To wonder why people think "raise the NMW" is the answer to poverty?

[windowwashingbanshee]

Without wanting to refer to another thread too much (...), I did at seeing yet another comment about raising the minimum wage being the answer to poverty.

I'm a small business (co-)owner. Five of our permies are on NMW, the starting point for all employees, with potential raises; having worked on NMW for years myself, I'm a firm believe of retaining people, rather than just hiring cheaply (too short-term thinking for me). Nevertheless, whichever way you look at it, we need fairly unskilled labour - it's warehouse work - packing, sorting, bagging, and preparing labels for shipping. Our work is fairly seasonal, with dips which are mostly predictable. When that happens, and orders are low, I normally focus on doing other things - making sure people are up to date on their training, we usually have a volunteer day which everyone can opt into, permitting extra-long holidays, and so on.

However, in those times we barely break even some years. And although the balance of the busy months makes us profitable overall, I know I'd face huge pressure to let one or two employees go every year if the NMW was put up to a "living wage" suddenly, depending on the length of the dip, or move to some sort of zero-hours contract situation, which I don't want to do.

I'm not sure I'm explaining it properly - but basically I can afford to keep under-utilised employees on full-time in quiet periods if they're paid NMW right now. If I had to pay several pounds more per employee, us "just breaking even" would tip into "making a loss", because the productivity of those employees wouldn't be worth the £8 / £9 (or whatever) it had been raised to.

So, AIBU to think that the posters who claim that "raise the NMW" is the miracle that would end poverty in this country are being quite short-sighted? It seems that way to me.

Whilst I can fully comprehend what everyone is saying, surely if people are only willing to pay a certain amount for a product, a product that is a result of unskilled labour, then it is only possible to pay the labouror a low wage as a result.
So any company making unskilled products can only afford to pay people a low wage (nmw in this case).

Wage is often as a result of what people are willing to pay for a product, until people are willing to pay more for a product, then the manufacturer can't increase wages because there is no money to increase it with.

But to pay more for unskilled products would make the cost of living higher.

(I know what I mean, not sure how good a job I've done of explaining it)

@chesty I understand that. And I don't mean to cause offense but I don't really see why the tax payer should be funding your (hypothetical) unwillingness to take on more work or higher wages, any more then they should be willing to subsidise the OP's profits.

Our systems are pretty good internationally, lets face it if they weren't people wouldn't risk their lives to come and be part of it. Our expectations and sense of entitlement are ridiculously high and people are too happy to blame others rather than question their own life choices.

@trainee willingness to pay more is dictated by income though, surely?

Ethelb - If I earnt more but not lots more it would be impossible for me to work as I wouldnt be able to afford it. If minimum wage went up and childcare thresholds didnt I would have to go on benefits. What on earth is the point in that?

How much tax do you pay? How much is your NI bill? How much are your fuel bills? Is VAT a cost to your customers?

Somebody is presumably ensuring that your employees have a roof over their heads, food on the table etc. etc. It might even be you, OP. If you dont pay your employees a living wage it'll just be harder to clarify which line of the accounts is bearing the cost.

Also ethelb the taxpayer is getting something out of it cheap labour to provide all your goods and services.

Indeed ethelb but surely increasing wages and then increasing product prices defeats the whole object as you hit an even keel as we are now.

*objective

Trainee, I do understand your point, but I don't think it always works like that. Otherwise you wouldn't have cheap products in supermarkets paying millions to CEOs and shareholders.

I don't know. Maybe as a tax payer I'm not interested in the op's goods and services and I'd rather buy something else?

If NMW is increased then product prices will increase meaning its still not a liveable wage and tax credits have to top up anyway.

All it will do is devalue the pound.

Raising NMW would not necessarily increase prices if it were funded by tax breaks and money that is already being paid out in tax credits.

If it costs X to survive yet you can only get a job that covers half of the living costs, what are you supposed to do? Just accept it and curl up and die?

Why is it ok to expect people to earn scraps?

Increase wages, reduce tax, use disposable income to pay higher prices.

Alternatively, increase wages, reduce tax and NI for small businesses.

Atleast then the taxpayer gets to decide not to give their money to tesco's.

It would also de value middle jobs because companies could not afford to pay more money to everyone. So the middle jobs would be worth less.

But we are all paying the wages now. It just gets deducted from our take home pay as income tax and added to the cost of goods as vat.

That's the biggest problem I see crawling. Although I completely agree that minimum wage needs to be higher, I also think that other jobs would need to be paid in line with that.

But at the same time as paying those at the bottom and the middle more, wages at the top would have to decrease as well. And lets face it, no one with the power to change things is going to do that.

The problem is with the distribution of wealth. But we shouldn't be using taxpayer money to readdress the balance via tax credits, it needs to come from within business.

I don't think it's the answer, but a big reason why the government has to pay out so much in benefits is that wages are too low to cover the cost of living (chiefly housing costs).

So the options seem to me to be
(a) Continue paying benefits to the same proportion of working people as at present in order to cover the gap
(b) Take action to reduce housing costs
(c) Take action to increase wages

or some combination of the three. Any of these is going to have a negative impact on a large number of people, and I can entirely see why you don't want the government to do the one that will impact on you specifically -- but then homeowners who don't own businesses don't want anything to hit house prices, and you don't have to look very far to find people who resent the proportion of tax income that's spent on benefits.

The problem is that increasing wages won't necessarily help with housing costs. As others have mentioned - increase one lot of wages and it will filter its way up the company and suddenly everyone's buying power "increases". So they can afford a better house - or a house at all! Except because everyone can demand increases, prices go up and we just settle at the same status quo but with a higher price tag attached.

But an increased NMW wouldnt increase the amount of money in somebody's pocket. It would just increase the proportion they received as salary and decrease the proportion they received as benefits.

Higher earners might lose salary, but the tax burden would also be reduced (or tax money spent in other ways). It's more about changing the way the money flows in the economy than changing the amount of money in the economy.

bigkidsdidit - there is a lot of academic economic discusison about a universal benefit and Ian Duncan Smith talked about a 'universal benefit' but it but it became sort of bastardised into the dreadful catastrophic tax and benefits system the Coalition are cobbling together.

To think I actually voted for the Conservatives at the last election.

So yes the status quo remains the same, but I don't have to subsidise any old employer (cigarette factories, people who mistreat their staff, Ryan air) just because they have badly paid staff.

On the other hand If there are essential industries that require support to function economically ( nurseries?) I'm happy for them to receive financial help.

But surely the status quo would change...At the moment, some people on NMW get tax credits/housing benefit. But how much they get (if at all) depends on the shape of their family i.e. a mother/father working full time to support two children will receive more than a single person who may in fact receive nothing.

If you increase NMW you aren't just increasing it for the people who do get tax credits - you're increasing it for everyone.

I'm not saying that's right or wrong but it will change the dynamics. In reality NMW would have to rise massively to provide adequate income to support a family and it probably never will.

I'm not sure what the answer is

So as a childless person I can see the bigger picture Clouds but others arent prepared to do that when its the other way around.
Yes an ill partner should be getting some money in their own right but that is in an ideal world and we dont live in that world.
There are many carers who are working and having to support an ill partner. Disabled and ill people are on the recieving end of five seperate benefit cuts from April.