out of a 100 would immediately say it is a good thing. We see the initial policy, thinking that it increases peoples living standards. Of course the opposite is true, its price fixing, just like arguing that the price of bread is too high. When the government implements a policy of raising peoples wages it means that any job that could be done for that lower price has now gone. It makes outsourcing a job to China, or replacing the position of the person with technology that much more cost effective. Why do we have such high youth unemployment? Why have we got an ever growing underclass who are priced out of the employment market? If they were in reality to raise the price to over £7 an hour, this would be a disaster. This would not hurt the 'rich capitalists' it would hurt the very people it was intended to help, the poor and vulnerable among society.

A fundamental premise of economics is prices. Buyers desire a price as low as possible, sellers want a high price. A wage is a price. Workers (not just "working class workers", as the divisive term is used by the left, but ALL labour),  the seller, want as a high a wage as possible, the company, the buyer, wants to pay as low as possible. Market forces ensure equilibrium's are established. If too low a wage is offered then an employer will not be able to fill a position. Offer a dentist £10,000 and you are going to be looking for a very long time. The employee offers too high a wage for his/her particular services then no one will employ them, as other people exist that can do the job for less. 

Think of it like a consumer good, a wage is just a price. There is no exploitation taking place here, both the buyer and seller agree with each other a fair price. If the worker thinks the price is too low they are welcome to exit the agreement. I'm a real life example of such a concept. I have raised my wages 250% in the space of 5 years yet I am a member of no Union, nor do I use a minimum wage to achieve this. I use the market to determine what I am worth and thus accept the fair price I am offered.  

Price equilibrium's exist to measure an individuals productivity. In a true free market the wage you command is how productive you are. Now we may not think of David Beckham as very productive, he just has to open his mouth for us all to see this. However in reality, he is. He's a global sports icon that can shift millions of consumer based products for a company. The product he promotes could be pants, but many are sucked into short term marketing campaigns and fads. He draws support from all continents of the globe, increasing his clubs revenues. Why do think Real Madrid bought him? However if we were to all stop watching football, buying the products he advertised, Beckham would be worthless. No conspiracy, this is how markets work, prices, supply and demand. Beckham quite clearly offers millions of consumers around the world a product that they want. 

Its the same for all of us. Why does a Brain Surgeon get paid more than a shop assistant? Its the productivity. You can't pull Joe Bloggs off the street on minimum wage and ask him to get a tumour out of someones head. The shop assistant does not require the same specialisation, therefore there is a wider scope of labour that can perform the duty. Again you can take it further, there is only one David Beckham, rendering his services a monopoly.

'These companies are making millions, why can't they spare some money for the workers?'. Complex issues are never black and white. The idea that company profits enrich some wealthy parasite that creams off the workers labour - the 'real wealth producers' - is not true. Profits are a market price, a signal used to determine which companies can utilise and mobilise societies resources effectively and meet the needs of peoples demands. A profit tells private capital "Ok, we can meet peoples needs effectively, we need more resources to help society". It can go into a number of avenues, such as expanding operations. It more commonly goes into paying stock holders a dividend. I have a pension pot and I no doubt receive dividends from multinational company somewhere. Does that make me a wealthy individual who creams off societies resources? Of course not. Profit doesn't just sit idly for the rich, it is a price that helps us all. So long as it is genuine free market profits, not Government propped up monopolies such as the Banks at that moment.

The world doesn't owe you a living, you have to go out there and offer something to society. For those in real need, the free market can do a much better job in providing welfare for those in genuine need than the state. Can you imagine if we didn't tax our entrepreneurs half of what they are currently taxed? They already do a lot of charity work but it would no doubt be a lot more. The competent who have proved themselves, rather than politicians with no such legitimacy, could provide help for those in need. For the majority of us, it would be offering what we could to society. No feeling sorry for ourselves, or wallowing in our own self pity of how we get 'screwed'. Get real. My Granddad fought a war during his teenage years while I got a world class education for practically free. Student fees? So what, I pay it as a tax, it gets cleared when I reach 50, and if I don't earn sufficient income at sometime in the future then they don't chase me and payments get reduced or suspended. Hardly a hardship. 

The left patronise the lower income people of this country, believing they are doing them a service by raising the minimum wage but all they are doing is taking further jobs away from them. Again a real life example. My Girlfriend worked in Bingo as a Student. Practically all the staff were on minimum wage. Every time the government raised this price management had to contemplate letting people go as their wage bill would rise. If they passed these costs onto the punters, then a drop in revenues would occur due to the higher Bingo prices and drop in customer numbers. It was a real headache, one that no doubt if raised to over £7 would cause a lot of issues for the business. Same in manufacturing, if the productivity of the worker is lower than the cost, the work goes over to China. 

Would raising the minimum wage to £7.12 solve the issue? Let me put it like this, did establishing a minimum wage when Labour came to power in 1997 solve the issue of a living wage? Has it been solved since through various increases down the years? It's an idiotic policy that appeals to people emotions over rational reasoning. Increase it to £10 - to £100 - it won't solve the living wage issue. Its the free markets reign over societies capital structure that solves the living wage issue.


  1. Ed can sell his minimum wage to the masses but not recommend reductions for public sector workers who have no capital or risk tied up in their position

  2. If we raised peoples wages, wouldn't prices just rise, justifying yet further increases to offset these rises? If its that easy to make people more prosperous why don't we just keep pushing this price ever higher.


    Same in manufacturing, if the productivity of the worker is lower than the cost, the work goes over to China.

    Well, we certainly won't need to agree to disagree on this one. I'm in complete agreement.