Category: Hoong-Wai Cheah

Hoong-Wai Cheah asks –What is fire and rehire? And why does it happen?

What is the effect of banning fire and rehire? Bad policies can make a bad situation much worse – we have to be careful to not let good intentions cloud our judgement.

Driven by Labour MPs (of course), Parliament is now talking about banning the employment practice known as “fire and rehire” – a method for employers to reduce the wages they pay their employees, by releasing them from their current employment contract (fire), and then re-employing them under a new contract with lower wages (rehire). Sounds like a reprehensible tactic, doesn’t it? It’s unfair that employers can do this to their employees, right?

“Sometimes businesses do need to reduce costs. Not just for the sake of profit, but it could be the difference between breaking even or unsustainable losses”

Why would an employer fire and rehire?

Sometimes businesses do need to reduce costs. Not just for the sake of profit, but it could be the difference between breaking even or unsustainable losses. Many big businesses will have bigger financial reserves, or are able to borrow money easier. But smaller businesses don’t have enough flexibility in their operational margins to weather losses for long periods.

“why is it fair for any employee to get paid more for their work than everyone else on the market who does the same work?”

Why would an employee accept fire and rehire?

If the employee can command a better wage elsewhere, why haven’t they gone to work for another employer, instead of coming back to their existing employer for a lower wage? Employees aren’t forced to stay with any employer. In a worst-case situation, the employee has to stay on the new lower wage only until they can find better employment elsewhere.

In most cases, unhappy employees facing an unfair reduction in wages should be able find another employer who pays them better. The only situations in which this is not true is if 1) there is a general economic downturn so wages are falling everywhere, or 2) the employee was being paid above market rate to begin with.

In both cases, why is it fair for any employee to get paid more for their work than everyone else on the market who does the same work?

“Alternatively, businesses can terminate existing staff, and hire new staff at lower salaries instead. This means existing staff are forced to become unemployed instead of simply having a lower wage”

What is the effect of banning fire and rehire?

Nevermind the issue of fairness. What’s more significant is the effect of banning fire and rehire on both employers and employees alike.

Without the ability to reduce employee wages, employers will not be able to reduce their operating costs as easily. More businesses facing financial difficulty will go out of business if they cannot lower operational costs whilst retaining the staff they need.

Alternatively, businesses can terminate existing staff, and hire new staff at lower salaries instead. This means existing staff are forced to become unemployed instead of simply having a lower wage.

It might feel unfair for an employee to be moved to a lower wage, but which is better, for employees to remain employed at a lower wage, or for the business to close down, rendering all staff and business owners without an income?

Bad policies can make a bad situation much worse – we have to be careful to not let good intentions cloud this reality from our judgement and decision-making.

Kindly reproduced with permission from HoongWai’s blog at https://hoongwai1984.wordpress.com/2020/11/16/fire-and-rehire/

Image by Gerd Altmann  from Pixabay

Image by Gerd Altmann from Pixabay

Image by Darko Djurin from Pixabay

Hoong-Wai Cheah asks – What’s the harm in feeding the poor? Why can’t we just print more money and make everyone a little bit richer?

What’s the harm in feeding the poor?

What’s the harm in regularly giving people money, with no strings attached?

Have you heard of the saying “give a man a fish, you feed him for a day. Teach a man to fish, you feed him for life”?

Was oxygen ever so scarce for you that you’ve had to conserve it, else you suffocate?

Have you ever had to work hard to receive your regular exposure to sunlight?

Maybe you cannot see the relevance of all these to the initial question…

“The resources which supply welfare isn’t unlimited. Someone had to grow the food, and people have to work to produce and distribute goods and services”

Taking resources for granted

Even though oxygen is a limited resource, our ready access to it means we don’t treat oxygen as if it is somebody else’s resource. We not only consume as much of it as we want, we even indulge in escalating our consumption of it, when we participate in any form of physical exercise.

If a man had free access to money or food on a regular basis, it will no longer be a blessing, but an expectation. That means he becomes dependent on it, and perceives it to be a resource that he does not consider to be scarce, much as we take for granted that the sun will rise everyday to give us our daily dose of sunlight.

The resources which supply welfare isn’t unlimited. Someone had to grow the food, and people have to work to produce and distribute goods and services.

“Someone who was able to buy 10 bushels of food, is now only able to buy 2 bushels of food. This is the effect of printing money, a practice that many modern governments engage in, under the guise of “quantitative easing”

Printing money does not create wealth

But what about money? Why can’t we just print more money and make everyone a little bit richer?

The problem is, money is just a medium of exchange. It is not a resource in itself, so producing more money does not produce more food or goods.

Let’s illustrate what this means: say you have a tiny economy that produces 100 bushels of food a year. In circulation in this tiny economy is exactly 100 silver coins. The people in this economy use these 100 coins to trade for the food each person produces, such that each coin buys exactly one bushel. So you can see that increasing the number of coins in circulation does not increase the number of bushels available to buy.

What happens if someone decides to produce 400 extra coins for himself? With a total of 500 coins in circulation, this person will initially own 80% of all the coins, which makes him able to buy 80% of all the goods available. But the number of bushels available to buy hasn’t changed, it is still 100 bushels. This person doesn’t create more wealth for himself, but actually steals the wealth that other people have produced, by devaluing the coins that the others have: Someone who was able to buy 10 bushels of food, is now only able to buy 2 bushels of food. This is the effect of printing money, a practice that many modern governments engage in, under the guise of “quantitative easing”. Sure, those who had more will have more taken away, but those who have little will have even less remaining.

“The rich and poor aren’t two homogenous groups. People exist on a continuous spectrum of wealth, and individuals travel up and down it throughout their life. When government prints money to spend, all they achieve is to pull EVERYONE down”

Where does free food and money come from?

Coming back to giving people food and money for free. Since food and goods have to be produced through effort, the only way you can receive them for free is if somebody else sacrifices their payment for it. This is easy to accommodate if we are producing in surplus, but it is not safe to assume that production will always be in surplus. If a government creates more money than what is already in circulation, all it is doing is robbing from those who have, hitting the poor the hardest, adding to the numbers of those in poverty. To feed the new ones in poverty, the government can create more money, but the cycle then repeats, eventually creating a whole nation of poverty. This was the phenomenon of runaway inflation that plagued Zimbabwe and the Soviet nations.

But surely just as there will always be poor people, there will always be rich people? Not necessarily. The rich and poor aren’t two homogenous groups. People exist on a continuous spectrum of wealth, and individuals travel up and down it throughout their life. When government prints money to spend, all they achieve is to pull EVERYONE down. If they keep printing money, eventually even the wealthiest will be pulled down. By that point, everyone will be so poor that the resentment toward the few remaining wealthy will be so powerful that they will be brought down by the force of mob rule.

Modern methods of taxation are designed to ameliorate this. By taxing a proportion of people’s income and consumption, we mitigate the effect of reducing everyone’s wealth. But taxation has its limits: taxation will reduce a person’s income. So if a person’s income is so low that after tax they earn less than welfare payments, it makes little sense for them to be in paid employment. The higher the levels of tax, the worse the problem gets. Likewise with the levels of welfare payments. This means that increasing tax beyond a certain level will actually reduce the overall tax take for the government.

Government does not have unlimited resources

All this is to say that government spending is not without limits – government can neither increase tax nor print money indefinitely. Which means the government has to choose to prioritise how it spends its budget.

In the UK, the two biggest spends for the government is 1) its national healthcare service, and 2) social welfare provision. With limited resources, increasing spending on one of these necessarily means reducing spending on the other. Yet socialists are perpetually calling for ever higher increases for spending on both the NHS and on social welfare benefits.

Sure, doing this bit by bit won’t immediately destroy your country – you’ll get away with raising tax a little bit, or printing a little bit of money every now and then. But every little bit adds up – when the movement is gradual, you don’t notice it happening.

Printing a little bit of money will not immediately cause massive inflation, but over time the cumulative effects of printing money means everybody’s spending power is gradually eroded: savings lose their value, those on low incomes will have even lower incomes.

In the same way raising tax a little bit might temporarily increase the tax take, until those who are just about managing to balance their bills find themselves with even less spending money, putting them below the breadline. This also applies to corporation tax: corporation tax is identical to income tax, except the income is a business’ profits. Businesses already struggling to break even will be driven to shut down.

As a socialist, you may think that your demand for increased spending won’t be enough to tip the whole edifice over, but how will you recognise the straw that breaks the camel’s back?

The push to spend more, to print more money, is precisely what leads to mass poverty. This has been the experience of every nation in human history which chose to indulge in socialist ideals.

“The only way out of this trap is to not rely on government spending to feed the poor. Feed the poor yourself, out of your own surplus. Contribute to food banks, give the homeless a meal and a sheltered place to rest, and do your own part”

Why shouldn’t we feed the poor?

But shouldn’t we feed the poor and hungry? Of course we should!

Unfortunately, any welfare system will create dependents, meaning it becomes unethical to reduce spending on welfare. Which means that the social welfare bill will only keep going up. At some point, somebody will need to say “no more”. Unfortunately, socialist ideologues will jump at this opportunity to condemn the ones who are brave enough to call for a stop to overspending.

The only way out of this trap is to not rely on government spending to feed the poor. Feed the poor yourself, out of your own surplus. Contribute to food banks, give the homeless a meal and a sheltered place to rest, and do your own part. Don’t rely on government spending to do it.

In conclusion: If you want to feed the poor, do it yourself. And if you can’t keep it up indefinitely, then we should teach a man to fish, thus feeding him for life.

Kindly reproduced with permission from HoongWai’s blog at https://hoongwai1984.wordpress.com/2020/10/27/whats-the-harm-in-feeding-the-poor/?fbclid=IwAR2PkEL6Jv3FTPtP9QWEjk85JX61IIEltNOzI4TN7P221E7Nr9SaLsEHnKg

Hoong-Wai writes about the important role investment banking plays in the economy and the the positive impacts of speculation https://hoongwai1984.wordpress.com/2018/06/17/financiers-are-not-just-greedy-bankers/