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February 10, 2015

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FromArseToElbow

The term "claimant" is part and parcel of "national insurance" - i.e. you pay your contributions up-front and can then make a claim in the event of misfortune. It has acquired more negative connotations over time (demanding, importunate), but the original sense implied entitlement (a word that has also been demeaned over time).

The term "recipient" is more neutral. You might have a right to receive (e.g. share dividends), or you might be benefiting from the generosity of others ("the dole"). Perhaps the real ideological change over the last 30-odd years is the growing use of the phrase "on benefits", with its echo of "on drugs".

Icarus Green

Shinzo Abe has said relatively similar things in the past about pay rises. Its always funny conservative politicians urging their donors to hike pay when everyone knows the sole purpose of conservative political parties is to reduce worker pay. Of course, they can't actually say that out loud and so talk about "structural reforms" or "efficiency measures".

Dinero


why not take it at face value. He could simply be giving an idea and a prompt to any business with the cash who are inclined to listen to him. And a something for a employee to reference when discussing pay. Regarding terminologies Benefit always struck me as a odd term. Contradictory and politically confusing that a position deemed to be unfavorable be associated with being Benefitial.

Neil

Not sure the point about welfare reduction is correct.

When welfare is reduced employment becomes more attractive, as there is first mover advantage for welfare recipients there will be a shift from welfare into work.

While there may not, initially, be sufficient employment for all those on welfare there will be a net collective benefit in reduced welfare payments and increased output which all things being equal should further increase employment.

This logic cannot apply to wage increases because there is first mover disadvantage so no incentive for the process to start.

Luis Enrique

I am looking forward to headlines about Cameron being anti business

Luke

Neil,
"When welfare is reduced employment becomes more attractive, as there is first mover advantage for welfare recipients..."

Is that right if there are several unemployed per available job? Person A might decide to continue on current benefits rather than take a job, but at least one of persons B,C and D will presumably go for it. There's no reason to think that A (who is demonstrably less motivated) would be more productive in the job than whichever out of B,C and D has the gumption to apply.

Your point would be right if *all* the unemployed were waiting for wages to rise (or benefits too fall), but is that really true now?

Jrhopkin

If welfare reform worked, which it doesn't, it would drive wages down not up.

Ralph Musgrave

A pay rise for all employees would boost inflation, which might induce the authorities to cut stimulus, which would raise unemployment. (Though admittedly with inflation below 2% that might not happen).

Anyway, it would be better to cut profits instead of raising wages. That would result in exactly the same REAL pay rise for employees, while obviating the above possible increase in unemployment.

DavidM

"If higher wages were in firms' individual interests, they would already have raised wages."

When did Chris start to trust managers? Because this is only true if firms have competent managers that actually know their firms' interests and act in consequence, instead of acting to maximise their own personal utility.

Andrew Curry

@David M: to build on your point, Zeynep Ton and HBS colleagues have done a lot of work on the retail sector which shows that companies that pay higher wages as part of a strategy that includes investment in training and increased range of tasks-per-worker get higher productivity and profitability.

But if Walmart has a mental model (a *belief*) that wages are a cost that needs to be squeezed, they won't notice the value foregone through this policy.

https://hbr.org/2006/12/the-high-cost-of-low-wages

http://www.forbes.com/sites/rickungar/2013/04/17/walmart-pays-workers-poorly-and-sinks-while-costco-pays-workers-well-and-sails-proof-that-you-get-what-you-pay-for/

dan

I still don't see how collective action is incentivized and thus regulated.

Individual action is incentivized by reward for risk taking. And the level of risk taking behavior can be regulated remarkably well with monetary policy which aims to match available resources with action.

But collective action is not rewarded by risk taking. By definition the reward for the risk taken by collective action is separated from the risk taking.

It seems to me if some economic activity requires collective action monetary policy is by definition a necessary but not sufficient tool to regulate gdp. But what tool makes policy complete? I don't think macro has very much analysis on this.

In this example, we first need to have a measure to test if Cameron is correct that we need a wage increase, and then we need a policy tool that improves the incentives for the collective action to be taken.

I don't think it is enough to say that this is the job of politics any more than it is enough to say that it is the job of corporations to take risk that can capture the related reward. Both are agents who take the action one has a thoroughly analyzed incentive structure, the other doesn't in an macro framework.

Any ways I was delighted to read your post but I always get left with the same question when this topic is raised.

ChurmRincewind

I think you're all overloading Cameron's statement.

He's just saying to the electorate "I think you should all have more money" and who w
could disagree with that? As Frances O'Grady said, this is "no more than pre-election mood music".

This is electioneering, not economic policy.

redpesto

Businesses or rich people 'receive' tax breaks/cuts while poorer/unemployed people 'claim' benefits?

reason

Dan,
I have no idea what you are on about. If the collective action problem is that cars driving where ever continually block or run into each other, than clear and enforced regulations solve the collective action problem. Similar arguments can be made about compulsory warranties and the lemon problem. Not everything relates to risk and individual incentives.

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