Wondering how the government’s economic decisions make it hard for you to find a job. Terence White explains…
The answer is simple.
First, it is vital to remember what the biggest expenditure of every business is: wages. Second, it is also important to remember what business need to make money: products and customers. Thirdly, we must also take into account what businesses aim to do: raise the standard of living by making money for themselves. We must also take note that an economy’s money is made more efficiently in the private sector because of enterprise.
When a customer sees a price in a shop, if the prices are high, customers may be a) put off, b) more cautious and purchase fewer items or c) purchase the item and expect higher quality or d) look around and purchase the cheapest find. This is a good example of consumers regulating their own prices.
The Value Added Tax raises prices sharply, adding to the price by taxing an item at each stage in its production process. This costs customers more money, and businesses money. This is why consumer confidence in the United Kingdom declined after the Coalition Government raised VAT to 20% in Chancellor George Osborne’s emergency budget in 2010.
When businesses lose customers, they lose money, and possibly start making losses. This means businesses start making employees redundant and stop hiring to save money.
The next area to look at is focused on the pay of staff. The Labour government of 1997-2010 introduced the National Minimum Wage Act, regulating the pay of staff to avoid businesses exploiting workers. In reality, what happened was mass lay-offs.
Human nature is significant here and tells us anyone who isn’t happy with their pay will look for a better paid job while working for pittance in order to boost their chances of employability.
The National Minimum Working Act (NMWA) also is a drain on business finances which means businesses can’t purchase resources from other companies, which means other companies can’t afford to employ companies because they lose clients, as well as having the NMWA restrictions themselves.
Therefore, employment would be easier in the UK if businesses weren’t restrained with unnecessary taxes and were allowed to let the market tell them where to put their money.
And that is Textbook Economics.