The Chigley politics of the living wage

Readers of a certain age will remember the children's TV series, Chigley. At the end of each episode, workers would leave the factory to dance in Lord Belborough's garden. All conflicts were thus ended, and there was happy harmony between aristocrats, factory owners and workers.

Reading the two Milibands on the living wage reminded me of this. Here's Ed:

Businesses which have introduced it tell us that it saves them money.
In reduced turnover of staff.
And lower sickness absence...
So it makes business sense.

And here's David with Dave Prentis:

Paying the living wage cuts absenteeism and labour turnover and raises productivity.

This is not so much "pony politics" as Chigley politics - something that, like Lord Belborough's organ, makes every happy.

This the fallacy of composition. It's perfectly likely that if one or two firms pay higher wages than their rivals they'll attract more motivated staff and enjoy lower staff turnover than their rivals. But these advantages would disappear if all firms pay reasonable wages.And it's possible that the higher labour costs would lead - maybe marginally - to fewer jobs and shorter hours. Efficiency wage theory, remember, is a theory of unemployment.

You might reply here that higher wages would boost demand as workers spent their higher wages. Not necessarily, For one thing - as Ed nearly said - workers would lose around 50p in lower tax credits and suchlike for each £1 of pay rise, so to some extent paying a living wage is partly a form of fiscal tightening. And for another, it's possible that firms won't react passively to higher costs by running down cashpiles, but might instead cut spending on jobs or investment.

I fear, then, that the Milibands are doing what Kristian calls motivated reasoning - they want to believe that something that is morally desirable is also economically efficient.

Such a motivation, however, doesn't arise from the particularities of the living wage. Instead, it's a product of social democratic ideology. The defining feature of social democracy is that there are some positive-sum policies that benefit both capitalists and workers.

Sometimes, this is true. For example, in the 50s and 60s the full employment policies that benefited workers also delivered high profit rates.

But just because something is true sometimes doesn't mean it is always true. Here's an alternative possibility:

Factors such as globalization and (power-biased) technical change have massively depressed demand in the west for low-skilled workers, leading to unemployment and low wages.Policies to rectify this impose costs upon others. These might take the form of higher taxes if the low-skilled get in-work benefits. Or they might take the form of lower profit margins, if a living wage is imposed upon firms. And capitalists' investment function might well be such that lower profit margins lead to lower investment. In this sense, policies to help the low-skilled might well be zero-sum ones, or perhaps even negative-sum ones.

Such a view flatly rejects the Miliband's Chigley politics. But I suspect there's some truth in it. And if there is, then we cannot escape the reality that there is a class conflict.

Comments

[Nofulelike...]

Spot on about the Millibrothers' social democratic ideology fluff. I'm sure Ed is well-intentioned and quite bright in a sort of smalltown academic way; Brother Dave is dim - and just another carpetbagger, hitching a ride on what he takes to be the story of the moment. They're hardly the intellectual movers and shakers that Labour so desperately needs if it's to effectively oppose the dire Cameron government.

[Francis Sedgemore]

This is a fair comment from Chris, and I agree that there is some woolly thinking around the Living Wage. But then perhaps we should not expect so much of politicians attempting to sell an idea with mere soundbites. Even if the idea is essentially a good one.

As a trade union activist who has fought and won media industry battles for the Living Wage, I'm not so bothered that the current campaign, including Living Wage Week, fails to address the root cause of the problem. But the Living Wage affects, or potentially affects, very many people in the here and now, and an improvement in their standards of living is worth fighting for.

As for the bigger picture, I would use the high profile of the Living Wage campaign, and piggy-back on it to argue constructively for longer-term solutions to the problem of increasing wage disparities and the unholy, cross-subsidising alliance between capital and welfare state.

[chris]

@ Francis - you're coming close to regarding the living wage as a transitional demand. Trot!

[Francis Sedgemore]

Trot? Fuck off! I'll have you know that I'm a pragmatic anarchist.

[gastro george]

I get a bit depressed by people opposing the Living Wage - it makes me wonder whether they're arguing in favour of, well, non-living wages.

After all, it's pretty much taken for granted that those companies hiring at non-living wages are effectively being subsidised by the state through tax credits, etc.

And there is no firm evidence AFAIK, that the minimum wage caused additional unemployment.

Rather than an appeal to theories, maybe it might be more useful to look at other countries where low pay is, well, not so low - and what effect that has on employment, etc.?

[Sam]

"Not necessarily, For one thing - as Ed nearly said - workers would lose around 50p in lower tax credits and suchlike for each £1 of pay rise"

That's an average, right? Single people will do better, but a parent with two kids on a modest wage sees an effective marginal tax rate of more than 70%, and in some cases more than 90%.

[Metatone]

Worth noting that reduced absence and staff turnover is often nothing to do with changes in staff composition, but in reduced stress for said staff. So while you'd like to apply an economist's generalisation to the situation, the evidence doesn't support it.

[gastro george]

"... but a parent with two kids on a modest wage sees an effective marginal tax rate of more than 70%, and in some cases more than 90%."

Of course this is the problem, but the problem is means-tested benefits, not the Living Wage.

[Matthew]

I don't see why higher staff motivation would disappear if a rival company also paid higher wages?

[chris]

@ Gastro - I'm not opposing a living wage. I'm just saying that it comes at a cost. I think much more should be done to support the worst off - a citizens basic income would be a start.
@ Matthew - the idea is that staff are motivated to work hard in part by the knowledge that this is the best job they can get, and so they want to keep it. If all employers paid the same wage, this source of motivation would diminish.

[Francis Sedgemore]

"I think much more should be done to support the worst off - a citizens basic income would be a start."

Who's the subversive upstart now, eh Chris? It's funny how libertarian leftists always come back to the idea of a citizens income, yet no establishment politician will touch the policy with a bargepole.

Why? The reasons are no doubt many and varied, but among them is the loss of social control that would come with a citizens income/negative tax regime. It would open a pandora's box of creative potential, and the state, whether it be socialistic or welfare capitalist, cannot allow that. Oh no.

The mythical "Big Society" would become a hideous reality, with many citizens choosing productive voluntary endeavours over office wage-slavery, and others using the citizens income to enable them to become full-time carers. What a nightmare for economists and policymakers – "How could we possibly quantify and control the economic contributions of individuals who choose not to fit into the neat little boxes of our simple models?"

[gastro george]

Isn't that one reason why a Job Guarantee might be better than a Basic Income?

[H]

But if someone, for whatever reason, is less productive than required to be paid a minimum or even living wage, does it not make sense for the state to offer a subsidy?

[Francis Sedgemore]

"Isn't that one reason why a Job Guarantee might be better than a Basic Income?"

Er, no. It's a good reason in principal for pushing our existing ruling class en masse off a cliff, but I wouldn't go so far as to advocate this.

I may be a trade union activist, but I object on libertarian grounds to the post-Keynsian nonsense that is the "Job Guarantee". No-one has a *right to work*, but we have a moral duty to ensure that those without paid employment or income from self-employment have the means to live a healthy and dignified life.

For this to work will require that we better quantify the value of unwaged work, in which case the economists will just have to pull their collective finger out. Maybe it's time to resurrect the "Wages for housework" campaign of the 1980s.

The Job Guarantee is a hideously statist solution to the problem of unemployment. Buffer stock bollocks.

[gastro george]

"No-one has a *right to work*, but we have a moral duty to ensure that those without paid employment or income from self-employment have the means to live a healthy and dignified life."

I was pretty scornful of the "right to work" marches back in the day as well. But on the other hand, if you preferred to be employed rather than on the dole, with no coercion, then why shouldn't the state employ your wasted resource?

[Francis Sedgemore]

Why the state? The state taxes citizens, and redistributes wealth in the absence of other mechanisms for doing so, but just because the state pays wages or benefits doesn't mean that it owns the recipients of such benefits. One of the many points about the citizens income/negative tax is that it shifts power away from the centre.

As far as I know, the vast majority of people want to do something useful with their lives. There are lazy feckless dole scroungers in society, but I suspect that their numbers are few. And because their numbers are few, policymakers will in their cost-benefit analyses at least tacitly settle on a number of acceptable wasters. You cannot eradicate the problems of selfishness and indolence through policing of the welfare system, but you can look to minimise them through good management.

As regards the state employing "wasted resources" - employed doing what exactly? Is the state going to invent jobs for these people? And if they are to do useful stuff, given the way that our open society is organised this is likely to be through the private and voluntary sectors, rather than directly via the civil service and direct labour gangs. And in that case, we come back to the arguments around cross-subsidies between state and capital.

[gastro george]

Why not the state?

You missed my point about "no coercion", and I'm not suggesting this as an either/or. So the state doesn't "own" benefit recipients. If they want to work, then the state should give them some work. If they don't then of course an income guarantee is essential.

Otherwise we end up with the current situation where a lot of people are sitting around because of lack of "demand". When there is plenty of demand - a lot of which would come from reinstating the current cuts in services. Maybe a lot of this work would be organised by charities and voluntary groups - I'm not advocating Maoist-style "voluntary" armies ...

[Francis Sedgemore]

Why not the state? Because we can see what's happening with the development of workfare. The talk is of the state offering jobs to the unemployed, but it is work for wages at unemployment benefit levels, not market-defined rates. The state is doing this in collusion with the private sector, thereby rigging the labour market.

The private sector is being subsided by the state when it comes to the employment of unskilled and low-skilled workers. And through the tax credits system it is doing similar further up the skills chain.

There is certainly a difference when it comes to workfare based around third sector bodies, but the net effect is still to rig the market and drive down wages. And, by keeping wages and benefits so low, it will always be to some degree coercive.

[gastro george]

OK, I understand some of your concerns now. Knowing the slippery character that is politics, a voluntary system can soon become "voluntary" in the hands of the wrong state.

And also, I guess, you could see the possibility of state workers having their wages and conditions undercut by the "reserve army". So to emphasise - I wouldn't be advocating employing people at benefit rates or income guarantee rates, but above that. [Although I concede that the wage rate could be subject to political change]

But, all the same, it's a bit odd that you seem to be asserting "market" wage rates over state-defined wages rates when the history of privatisation shows that the former are likely to be lower than the latter.

[Francis Sedgemore]

I would defer to an economist with hard data on the question of private-state pay differentials, but my anecdotal evidence suggests that the relationship isn't always clear. Yes, we have seen wage drops in newly privatised concerns, but what happens when things settle down? From what I can see, the differentials are not that significant.

Unusually for a trade unionist, I have some residual faith in market forces. Or at least when they are not being blatantly manipulated by barely hidden hands.

[gastro george]

I'd hesitate to defer to most economists given their recent record ... ;-)

I've no problem with market forces - as long as it's a proper market - which is rarer than most think.

Maybe I have too much trust in the idea of a beneficial state but, IMHO, we need to do something about the waste of unemployment rather than rely on the private sector. I would have thought that an appropriately waged Job Guarantee could help with that, and would help push wages upwards generally.