Wednesday, 26 October 2016

'What is not seen' or Perhaps it is?

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So, is £45Bn the true cost of the National Living Wage?


Mark Wadsworth said...

Easy to estimate.

Low paid worker would get maybe £7,500 a year wage, the value of his output is double that, tops = £15,000.

How many additional jobs would there be if no NMW? I dunno, call it 2 million?

2m x £15 = £30 billion.

So £45 bn is a large number but plausible, being about 2% of GDP.

Bayard said...

"So, is £45Bn the true cost of the National Living Wage?"

Yes if
a) the removal of the NLW would cause the percentage of NEETS to fall from 17% to 10% and
b) each of those 460,000 extra jobs contributed £100,000 to the economy. (From the ONS, there are approximately 6.6M Britons in the 16-24 age range. 7% of that is 460,000. £45Bn divided by 460,000, say 450,000 to make things simpler, is £100,000) How many 16-24 year olds are going to contribute £100,000 a year to GDP in their first job?

So no.

Of course, removal of the NLW might produce an uplift in GDP in other age ranges, but the £45Bn is not a useful figure for estimating that as it a) appears to be made up and b) refers only to the 16-24 age range.

Lola said...

MW / B I am now confused!!! :-)

Bayard said...

L, Mark's back of the fag packet calculation is the best guide. Choose a figure for the number of extra jobs if you don't think 2 million is reasonable, multiply by £15K and there's your answer.

Mark Wadsworth said...

L, as B says, estimating lost output at £100,000 per unemployed worker is ridiculous, that is off the scale, seeing as the average value added per existing worker is more like £50,000.

Clearly, the lost output will be approx. twice what the wage would be; somebody on the NMW of £10,000 might generate output of £20,000. If you reduce the NMW to £5 an hour, there will of course be a lot more jobs, but the total value of output per extra worker will be about £15,000, and so on.

So the big unknown is how many extra jobs there would be, and we will never find that out without reducing means testing of benefits.