Wednesday, 12 March 2014

Minimum wages

I don't normally do politics here on this blog, so this is something of an experiment.

SNCF, the French train drivers, were on strike again recently.  They were striking in the Rhône Alps, that is prime skiing territory, and on the first weekend of the school holidays, that is the prime ski holiday travel time.  This is of course when they can cause the most disruption, and therefore when they have the most power.  I got to pondering wage negotiations and from there, the minimum wage laws.

A book on "Pricing for Results" (I think) (by John Winkler, available on Amazon) posed the following question in a quiz (paraphrased, and as best I can remember it):  "You run a pharma company, you market a blood pressure treatment that patients are obliged to use for the rest of their lives once they have started it.  The product is obsolete and has been replaced by a cheaper alternative.   Your competitors have ceased production of the old drug and you find yourself with a monopoly on its supply.  What should your pricing policy be?"   The answer was that you should choose a moral pricing policy.

A different book on negotiation posed the following different question "You are a dentist and a patient comes to you for a filling.  You notice that he hasn't paid his last bill.  When do you remind him?  a) Before treatment, b) When he's in the chair or c) On his way out."  The answer was c), since in both the other options you have too much power - in b) you have way too much power and might lose the customer.

I mention these two questions because they make explicit two players, power and morality, that are present in negotiations alongside the antagonists, but being unseen and intangible, are often ignored.  They are usually present in inverse proportions but perhaps they are present together in the greatest negotiators.

Power and morality are present in wage negotiations.  Usually the employer is a company, represented by a person.  Although this person is subject to moral constraints on their actions, the company is not: although it has legal status as a person, a company's behaviour is constrained only by the laws of the land.  A company that further constrains its actions according to moral considerations will (generally) be overtaken by competitors that don't.  On the other hand, people dispute the morality of hiring a person on a wage that cannot sustain their life at some socially acceptable level of comfort and hence they seek laws to mitigate the effects of "too much" employer power.

One of the jobs of government is the creation of a society that conforms (more or less) to the wishes and best interests of the populace.  You could call this social engineering.  This necessarily distorts the natural state of markets, including, where applicable, employment markets: stiff penalties for murder mean that you can never find a professional assassin when you want one, and they're more expensive than they would be in a free market. If you accept that a government should institute a safety net for the poorest of the population so that they don't starve, the question becomes one of what kinds of market distortion (and moral hazard) you are prepared to accept, and to what extent.

We can look at union powers, redundancy legislation, income support, minimum wages, unemployment benefits and so on, in various combinations, delivering different moral hazards, different market distortions, and different results on company competitiveness, employment levels and living standards.  A vote for a minimum wage is often seen as unconstrained: if you vote "yes", then where does it stop?  But it's not, or doesn't have to be.  My personal belief is that a minimum wage can have a part to play in a societal safety net for the poorest among us:  it's one of the tools available,  to be used with intelligence and discretion.


Tim Trent said...

I have a firm belief set that we get what we pay for, and that almost everyone will behave as an adult if treated as an adult.

Thus I am in favour of a sensible, yet not excessive, minimum wage, one upon which, with careful budgeting, it is possible to live a decent life, and yes, state benefits for those who fall genuinely on hard times, or who must live and work in, for example, a high rent area.

For certain classes of worker, things are not right.

Our police must be paid sufficient that bribery and corruption is less and less attractive.

Our teachers must be returned to a position where they are and feel they are recognised as true professionals, because they have care of our young and have far more influence than do parents.

Our nurses need to be both reminded that they start out as dressing changers and comfort givers and progress to the more advanced levels of nursing by education, but the starting pay needs to be elevated reflect the aspiration to become advanced nurses and tat it truly is a dirty job.

Our lawyers, when provided by the state to defend the impoverished, need to be rewarded as if they were hired by private citizens. This ensures that sufficient skilled lawyers are available to represent those who need them most.

Our public servants need to be assessed on merit, and those who deliver little value should be rewarded appropriately. Those in dangerous jobs, or who deal with danger in a real time manner, even in control rooms, need to be rewarded well.

And that leads me to adult behaviour. By implementing this scheme, a scheme which some might see as related to an advanced form of socialism in that it rewards each according to their true value, rather than simply their needs, we treat people as adult.

Those in the highly paid areas must continue to merit the pay or be removed. Those in minimum wage environments see that they can educate themselves to higher wages. Perfect? Not at all. But better, surely, than the system that obtains today.

Helen Devries said...

I think that the minimum wage is a necessity for a decent society...if it is to be set at a rate which allows people to live, rather than to survive and not at a rate which effectively subsidises poor business models by 'topping up' benefit provision.

If only we could leave aside the 'market' model and think in terms of achieving an harmonious society it might be easier to assess the value of various societal roles - and pay accordingly.

It would mean a rethink of the tax situation...but that seems to be long overdue in any case.

James Higham said...

Lucid case and you should do more of it.

James Higham said...

I am going to take you to task at my place for one statement in it though. :)

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