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21 Apr 2010
An economics experts has hit out at business heavyweights' protests against the planned National Insurances rises.
Dr Mark Hayes, a fellow at Robinson College, Cambridge said detractors were not seeing the big picture, because the UK economy would balance out the changes.
"How can the captains of industry, great employers of labour be wrong about the effect on employment of an increase in national insurance?" Dr Hayes said.
Dr Hayes said there would be two knock- on effects of an NI rise:
Domestic labour would be more expensive compared to foreign and more labour intensive companies would need to raise prices relative to the less labour-intensive.
The first movement could be offset by reducing exchange rates.
Dr Hayes said: "The second effect may in theory lead to a transfer of employment from one sector to another.... All change has implications for the composition of employment, which is in constant flux, and the increase in NI may indeed affect employment in particluar companies, some losing, some gaining jobs.
"The mistake is to argue that a change in average labour costs can affect the level of employment as a whole."
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Visitor comments Add your comment
Get out of your Ivory Tower
The man has obviously never lived and worked in the real world. He's treating the workforce like a commodity, not human beings. Get rid of some here, employ more there. I suggest he gets a job where livlihoods can be won or lost on the turn of a penny, not being isolated in your ivory tower
Posted by: Big Mal, 21 Apr 2010 | 00:00
FOCUS
Dr Hayes' picture seems to be out of focus. Has he not noticed the trend to move production and services overseas partly as a direct consequence to labour costs. Exchange rates can not be predetermined sufficient to make valued judgements, particularly by small businesses. This will only increase uncertainty, and closures.
How would Dr Hayes like to be in a position of having built up a business over many years, employing a trusted workforce, only to lay them off due to these costs. Then having to ask the remaining people to work harder to make up for it.
National Insurance contributes to benefits. In the employer's hands, the funds can be put to better use creating jobs, or safeguarding the existing ones. What would Dr Hayes prefer, people in gainful employment or as dependants on others.
His argument that there would be no overal change in employment is floored. The shift will be from employment to unemployment and a shift from good business to misery
Posted by: Anon, 21 Apr 2010 | 00:00
utterly flawed
Dr Hayes arguement is utterly flawed. Exchange rates are governed by the market and not under central control. They are therefore irrelevant in the context of NI rates.
He has obviously never been in a position where increased costs come straight out of his own pocket leaving him worse off as costs can not be passed on due to a competitive market.
In the increasingly globalised markets even some small business can be transferred abroad to where labour costs are lower. Any increase in NI will result in the export or total loss of jobs thus actually reducing the amount of NI collected by the goverment.
Posted by: Graham, 24 Apr 2010 | 00:00
Cause and Effect
You've all missed the point. Dr Hayes doesn't say that a rise in NI will cause a reduction in exchange rates, he says it will be offset by it. Try reading the instructions...
Posted by: Infernal Audit, 29 Apr 2010 | 00:00