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Higher minimum wages to solve imbalances in the Euro-zone would probably result in a disaster. In areas where countries like Germany directly compete with poor

by phicoh 7y ago

Higher minimum wages to solve imbalances in the Euro-zone would probably result in a disaster. In areas where countries like Germany directly compete with poorer countries, they do so by having more and better automation. Productivity is not that people work harder, is it that there are more machines to do the work. The net effect of raising wages is that there will be more automation, largely negating the increase in wages. By it self this is not a problem. Where is goes wrong is that within a country, there are many jobs that cannot be automated easily. In particular, with an aging population, you need lots of nurses and other care takers. Increasing minimum wages with sole goal of reducing export imbalance can make those cost go through the roof, and generally lower the standard of living for a large part of the population. Reducing the cost of 'care' and other jobs that dependent on personal service, is already very important to improve the standard of living.

bildung 7y ago
Not disagreeing that poorer economies need more automation. But when looking at countries it is very important to not only look at wages as cost. Especially in Germany the low wages result in low domestic demand, which results in the country being a net exporter again and again. Rising wages, especially minimum wages, are mostly spent domestically on services (think going to the hairdresser instead of cutting your own hair, or finally using healthcare as needed). Germany was a wonderful field experiment for exactly this in the last years, as it was one of the two countries out of 27 European countries not having minimum wage laws. After implementing minimum wage (starting at 7€ something, now at 9.20€/h) pretty much zero job loss could be observed, depending on market segment quite the opposite. Because wages are not only costs, but also create demand. In Germany, the lower 60%(!) of the population only hold 3% of the wealth. In other words: Almost every € earned gets spent on consumption. If those people earn more money, they spend more money, thus creating demand. Automation is a real thing, but then again what gets automated aren't those low wage jobs in the service economy - it's mostly work in higher income brackets. And the automation can result in severe disruption in local market segments, but overall it doesn't result in less employment - see yearly productivity growth and employment rates of most industrialized economies. Just look at the United States, which currently has nearly full employment despite currently being the world center of (software) automation.
- MagnumOpus 7y ago
  > one of the two countries out of 27 European countries not having minimum wage laws [...] zero job loss could be observed Even before minimum wages, Germany has very high sector-level minimum wage due to union tarrifs that are binding for non-union employees. Job losses were negligible because the number of people that have been affected by the minimum wage was rather small. > the lower 60% of the population only hold 3% of the wealth. Germany has state pensions that you can live on comfortably, and renter-friendly housing laws. So people don't need to own a house as a retirement plan (unlike much of the rest of the world).
  - bildung 7y ago
    > Even before minimum wages, Germany has very high sector-level minimum wage due to union tarrifs that are binding for non-union employees. True! Those were for the "high-paying" low wage jobs, though - mostly in construction. Gastronomy, hotel industry, haircutters etc. didn't have those. Wage laws in construction mosty were already at more than 9€/h before country-wide minimum wages were implemented. I can't really agree on that being the reason for no observed loss of jobs though - there are too many other examples of successful minimum wage laws in other regions where the feared job losses failed to materialize, too [1]. >> the lower 60% of the population only hold 3% of the wealth. > Germany has state pensions that you can live on comfortably, and renter-friendly housing laws. So people don't need to own a house as a retirement plan (unlike much of the rest of the world). Yes, my angle was a bit different, though: As middle class and upper class earn more, they can afford to save more. Saving, though, does mean that the money saved doesn't take part in the economy anymore (or at least to a lesser degree). If a low-wage person gets lets say 100€ more per month, that money will get spent almost completely at places like groceries, haircutters etc. - places that also have relatively low wages, which means those people will also spend the money completely and so on. A rise in minimum wages gets you the most bang for the buck, if your goal is stimulation of domestic demand. [1] As one example New Jersey in the US: https://www.nytimes.com/2015/07/17/opinion/paul-krugman-liberals-and-wages.html https://www.nytimes.com/2015/07/17/opinion/paul-krugman-libe...

by phicoh 7y ago

bildung 7y ago

Not disagreeing that poorer economies need more automation. But when looking at countries it is very important to not only look at wages as cost. Especially in Germany the low wages result in low domestic demand, which results in the country being a net exporter again and again. Rising wages, especially minimum wages, are mostly spent domestically on services (think going to the hairdresser instead of cutting your own hair, or finally using healthcare as needed). Germany was a wonderful field experiment for exactly this in the last years, as it was one of the two countries out of 27 European countries not having minimum wage laws. After implementing minimum wage (starting at 7€ something, now at 9.20€/h) pretty much zero job loss could be observed, depending on market segment quite the opposite. Because wages are not only costs, but also create demand. In Germany, the lower 60%(!) of the population only hold 3% of the wealth. In other words: Almost every € earned gets spent on consumption. If those people earn more money, they spend more money, thus creating demand. Automation is a real thing, but then again what gets automated aren't those low wage jobs in the service economy - it's mostly work in higher income brackets. And the automation can result in severe disruption in local market segments, but overall it doesn't result in less employment - see yearly productivity growth and employment rates of most industrialized economies. Just look at the United States, which currently has nearly full employment despite currently being the world center of (software) automation.

MagnumOpus 7y ago
> one of the two countries out of 27 European countries not having minimum wage laws [...] zero job loss could be observed Even before minimum wages, Germany has very high sector-level minimum wage due to union tarrifs that are binding for non-union employees. Job losses were negligible because the number of people that have been affected by the minimum wage was rather small. > the lower 60% of the population only hold 3% of the wealth. Germany has state pensions that you can live on comfortably, and renter-friendly housing laws. So people don't need to own a house as a retirement plan (unlike much of the rest of the world).
- bildung 7y ago
  > Even before minimum wages, Germany has very high sector-level minimum wage due to union tarrifs that are binding for non-union employees. True! Those were for the "high-paying" low wage jobs, though - mostly in construction. Gastronomy, hotel industry, haircutters etc. didn't have those. Wage laws in construction mosty were already at more than 9€/h before country-wide minimum wages were implemented. I can't really agree on that being the reason for no observed loss of jobs though - there are too many other examples of successful minimum wage laws in other regions where the feared job losses failed to materialize, too [1]. >> the lower 60% of the population only hold 3% of the wealth. > Germany has state pensions that you can live on comfortably, and renter-friendly housing laws. So people don't need to own a house as a retirement plan (unlike much of the rest of the world). Yes, my angle was a bit different, though: As middle class and upper class earn more, they can afford to save more. Saving, though, does mean that the money saved doesn't take part in the economy anymore (or at least to a lesser degree). If a low-wage person gets lets say 100€ more per month, that money will get spent almost completely at places like groceries, haircutters etc. - places that also have relatively low wages, which means those people will also spend the money completely and so on. A rise in minimum wages gets you the most bang for the buck, if your goal is stimulation of domestic demand. [1] As one example New Jersey in the US: https://www.nytimes.com/2015/07/17/opinion/paul-krugman-liberals-and-wages.html https://www.nytimes.com/2015/07/17/opinion/paul-krugman-libe...