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September 17, 2009



I don't agree with your view on the minimum wage, but clearly that would give the CSJ a simple get-out that would appeal to many Tories - scrap the minimum wage. So I wonder if you are reading too much into their 600,000 figure.


Hmm... I can see politicians of any, all and no party being slightly unenthusiastic this year and the next three about a measure which promises to increase unemploymnet counts by 500,000 plus.

Mark Wadsworth

I have been reading back and forth in that report since yesterday and it is surprisingly wimpy. Asking for the NMW to be scrapped would be a shoe-in, if he also had the guts to call for a radical reduction in total withdrawal rates.

While his idea of sort-of universal benefits (with little or no distinction out-of-work and in-work benefits) is a good step in the right direction, his vaunted 55% benefit withdrawal rate is in addition to normal PAYE (after a disregard to really confuse matters, of course) so it still comes to 69%.

If, instead of keeping 30% or less of £5.74, lower earners were keeping 50% of £4, that would increase the number of hours that employers are prepared to pay for and/or reduce the cost of employing people, everybody's happy.

To actually try and model this is making yourself a hostage to fortune, but that's no reason to assume that he is actually wrong.

Plus he doesn't realise how easy it would be to have universal benefits with a total 50% withdrawal rate, the PAYE system is already geared up for this. Workings here:


Richard T

The fallacy with all these straightline projections is that the available jobs are not where the unemployed (and the long term sick on benefits)are. Take the inner cities - maybe excepting London - and the former industrial and mining areas; just where is the work? How does someone who is long term unemployed get to what jobs exist, which are normally at a distance from where folk stay? If you take Iain Duncan-Smith's road to Damascus in Easterhouse, where's somewhere there going to find a job? Maybe central Glasgow 10 miles away but at basic wages.

The theory may be grand but the simple practicality falls over.


Although the report is a hefty 369 pages long and contains a lot of detail, its underlying assumptions indeed look very shaky.

In the absence of the full model formulae it really does seem that CSJ assume that all that is required to create 600,000 new jobs is to tweak the benefits system to reduce financial 'disincentives to work' - AFAICS no account whatsoever is taken of labour market conditions and particularly of the regional factors Richard points out here.

Costs are always easier to calculate than benefits and I am also deeply sceptical of the benefits they have calculated to offset those very hefty (but probably still radically underpriced) costs.

Given how many of the reports authors are members of free market think tanks they also show a touchingly naive faith in the ability of bureaucracies to radically reform themselves out of existence in just three years.

For a start the IT implications are probably as if not more complex as those of the NHS IT system - and look where that is after nearly a decade of development.

However one very interesting aspect is the suggestion that rather than withdrawing benefits on starting work these would be recouped by employers through PAYE - and would thus be genuinely universal benefits (at least to anyone whose ever signed on).

This and the shift from 51 to 2 (why not just one?) benefits would constitute a big step towards a negative income tax/MGI - although the authors are rather coy about this.


If you are having an in-work benefit system then you need some form of minimum wage as a long-stop.

This is known as the Speenhamland problem, after an earlier experiment with wage supplementation for the poor (1790s to 1844). The net result was to drive down wages at the expense of raising taxes, to, according to the Poor Law report of 1844, a level at which no worker could survive without accepting Poor Law subsidy.

The converse problem is responsible for much of the complexity of Housing Benefit - Landlords have an incentive to raise rents to the maximum Government will subsidise.

The other main part of the 1844 report recapitulated regularly by both main parties is that the level of out of work benefits should be lower than the lowest income from a worker in the marketplace (otherwise known as Making Work Pay). Minimum wages work together with benefits to provide a socially acceptable minimum level of income.


" Macro isn’t merely micro writ large."

What?! When I stand up at a play or a sporting event I can see better. But you're telling me that if everyone stands up together we can't all see better?

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