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Minimum wage woes… on the right. July 29, 2015

Posted by WorldbyStorm in Uncategorized.
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Entertaining editorial in the SBP on the minimum wage rise proposals. It argues that:

There is a contradiction in government policy on helping small businesses. On one hand, it wants more people to start up their own companies and is considering a range of tax breaks. Yet it is prepared to choke off existing firms with extra and (in many cases) unaffordable costs, including the proposed increase in the minimum wage by 50 cent to €9.15 an hour.

And:

This proposed increase will have no impact on multinational firms, but will damage employers in the real Irish economy who provide the vast majority of jobs in Ireland. The retail sector, coffee shops, pubs, restaurants and hotels across the country, which have barely stayed above water and are only now beginning to feel confident enough to start hiring again, will be hit hard.

While:

If it really wants to put more money back in workers’ pockets, then the tax system is the way to do it, rather than a further imposition on small business.

But is that correct? Surely tax cuts are simply going to lead to lower government revenues with consequent problems in relation to provision of services. And there’s another issue. It’s not as if the government doesn’t already through various supports attempt to take up some of the slack from low wages. Indeed the editorial doesn’t address the issues at all regarding the fact that this state is already a very low wage economy.

Stephen Kinsella writing in the same edition is a little more sanguine.

Basic practice says something rather different to the theory: minimum wages keep many people from outright poverty, reduces the power of employers to abuse their employees, and ensures a standard below which society decides it is not possible to live well. Employers, on the other hand, can simply manipulate the other variable in their control – hours worked – and so keep their wage bills as low as possible.

Overall, research shows the effect of an increase in the minimum wage isn’t expected to cause the sky to fall in. This can be expected to hold. The number of people on the national minimum wage at the end of 2014 was about 70,000, or 4.4 per cent of the total in employment. About 9 per cent of all employees earn up to €9 an hour. Making a small change to a small part of the population probably won’t change the overall characteristics of the population.

Perhaps it is to be expected that the SBP editorials will attempt to push back as best they can against policy they dislike. But… it would be no harm for them to be a bit more, well, rounded, in terms of the analysis when making the case.

Comments»

1. CL - July 29, 2015
2. Ed - July 29, 2015

“This proposed increase will have no impact on multinational firms, but will damage employers in the real Irish economy who provide the vast majority of jobs in Ireland.”

By the by, but that’s really one to cut out and keep for the future: the SBP casually acknowledges that multinational firms aren’t part of ‘the real Irish economy’ and don’t account for ‘the vast majority of jobs in Ireland’. In other contexts, we’d find any right-wing policy of choice—tax cuts for high earners, low corporation tax, ‘light-touch’ regulation, making private school fees tax deductible, letting the Yanks use Shannon, painting over a Che Guevara mural in Clare, feeding every third-born red-headed child to a lizard in a stetson at the Red Cow roundabout—argued for on the grounds that it’s necessary to appease the multinationals, or else disaster will ensure. Now we have a frank admission that most of the money that swirls in and out through the accounts of US MNCs (and grossly inflates the GDP figures that Kenny and Noonan like to smirk about) doesn’t make a damn bit of difference to the real economy in the Free State. As I say, keep that one on file for the future.

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