Higher Pay= Less Jobs?

NOTE: Apologies in advance for frequent followers of this blog- a couple of points mentioned here have been picked up on before. This isn’t down to laziness- more the fact that the topic this piece covers is inextricably woven into other issues that I’ve previously attempted to tackle.

One of the things that gets me most frustrated in political discussions is the notion that higher pay (say, raising the minimum wage) will always lead to less jobs- with the conclusion being: we shouldn’t do it. The most glaringly obvious solution to the problem presents itself to even though the most casual of observers, and yet the answer seems to elude most of our politicians- take it from the top. 

In his absolutely brilliant book “When Corporations Rule the World” David Korten talks of the economic “pie”. He argues that instead of obsessively pursuing a larger pie to try and create better standards for all, what we really need to be doing is looking out how we serve the pie up. Instead of pursing perpetual growth in a finite world, and divvying it up increasingly unfairly (thus not changing a damn thing for the poor when the pie gets bigger) what we need to be doing is to start cutting the pie more equally. The money is there to provide a better life for all- it’s just not distributed correctly. Of course, reducing pay for their CEO’s or taking a knock to their profits can make a business lose it’s competitive edge and thus a policy such as a living wage paid for out of the above is unfair to said business- but this isn’t an issue if all businesses are having to do it.


Let’s look at the problem from the perspective of both big and small business:

  • Big business can absolutely afford to pay its workers more without having to lay any off. In fact, it has been, consistently, for a long time- since 2010 the average income of FTSE 100 CEO’s has soared– it’s just relatively small wage increases for the poorest paid workers that these delicate businesses apparently can’t handle.
  • Small business would be able to if it wasn’t for the unscrupulous practices of an ever more oligarchic looking economy causing them to cling to a tiny share in the market. A business that literally cannot afford to pay its workers a living wage is not a viable business- and so many small businesses are not “viable” because of being pushed out of the market by bullying big business.

“A vast consolidation in U.S retailing has produced giant “power retailers” that use sophisticated inventory management, finely tuned selections, and above all, competitive pricing to crowd out weaker players and attract more of the shoppers dollar…”” (“Channeling Big Stores’ Awesome Clout” Business Week, December 21, 1992,98)


So perhaps it’s possible- but why would we want to do it?

  • http://www.youtube.com/watch?v=u6XAPnuFjJc- this link details the research surrounding the limits of money as an incentive. Essentially, additional money only works as an incentive for more manual/repetitive work- for the top positions that require large commitment and passion it actually decreases performance. This suggests we should redistribute the incomes somewhat between the highest paid and the lowest paid. This has a two pronged effect, in that by diverting money otherwise destined for the CEO or the bankers bonus (that has be shown to decrease productivity) we’re now putting it into low paid workers incomes thus increasing their productivity at the same time as not decreasing the CEO’s. We now have higher productivity rates for a business, yielding higher profits, creating the potential for more jobs (the opposite of what wage increases are supposed to do!) all without spending a single extra penny.
  • Poorer people spend a larger percentage of their money than the rich do. Redistributing the wealth is good for the economy– more money is being reinvested in the local economy, which again drives growth of business’, which again has the potential for creating more (not less) jobs.
  • The multitude of negative social ramifications of rampant inequality, documented by the brilliant Equality Trust, ranging from higher crime rates to poorer education.
  • That old notion we don’t see much of anymore in politics- it’s the right thing to do. The idea that the richest deserve their money is an idea I’ve already tackled in my blog. So let’s assume you agree with me that the rich don’t deserve their money (we’re talking about the millionaires here)- how on earth can we advocate a system that doesn’t allow us to re-distribute some of this wealth? How on earth can we advocate a system that says 85 CEO’s are as important to us as half the worlds population? How on earth can we be ok with a system that inevitably leads to unimaginable wealth for the few at the cost of crippling poverty for the many? Ironically those with the most money in this world are not the ones that ultimately bear the cost of our current economic system. Essentially, if you agree that the richest don’t deserve what they earn but don’t support a living wage either, then you’re saying you’re ok with all of the above. 

The power of the wealthiest is born on the back of the poor- if the state doesn’t intervene with a living wage then extortion and increasing inequality at the hands of neo-liberalism will continue to tear our societies apart and condemn billions to abject poverty. If you don’t think the lowest paid deserve a pay increase then that’s another debate to be had, but don’t justify it by claiming it can’t be done without rising unemployment- because it can. You’ve been tricked into believing we can only have high employment or high wages- but this isn’t true. We can have both once we rid ourselves of greedy CEO’s heading profit-driven oligarchies, presided over by a neo-liberal state. The Tory’s can try and placate us with a pathetic increase of 19p to the minimum wage in the lead up to the next election, but it’s not even close to being enough. I don’t often bring my party into my blog, but on this occasion I think it’s warranted. The Greens have the policy in their 2010 manifesto that the highest earner in a company cannot earn more than 10 times that of the lowest paid worker. Now, whether the ratios are correct or not is open to dispute, but the notion is absolutely spot on if we ever want to tackle inequality- a notion that makes the Tory efforts look weak and pale in comparison. We desperately need a living wage for all in our society, we boldly need to challenge inequality, and we absolutely can afford to do it. In fact, when it comes to a living wage, I don’t think we can afford to not do it.


Higher Pay= Less Jobs?

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