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July 17, 2014

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From Arse To Elbow

Given Montgomerie's audience at The Times and elsewhere, I suspect the answer to your closing question is yes.

Ben

Here is what is forcing people out to work, and has been doing since 1997:

insane housing costs
insane care costs

By design. Housewife/husband provides value but it can't be taxed. The state hates this as it doesn't show up on GDP and they can't get a slice of the action.

Up goes GDP and we are all poorer.

Ralph Musgrave

Chris says “Forcing the unemployed to look harder for work might have increased the effective supply of labour and so bid down wages which in turn has increased demand.” Bit of a dodgy statement that.

As Keynes rightly pointed out, a cut in everyone’s wage achieves very little. That’s because of everyone’s pay (including for the sake of simplicity the pay of employers) falls by X%, then prices fall by X% and we’re all back where we started. The only effect the latter X% change has is that the REAL VALUE of the stock of base money and the national debt rises by X%, which raises private sector savings in real terms a bit, which induces more spending. That’s called the “Pigou effect”. But it’s not a brilliant way of reducing unemployment.

In contrast to the above OVERALL cut in wages, what workfare does do is cut the cost of marginal or not desperately suitable employees for the employer. That in theory ought to cut unemployment (or more accurately, reduce NAIRU, which in turn will result in unemployment falling).

Also Chris says “For another, the minimum wage limits the extent to which wages can fall.” I suggest min wages are irrelevant: the important point is (as I implied just above) that the cost of labour to the employer is cut: employees still get benefits / min wage or whatever.

Strikes me that workfare works in theory, but governments in practice make a complete dog’s dinner of it, as seems to be the case with the Work Programme.


Chris Purnell

"Very many things in the social sciences are true but not very much so."

This is actually too Delphic for me to share its inner meaning. Could you mean 'true but not sharing the full characteristics of truth?' Which would be Wittgensteinian without the language game characteristics.

Frances Coppola (@Frances_Coppola)

Here's Fraser Nelson arguing rather more strongly than Montgomerie that the "jobs miracle" is due to IDS's welfare reforms:

http://www.telegraph.co.uk/news/politics/10973875/Whats-the-secret-behind-our-jobs-miracle-Welfare-reform.html

Unsurprisingly, he doesn't mention falling wages. He doesn't mention the large number of retired people who have rejoined the workforce in the last few years, either - no-one's claiming that benefit reforms have forced them back to work (though they might argue the Bank of England has). Fraser has always been a tad selective with statistics.

Giles Wilkes discusses both, though:

http://freethinkecon.wordpress.com/2014/06/16/when-the-price-stays-down-and-the-quantity-goes-up/

TickyW

Giles Wilkes's thoughts on the subject are the most illuminating. There is no mystery - traditional economic analysis provides an adequate explanation. And it does seem as if the welfare reforms are playing their part.

guthrie

On the other hand, what's the cost of the welfare 'reforms'? IN terms of extra money spent, people harassed and their lives made a misery etc?

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