Post by Deleted on Aug 15, 2014 14:40:50 GMT
I nearly broke my promise (to myself) to stay away from REBS discussion threads. A regular poster with a deserved reputation for intelligent questioning asked one of the borrowers whether they paid the Living Wage rather than 'just' the minimum wage rate of £6.40/hr to care assistants.
I'm not even sure they're worth £6.40 an hour every hour, day in, day out, but what's the living wage, about £8 or something? So a care assistant should now be able to support a family, buy a house and so on? That's mad: why, if this is so, doesn't everyone just become a care assistant?
I'm making this controversial thread because I hate non-controversial acceptance of horrible ideas. If someone wants to make the case for a Living Wage, please do!
But I'm going to make the case against it.
What IS the price of labour? When we go to work as someone's employee, benefiting from the systems in place, the equipment, the arranged bookings and so on, we're selling our labour to the company. How is the price arrived at?
Well, the most a company can pay an employee is the net profit that comes from their working for the company rather than not.
That means if, after all costs taxes etc. and a margin of profit to cover replacement of equipment, future growth, contingency funds for hostile government interference, etc. etc. etc.
if........ the business is £6.40 better off for every single hour that you work, or for £6.40 on average over all the hours you've worked...... then they can pay you £6.40.
But what if you can't generate that much profit? That's quite a lot of profit. Consider something less governmental than care assistants (because calculating in an environment like that can be tricky): consider an easy example: a fast food joint.
After the costs have been paid (business rates, VAT, the various income taxes, corporation taxes, national insurance contributions (both 'sides') and so on, plus of course raw materials, utilities, equipment running costs and replacement, cleaning, head office costs (ongoing management, human resources, payroll, legal, etc. etc.) and so on, and on, and on) the profit you generate comes from sales, or rather a tiny part of sales.
So if you stand around for an hour and nobody comes in, your average drops not by the profit part of sales but by the whole thing. The next hour you have to bring in much much more just to put the average back where it was before.
When you stop to think about it, it's a miracle anyone makes any money at all! But carrying on with the thought experiment........ let's say most employees at the local burger bar or whatever DO manage to consistently create £6.40 every hour of clear profit: money that would not exist were it not for their presence.
That then is their maximum wage. To make it really attractive to an employer to hire you, they want more than a gamble that for the most part they might break even, so your actual labour value is lower.
To be employed you have to make the company better off than they would have been without you. To do really WELL, you have to make it so that they'd be actively harmed if you left.
To do AMAZINGLY well, you have to make them come to believe that you're a key asset.
There are a few problems with the minimum wage laws. One is a humanitarian concern: what happens to those workers who at the present time stand virtually no chance of being worth £6.40 an hour?
Let's say you have a learning disability, a criminal record, no work record since school and no references. You can't stick to a task without supervision and you find it hard to turn up in the morning.
You're not worth £6.40 an hour and any employer taking you on, short of outright charity, would be mad to do so.
So what, it's ILLEGAL for you to work? Yes pretty much, although there are plenty of people willing to let you work for nothing!!!!!!!! £0.00 an hour is so much better than, say, £4.50 an hour right?
It doesn't sit well with me that we do things that deliberately disadvantage people who were disadvantaged to start with.
Imagine an alternative situation: a person just like the one I described above IS allowed to work at a lower rate, so someone who knows them somehow decides to give them a try. £4.50 an hour.
They start off badly and the company makes a loss but this is to be expected of any new employee. As time goes by, the surprise is that not only is the new guy bringing in his wages but he's actually bringing in £5.20 an hour.
After a year he's a dab hand. He no longer larks around behind the till or throws the burgers on the ground, but instead he has regular customers who come in specifically to see him: they like being around him cos he's smart and funny and presents the food 'just so'.
Before you know it he's worth £6.40 an hour and you know what happens? He gets head-hunted by another company who heard he was popular and reliable and want to out-compete that backward-looking burger bar that only pays peanuts.
The difference between that world and our own is one of time: given the chance to find his feet, even marginal labour will increase in value. In a free society matey in the thought experiment has to take a drop in pay for a while while he increases how much he can bring to the table, then he ends up at the same level as anyone else. In the minimum wage law world we live in, he's banned from working at all and never gets any better.
If he's at the level of performance he was at at 16 when he's 45, he's never going to get anywhere....... but crucially there are armies of People Who Know Best ready to suck the blood out of him in the name of 'support'.
So what of these care assistants? Are they really being underpaid if they're worth £6.40? It's hard to tell, but if there are companies in the world offering more (or they could set up on their own of course!) then we'll soon find that staff turnover is high. If that happens, and the company starts to lose really amazing people and instead has to keep training new people, if they're sensible they'll raise the wages.
But if they're NOT raising the wages and there ISN'T a leakage of good workers but rather there's a long queue of people wanting to get in, then they won't raise the wages because the wages are about right (or even actually too high).
What should our attitude be as investors to those workers' pay rates? We should want them to be right. If the company's paying the wrong prices for its inputs, its outputs are going to be wrong as well.
I actually have a pet theory which I'm not a good enough economist to prove, but it's this: when the mandated minimum price of labour is increased, lower order factors of production rise disproportionately in price because they're having to bear separate and diverse labour costs at the higher stages of production over and over. By the time the lower order factors are priced, there's so much distortion much of the downward pressure is alleviated.
(This will also apply to minimum alcohol pricing: if alcohol is not a highly preferred use of grain and its ability to pay higher prices increases, it may become a more preferred use, impacting other uses such as food production. I predict that if comrade Cameron (or his redder brother across the way) does implement such an idea, bread prices, breakfast cereals and so on will rise sharply.)
What use are higher wages if there are higher prices?
And since this is a somewhat political post, consider the role of the electronic till in raising the value of the labour of that marginal worker. How much does he gain as a free gift from capital by being artificially and prosthetically able to give the right change? We should be very wary of destroying money which would otherwise be used for capital investment. If anyone wants to discuss Thomas Piketty, bring it on!
I'm not even sure they're worth £6.40 an hour every hour, day in, day out, but what's the living wage, about £8 or something? So a care assistant should now be able to support a family, buy a house and so on? That's mad: why, if this is so, doesn't everyone just become a care assistant?
I'm making this controversial thread because I hate non-controversial acceptance of horrible ideas. If someone wants to make the case for a Living Wage, please do!
But I'm going to make the case against it.
What IS the price of labour? When we go to work as someone's employee, benefiting from the systems in place, the equipment, the arranged bookings and so on, we're selling our labour to the company. How is the price arrived at?
Well, the most a company can pay an employee is the net profit that comes from their working for the company rather than not.
That means if, after all costs taxes etc. and a margin of profit to cover replacement of equipment, future growth, contingency funds for hostile government interference, etc. etc. etc.
if........ the business is £6.40 better off for every single hour that you work, or for £6.40 on average over all the hours you've worked...... then they can pay you £6.40.
But what if you can't generate that much profit? That's quite a lot of profit. Consider something less governmental than care assistants (because calculating in an environment like that can be tricky): consider an easy example: a fast food joint.
After the costs have been paid (business rates, VAT, the various income taxes, corporation taxes, national insurance contributions (both 'sides') and so on, plus of course raw materials, utilities, equipment running costs and replacement, cleaning, head office costs (ongoing management, human resources, payroll, legal, etc. etc.) and so on, and on, and on) the profit you generate comes from sales, or rather a tiny part of sales.
So if you stand around for an hour and nobody comes in, your average drops not by the profit part of sales but by the whole thing. The next hour you have to bring in much much more just to put the average back where it was before.
When you stop to think about it, it's a miracle anyone makes any money at all! But carrying on with the thought experiment........ let's say most employees at the local burger bar or whatever DO manage to consistently create £6.40 every hour of clear profit: money that would not exist were it not for their presence.
That then is their maximum wage. To make it really attractive to an employer to hire you, they want more than a gamble that for the most part they might break even, so your actual labour value is lower.
To be employed you have to make the company better off than they would have been without you. To do really WELL, you have to make it so that they'd be actively harmed if you left.
To do AMAZINGLY well, you have to make them come to believe that you're a key asset.
There are a few problems with the minimum wage laws. One is a humanitarian concern: what happens to those workers who at the present time stand virtually no chance of being worth £6.40 an hour?
Let's say you have a learning disability, a criminal record, no work record since school and no references. You can't stick to a task without supervision and you find it hard to turn up in the morning.
You're not worth £6.40 an hour and any employer taking you on, short of outright charity, would be mad to do so.
So what, it's ILLEGAL for you to work? Yes pretty much, although there are plenty of people willing to let you work for nothing!!!!!!!! £0.00 an hour is so much better than, say, £4.50 an hour right?
It doesn't sit well with me that we do things that deliberately disadvantage people who were disadvantaged to start with.
Imagine an alternative situation: a person just like the one I described above IS allowed to work at a lower rate, so someone who knows them somehow decides to give them a try. £4.50 an hour.
They start off badly and the company makes a loss but this is to be expected of any new employee. As time goes by, the surprise is that not only is the new guy bringing in his wages but he's actually bringing in £5.20 an hour.
After a year he's a dab hand. He no longer larks around behind the till or throws the burgers on the ground, but instead he has regular customers who come in specifically to see him: they like being around him cos he's smart and funny and presents the food 'just so'.
Before you know it he's worth £6.40 an hour and you know what happens? He gets head-hunted by another company who heard he was popular and reliable and want to out-compete that backward-looking burger bar that only pays peanuts.
The difference between that world and our own is one of time: given the chance to find his feet, even marginal labour will increase in value. In a free society matey in the thought experiment has to take a drop in pay for a while while he increases how much he can bring to the table, then he ends up at the same level as anyone else. In the minimum wage law world we live in, he's banned from working at all and never gets any better.
If he's at the level of performance he was at at 16 when he's 45, he's never going to get anywhere....... but crucially there are armies of People Who Know Best ready to suck the blood out of him in the name of 'support'.
So what of these care assistants? Are they really being underpaid if they're worth £6.40? It's hard to tell, but if there are companies in the world offering more (or they could set up on their own of course!) then we'll soon find that staff turnover is high. If that happens, and the company starts to lose really amazing people and instead has to keep training new people, if they're sensible they'll raise the wages.
But if they're NOT raising the wages and there ISN'T a leakage of good workers but rather there's a long queue of people wanting to get in, then they won't raise the wages because the wages are about right (or even actually too high).
What should our attitude be as investors to those workers' pay rates? We should want them to be right. If the company's paying the wrong prices for its inputs, its outputs are going to be wrong as well.
I actually have a pet theory which I'm not a good enough economist to prove, but it's this: when the mandated minimum price of labour is increased, lower order factors of production rise disproportionately in price because they're having to bear separate and diverse labour costs at the higher stages of production over and over. By the time the lower order factors are priced, there's so much distortion much of the downward pressure is alleviated.
(This will also apply to minimum alcohol pricing: if alcohol is not a highly preferred use of grain and its ability to pay higher prices increases, it may become a more preferred use, impacting other uses such as food production. I predict that if comrade Cameron (or his redder brother across the way) does implement such an idea, bread prices, breakfast cereals and so on will rise sharply.)
What use are higher wages if there are higher prices?
And since this is a somewhat political post, consider the role of the electronic till in raising the value of the labour of that marginal worker. How much does he gain as a free gift from capital by being artificially and prosthetically able to give the right change? We should be very wary of destroying money which would otherwise be used for capital investment. If anyone wants to discuss Thomas Piketty, bring it on!
