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.

Rents continue to rise in London despite HB being capped st a rate that means there are very few private sector properties available to those receiving HB. So, in areas where there are plenty of tenants/workers competing gor homes/jobs, I can't see abolishing in-work benefits as driving wages up/rents down.

I think if benefits were abolished for those in work but still maintained for those not in work (is that the hypothetical question?) then the costs benefits ratio for many people would mean that they wouldn't work. Some low paid workers on part time hours are subsided to a huge extent by the benefits system and just wouldn't be able to live without that money. I think market forces would mean that some essential jobs which are currently low paid would become much better paid but most would just be lost.

what would be best of all would be for the welfare dependent companies who get away with paying poverty wages were forced to pay a living wage.

My work wouldn't it would just get rid of 6 part timers and probably keep on 3 full timers, small business

I think its totally different a huge company who can afford it not paying a living wage to a tiny business where if wages were increased there would be job losses or ones on a shoestring would have to fold

I think even if the quoted living wage figure was paid people would still need subsidies in many areas. It does seem perverse that some rich business owners get richer by paying shit wages which are propped up by the government but equally I'm sure that many smaller or struggling businesses would go under without in work benefits making it viable for people to work for them.

If there was an equivalent drop in out-of-work benefits, then workers would remain in their jobs and employers would tend to pay the same. However, the drop in benefits might have a negative impact on the economy as whole and mean that there were fewer jobs on offer -> lower wages paid by employers.

If there were no equivalent drop in out-of-work benefits, then workers would migrate towards benefits, leaving a 'tighter' labour market. This would see employers raising wages (unless there was slowing economy) to meet demand.

In summary - unanswerable. typical economics answer

It depends on individual circumstances I suppose. My employer pays a pretty reasonable salary (about £2ph or so over NMW) and I have managed to renegotiate my hours so that apart from school holidays I do not need childcare. However my salary alone would probably just about cover bills and rent, we just could not eat or have clothes never mind luxuries (which are few and far between anyway). I can't see my (or many other) employer(s) thinking it's a viable option to increase my wage by an extra £1-£10ph or whatever the difference would be, they would streamline instead. In short, as a single parent with no one else to pick up the other share of the bills (the same as couples where one has an illness/disability/lost job or has to stay at home to care for a child with SN etc) - I would be screwed unfortunately

Personally, I would like to see a much simpler benefits / tax system. A system less likely to be abused. A system to offer protection and opportunity - encourage entrepreneurship and vitality.

Perhaps a system where everyone over a certain age (18?) got an amount just below a 'living wage' e.g. 10k pa and then scrap the minimum wage. There would then be an explosion in job creation. I would be interested to see how the numbers look for this.

I also think that the non-dom tax break should be on offer to everyone, not just rich foreigners.

Thinking a little more about this - it could easily be argued that the raft of benefits available to workers (tax credits, housing benefit etc) to ensure that they can survive on the NMW, could amount to a general business subsidy, without which some businesses would be unable to compete and others would have vastly reduced profits God forbid.

Why aren't the anti-subsidy wonks beating their drums louder?

Do other countries with similar economies have such a benefits / working tax credit system?

I look to the USA but I think people are left to sink or swim to a degree over there. But countries like Canada, Australia, France, Germany... what do they do?

I keep reading that businesses pay low wages because it's all they can afford but this simply isn't the case for the vast majority of companies. Many companies paying low wages make significant profits and pay managers and directors very generous salaries. The reality is that unscrupulous employers pay as little as they think they can get away with, more responsible ones pay wages that balance (not necessarily fairly) the demands of workers, managers and shareholders.

Higher wages wouldn't bankrupt most companies, and worldwide the experience of raising minimum wages is that (at least to a certain point) it's not destructive of jobs. In fact it can actually boost local economies which is positive for jobs.

Removing in work benefits might result in wages rising, but in the UK (because of very weak employment protection laws) it would probably result in a race for the bottom. The one positive might be that it would improve youth employment levels, young workers having fewer commitments and being able to accept lower wages. But this would be at the expense of families and those with other caring commitments.