Tim Harford: Low pay and the rise of the machines:
The Living Wage (with capital letters) is a target set by campaigners for a good solid hourly wage – currently £8.55 an hour in London and £7.45 an hour elsewhere. That’s 20 per cent above the legal minimum wage rate. A lot of people don’t make that much money. Some of them will be doing just fine – £7 an hour isn’t bad if you’re 17 years old, living with mater and pater and saving up for a gap year somewhere sunny – but others will not.
I feel like I’ve heard about all this before. Why are we talking about it now?
It’s the new narrative for the Labour party. Here’s the awkward thing for Labour: the economy is slowly picking up steam. So how to attack George Osborne, the chancellor? Ed Balls, shadow chancellor, could argue that Mr Osborne deserves no credit for the upturn – that government austerity made the depression longer and deeper than necessary. To an economist that’s pretty plausible. To the voting public it doesn’t seem to have much bite. And so the new story – pushed by Mr Balls and his deputy Rachel Reeves this week – is that while it’s welcome that the economy is recovering, the problem is that hard-working families aren’t benefiting.
Why is it always “hard-working families”? The phrase conjures up images of a family with six kids, all chained together and sent down a coal mine.
Can we skip the stylistic criticism for a moment and talk about the economics?
What is powerful about this story is that there’s a lot of truth to it, and little Mr Osborne can do is likely to change it. And if Mr Balls were chancellor, little he could do would change it either. There are forces at work in the world economy that are making it hard for people with traditionally valuable skills to prosper…. People are replacing “labour” with “capital” – that is, employing fewer people, or paying the people they do employ less, and replacing them with machines or computers…. Some people can get more done in an automated world – but others find themselves shoved out of skilled work and into poorly paid alternatives. So inequality increases. The arrival on the scene of China and other major low-wage economies has also played a part….
“Predistribution”… means fixing inequality without the need to resort to redistributive taxation… improving education… bullying big companies to pay better wages to their most junior staff…. Germany has been reliant on low-wage jobs and flexible working conditions as much as anyone – perhaps more than most, as the economist Adam Posen has argued. Even employment in China’s manufacturing sector is in structural decline: it was at its highest back in 1996.