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Zizzi, the Italian restaurant chain, is the latest company to push back against Chancellor George Osborne’s decision to raise the minimum wage. Employees are to have their free food allowance restricted, and waiting staff will receive a lower share of tips. Other companies, such as Caffé Nero and Tesco, have also announced changes to compensation schemes to offset the rise in the minimum wage to £7.20 an hour, and then to £9 by 2020.
On the face of it, it looks like Osborne’s policy is backfiring. But that would be a rush to judgement. While some companies clearly object to the impact of higher minimum wages, others take the position that better-paid staff are more content and motivated, and that the challenge is to change business models to derive higher productivity.
Moreover, the rise in the minimum wage is part of a larger international trend. In the US, a strike by New York fast food workers struck a chord and led to the creation of the Fight for $15 campaign, supported by Democratic presidential candidate Bernie Sanders. Wage policies are being rethought in many countries—bringing attention to the concept of the universal basic income (UBI). The idea of UBI is to replace existing social security benefits with an unconditional subsistence-level income given to all citizens, poor and wealthy alike. Finland and the Netherlands are conducting experiments with this system and on 5th June, Switzerland will hold a referendum on whether to introduce UBI, though it seems unlikely to pass.
Proponents of the UBI believe that it would be a fairer and more comprehensive way of approaching income inequality. A guaranteed income would allow people the flexibility to look after children or ageing parents, retrain or acquire additional education, and start businesses. It would also strengthen the formation of demand in the economy.
Opponents argue that the UBI would be too expensive, however it was paid for (redistribution or a combination of redistribution and higher productivity, for instance). They feel that the UBI will discourage the lower-paid from seeking or taking up work, and lead to higher unemployment.
The most compelling argument for the UBI stems from our evolving social and economic organisation. Radical advances in digital technologies, robotics and artificial intelligence will transform our society beyond our capacity to imagine at this point. Already, new technologies are undermining an array of middle-wage paying, middle-skill level occupations, not just low paid and low skilled ones.
These new technologies are distributing rewards disproportionately to the owners and providers of capital, and to those companies and entrepreneurs who are in the forefront of wealth creation. Textbook economics tells us this is as expected. But it brings to mind the apocryphal conversation between Henry Ford and the Auto Workers union boss, Walter Reuther during a tour of a newly automated factory. “Walter, how are you going to get those robots to pay your union dues?” said Ford. “Henry, how are you going to get them to buy your cars?” replied Reuther. In the end, productivity growth allowed Ford’s workers the wages and the wherewithal to buy. But you get the point.
If we automate, digitise and use robotics more, how will people consume what new technologies allow us to produce? If they don’t or can’t, we are in Marx’s world of over-production and under-consumption. We can redistribute income, but only so far. Eventually, productivity growth will come to the rescue, far-fetched though this seems in the near future. We didn’t foresee the productivity rise as the early IT revolution took root, and we can’t see the productivity shift that will come in the future. In the meantime, we will need new coping mechanisms to help people through a complicated transition, and our economies to sustain an essential growth in demand. Higher minimum wages are the start of this debate, and much to the chagrin of some companies, an enabling catalyst too.
Now read: Will artificial intelligence wipe out economists?
Zizzi, the Italian restaurant chain, is the latest company to push back against Chancellor George Osborne’s decision to raise the minimum wage. Employees are to have their free food allowance restricted, and waiting staff will receive a lower share of tips. Other companies, such as Caffé Nero and Tesco, have also announced changes to compensation schemes to offset the rise in the minimum wage to £7.20 an hour, and then to £9 by 2020.
On the face of it, it looks like Osborne’s policy is backfiring. But that would be a rush to judgement. While some companies clearly object to the impact of higher minimum wages, others take the position that better-paid staff are more content and motivated, and that the challenge is to change business models to derive higher productivity.
Moreover, the rise in the minimum wage is part of a larger international trend. In the US, a strike by New York fast food workers struck a chord and led to the creation of the Fight for $15 campaign, supported by Democratic presidential candidate Bernie Sanders. Wage policies are being rethought in many countries—bringing attention to the concept of the universal basic income (UBI). The idea of UBI is to replace existing social security benefits with an unconditional subsistence-level income given to all citizens, poor and wealthy alike. Finland and the Netherlands are conducting experiments with this system and on 5th June, Switzerland will hold a referendum on whether to introduce UBI, though it seems unlikely to pass.
Proponents of the UBI believe that it would be a fairer and more comprehensive way of approaching income inequality. A guaranteed income would allow people the flexibility to look after children or ageing parents, retrain or acquire additional education, and start businesses. It would also strengthen the formation of demand in the economy.
Opponents argue that the UBI would be too expensive, however it was paid for (redistribution or a combination of redistribution and higher productivity, for instance). They feel that the UBI will discourage the lower-paid from seeking or taking up work, and lead to higher unemployment.
The most compelling argument for the UBI stems from our evolving social and economic organisation. Radical advances in digital technologies, robotics and artificial intelligence will transform our society beyond our capacity to imagine at this point. Already, new technologies are undermining an array of middle-wage paying, middle-skill level occupations, not just low paid and low skilled ones.
These new technologies are distributing rewards disproportionately to the owners and providers of capital, and to those companies and entrepreneurs who are in the forefront of wealth creation. Textbook economics tells us this is as expected. But it brings to mind the apocryphal conversation between Henry Ford and the Auto Workers union boss, Walter Reuther during a tour of a newly automated factory. “Walter, how are you going to get those robots to pay your union dues?” said Ford. “Henry, how are you going to get them to buy your cars?” replied Reuther. In the end, productivity growth allowed Ford’s workers the wages and the wherewithal to buy. But you get the point.
If we automate, digitise and use robotics more, how will people consume what new technologies allow us to produce? If they don’t or can’t, we are in Marx’s world of over-production and under-consumption. We can redistribute income, but only so far. Eventually, productivity growth will come to the rescue, far-fetched though this seems in the near future. We didn’t foresee the productivity rise as the early IT revolution took root, and we can’t see the productivity shift that will come in the future. In the meantime, we will need new coping mechanisms to help people through a complicated transition, and our economies to sustain an essential growth in demand. Higher minimum wages are the start of this debate, and much to the chagrin of some companies, an enabling catalyst too.
Now read: Will artificial intelligence wipe out economists?
