Wages and beer

George Osborne suggests an increase in the minumum wage to £7 per hour. Sounds good! Let's look at this more closely.

This means an 11% increase in wages. But the worker pays more taxes, so it's an 8% increase in what goes into the pay packet. And a 47% increase in what the government gets in income tax. So, nice for the worker, even nicer for the government, and with the deficit, sorely needed. Good all round then!

Hang on.  That money comes from somewhere.  Ah ... the employer pays an extra 12%

Now let's look at another suggestion - a minimum price for alcohol. The idea is that by enforcing a minimum price, this pushes up the price of alcohol, which reduces consumption.
That makes some sense - it's usually the case that if the price of something goes up, people buy less of it. If I were a heavy beer drinker and they put the cost of beer up by 15%, I'd probably buy less beer. More malt, yeast and sugar, of course, because brewing your own beer (which I used to do) is easy, fun, safe, legal, and costs 25 pence per pint.

So, if a pushing up the price of alcohol is expected to reduce alcohol sales, what happens if the government pushes up the price of employing someone?

Just as for beer, there's substitutues. The substitute for buying beer, is malt, yeast and sugar. The substitutes for employing someone, are:

a) Employ someone where labour is cheaper
b) Use a machine
c) Stop doing the labour-intensive thing, and do something that needs less labour


All of these end up with less employment. How much less? I don't know, and I don't think anyone else does. Do our politicians care? I doubt it. Increasing the minimum wage looks good, sounds good and does your election prospects good, and after you've done it, you can point to loads of people who are 8% better off.

And the people who become unemployed as a result? They don't have a voice.