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?

My latest blogpost: 'What is not seen' or Perhaps it is?Tweet this! Posted by Lola at 19:28

4 comments:

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.

27 October 2016 at 05:57
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.

27 October 2016 at 07:51
Lola said...

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

27 October 2016 at 09:28
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.

30 October 2016 at 15:12

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