Wednesday, October 05, 2005

A European Minimum wage.

Irish Ferries are stopping to use Irish Workers as they can get cheaper workers from Eastern Europe. It is reported that these will work at 3:60 an hour which is below the Irish minimum wage. They can do this I presume as they are flying under a different flag and thus are subject to the maritime laws of that country. The reason they can work here is that they come from the Eastern Block of the EU and are thus entitled to work and live in this state. But what can the government do for them and the Irish workers of Irish Ferries. I posed this question over on Irish Corruption

One idea I can think of is to bring in a pan Europe minimum wage. This idea is just not workable. To live for a week in Ireland will cost you more then to live a week in Malta as prices differ. For any multinational paying the same wage in Malta as in Ireland is not going to be encouraged it to locate there as they can get a better educated, English speaking workforce in Ireland. These countries need to tempt these companies to setup there with the enticement of low wages and low tax. Then the extra money in the economy can be focused by the government into education to create an educated workforce that can entice companies with skilled workers rather then cheap labour. But perhaps a minimum wage that is linked to the countries consumer price index might be an option. I.e. that a person on minimum wage in Ireland should have the same purchasing power as the person on minimum wage in Poland. There is minimum wages across Europe but they differ greatly. Also there have been thought about this already

In the USA the minimum wage is about $5.15 and they have massive budget and trade deficits, high private debt and it is reported that 1 million people are feed in soup kitchens in New York. Most shockingly 30% of homeless people in the US are employed. This is not helping the economy as it is removing the lynch pin of American economic success consumer spending. The rich are getting richer and the poor are getting poorer. As the rich increasingly have what they want they don’t spend but invest and save and make more. Taking more money out of the consumer markets this costs jobs and profits. This also is lead to massive private debt damaging the economy and international opinion on the strength and stability of the dollar. This is leading to many counties in the world moving away from using the US dollar as there reserve currency. This will only increase the pressure on the US economy. And indeed the dollars fall from power will be the euros gain. The fact that Germany and France are weak could be the only thing stopping the Euro taking over from the Dollar as the worlds dominate currency.

In Ireland we have the lowest unemployment in the EU with it standing at 4.3% while in Poland it stands at 18.2%. So when you have low unemployment it is all well and good for workers and unions to demand more wages but when there is plenty of people able and willing to take your job unions and workers rights can come diminished like with Irish Ferries. Thus it is required that governments and the EU come in and force a decent minimum wage on companies that is dependent on purchasing power. It can be argued that to maintain profit margins companies will up there prices lowering purchasing power resulting in a need to increase of minimum wage leading to spiralling inflation. But if purchasing power increases this will lead to an increase in demand for goods and services which will result in an increase in jobs in the manufacture of goods and the availability of services thus a decrease in unemployment, increase in living standards and an increase in profits. So maybe Ireland high minimum wage is not just a result of the Celtic Tiger but also a factor. But this is a long term result in the short term business will not able to afford the cost of the wages will go to the wall and a lot of consumer spending will go to Japanese, American and European countries and leave the country.

How will this save the workers at Irish Ferries I don’t know. I’m no economist so I don’t even know if what I said makes sense. The legal loophole that allows the company to do this is not effected by minimum wage legislation. So a pan-European minimum wage will probably not help the current workers at all. Nor will it help the next set of workers. But maybe a proper wage may help them in there own countries and mean they don’t need to emigrate for such low paid jobs. But then they will bring in someone else. There is always someone willing to take the job.

One of the buzz sayings going about these days is the race to the bottom. Where companies are moving to low wage economies to increase profits. This is a self defeating tactic if industry as a whole embrace it. If they move to low wage economies they make people unemployed in the first world countries. This decreases the money in these countries and thus the ability to buy the products that the companies that moved produce thus hurting there profits. And as the people they pay are paid less they can’t buy the products either. But if one company does this they will make a massive profit. This is the motivation behind Irish Ferries. They are in competition with the airlines and are losing for reasons I have talked about here. The only way they can survive is to adopt the low wage tactic. But if (possibly more likely, when) the likes of Ryanair adopt it. The company will be in the same position it is in now and go to the wall. Companies need to realise the race to the bottom is not in there interest. But if they do then the likelihood of the eastern block countries getting these industries diminishes. This doesn’t solve there problems and we are back at square one where the eastern block countries are improvised and having people who will work for less then there Irish counterparts leading to another race to the bottom. Where all jobs both unskilled and skilled will race towards minimum wage. Ah economics does my head in give me Quantum Physics any day.

By the way if you wish to by the album Minimum Wage Songs from Hamburgerology. I found the image here


Frank said...


You say you can't spell well, but there's nothing wrong with your thought functions.

Simon said...

Cheers :)