A thought experiment - if benefits were abolished for people in work, would the market respond and increase wages?

[OrlandoWoolf]

Probably not.

But if working tax credits, housing benefit, etc were abolished over time so people had less income, would the market respond by paying people more so they could get workers - and would the housing market respond in some way so it was more affordable?

Or would people be screwed?

I suspect the latter.

Their are not enough jobs, people would still accept jobs on shit wages because their only other option would be poverty. you would just see and increase in families sharing accomodation etc. Back to the good old victorian days where large families lived in a room in a house with shared cooking and toilet facilities

Um, no- you're supposed to be grateful you have a job. It's very easy to replace you with someone who will work for less remuneration and stability, who will be more flexible, and not expect employee rights.
Cough

No. Landlords would also be buggered as many of them pocket huge amounts of Housing Benefit. People would be homeless/bankrupt left right and centre.

I don't think it would - too many larger downward pressures on wages, some of which are globalised.

No, the market would employ young people whose minimum wage was less and if they couldn't get workers affordable to them then their businesses would fold and the economy would be fucked.

Individuals would be better off out of work and the benefits bill would go through the roof.

The housing market would stagnate as people couldn't move because of negative equity and being unable to get on the next rung of the ladder.

I claim tax credits and child benefit. I earn an ok wage, but we would sink if we couldn't claim those.

We would lose our house. In a very short space of time. DH is out of work, has been for two years and has tried really hard to find something. I don't think that denying us those benefits will make work available or make my employers pay me more.

I have wondered about this a lot. The pressure to cut the benefits bill is leaving those of us who need in work benefits to keep any kind of standard of living confused and alienated from the main political parties. I wonder what affect a legally enforced living wage would have on inflation and investment from overseas companies.

Economics suggests that, except in extreme cases, it would be 'a bit of both' i.e., wages paid would increase, but not by as much as the in-work benefits lost. At the moment in-work benefits are subsidising employment and that subsidy is shared between employers and workers.

Who is getting more of the subsidy and would therefore lose most if it was withdrawn? That depends on which is more sensitive to wages, the workers or the employers. If you think that works will work at almost any wage, however low, whereas employers would cut back on employment if wages were too high (reducing production, moving it overseas, or using less labour intensive methods) then that implies that workers would lose out more i.e., wages would not increase very much if in-work benefits were withdrawn. If you think it is the other way round (workers would not work for a lower wage, but employers would still want workers at a higher wage) then that implies the wage would increase a lot.

I think the first scenario is more realistic in most cases, but it would vary. Wages in services would probably increase more because that employment is far less easily moved elsewhere than in manufacturing, say.

Does that suggest then that cutting in work benefits would probably be bad for manufacturing investment in this country? And many services are transferred overseas such as call centre employment.

would the market respond by paying people more so they could get workers They can get workers now, even though people's crappy wages need to be topped up with benefits in order for them to survive. Changing benefits wouldn't make the market do anything different - why would "the market" care?

I think you'd have to assume simultaneous abolition of the minimum wage, since that is the only way you could expect 'the market' to operate. It would also depend on what happened with other benefits, as if they remained the same the incentives to work would be different. I would guess that wages might actually reduce as people accept whatever work they can find and work as many hours as possible. As people would be desperate employers would be able to reduce wages. Rents and house values, particularly at the lower end,would have to fall. But that might have to happen at a different rate to changes in incomes. So there would be a mix of reducing housing costs and people living in unsuitable and overcrowded spaces. Inequality would increase. Average living standards would fall. Some businesses might become more internationally competitive due to lower wages, but that might only compensate for lower spending in the country.

It's an interesting thought experiment.

until recently i was working 15 hours a week so a total wage of £412 a month my rent was £400 so without housing benefit and council tax benefit which was all i got i would theoretically have been left with £12 a month, so that would be me not paying gas, electric, water rates, council tax so living in a £400 a month house with no facilities, and £3 a week to feed and clothe myself that would be brilliant wouldnt it, luckily for me i now have two jobs which pay all my bills so am not on benefits any more

It would just lead to more poverty. People would still work for shit wages as it's better than nothing at all.

Legally enforcing a living wage would make more small companies go bust and cause big companies to cut the number of employees.

There aren't enough jobs as it is in many areas and the current estimation of a living wage is fine for one person but wouldn't support a family even if both parents were earning it when childcare is factored in.

My dh earns just over the living wage which barely pays the bills, never mind food and clothes. If I was earning the same we'd be okay but add in childcare bills and we'd be sunk, especially over school holidays.

I'm not saying that a living wage should support two adults and half a dozen kids but it should allow for childcare, bills, food, clothes etc. Both parents can't be out earning if childcare is more than one parents wage.

in fact i would be homeless due to not being able to pay the bloody council tax either so a tent for me it would have been

I don't think it would do anything but drive wages and conditions down. If people couldn't afford rental prices then landlords might eventually have to drop the prices but if they're neither able to cover their costs nor sell a loss making property then that will mean they have to scrimp on maintenance. If the property market collapses (as opposed to just falling) then you'll have an economic crisis.

Since only 1 in 5 renters claim HB i think it would only have a slight affect on the rental market. Might free up a few council / HA houses though.

If homeless charities are already 'housing' people under bridges and in car parks (inc families), I guess they'd become a lot busier.

Damn that might be true if only HB were affected. If all in work benefits were stopped and companies were able to drive wages down through desperation for jobs then that would have a far greater effect.

Lots of people on here like to claim that tax credits are a subsidy to employers. The greater availability of workers as a consequence of the existence of the tax credit system presumably does drive down salaries a bit. However the tax-credits system only exists to counteract a problem caused by out-of-work benefits, that some people are better off not working. So any downwards pressure on wages caused by in-work benefits needs to be set against upwards pressure caused by out-of-work benefits. The minimum wage will also exert some upwards pressure on wages.

I'd be interested to see if anyone can link to any research that says overall wage bills would be different if there were no interference in the market from benefits and the minimum wage. (Looking at the effect of tax credits only would be a one-eyed approach.)

Many renters are still reliant on tax credits though.

It would be the 1930s all over again. The only reason that depression ended was because Europe dragged the world back into war.

Personally I want neither of those events to happen again.

If employers paid their employees a living wage and rental prices were under a degree of state control, then you could abolish most in-work benefits.

Exactly odd
In a nutshell.

I have a horrible feeling that the Tory manifesto promise of no tax for minimum wage workers working 30 hpw will be used as a fig leaf to remove in work benefits like tax credits and housing benefit. I also think it's why they are claiming the 30 hours child care is worth £5000 (not for everyone though).

They have not explained where the £12billion in benefit cuts is going to come from.

Giving (not much) with one hand and raking benefits back with the other.

I think it's right and proper to have in-work benefits.

Different people have different levels of responsibility for dependants. Businesses need to balance the cost of employing a person with the amount of value they can generate from the amount of work that person can do and can't magic up wages out of nothing.

Ideally we want it to be the case that if people put in a fair day's work they get a reasonably comfortable lifestyle. However, if this was entirely achieved by wages then the non-parent 25 year old living a "student style" life in a shared house has massively more disposable income for luxuries than the 25 year old single parent. By achieving it with a combination of wages and benefits, the government can increase the income just of those who need it, without increasing the income of those who don't.