Home Economics The Resolution Foundation's Horror At The £8 Problem

The Resolution Foundation’s Horror At The £8 Problem

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The Resolution Foundation has uncovered another of those things that just shame capitalism to its very core. It’s an £8 a year problem – truly something that means we should radically alter our society, right?

The actual problem identified is that companies have been gradually moving from weekly pay to monthly over the decades. This means that at any one time a worker has more wages outstanding that are owed to her – instead of, on average, being owed half a week’s money she’s owed half a month’s, obviously enough.

This is, I think we can all agree, an outrage:

The foundation gave the example of a worker earning £96 a week. “On any given day, they are owed an average of £48 by their employer if they are paid weekly, compared to £209 if they are paid monthly. In other words, being paid monthly means, on average, they are effectively lending an extra £161 to their employer compared to being paid weekly.

Well, OK, but how much of a problem is this? Apply an interest rate of 5% to that outstanding 161 quid for a year and we’ve got £8. Is this actually a problem? Even if it is, it’s an £8 problem, isn’t it?

“This shift has received no discussion or debate, despite it being the equivalent of the lowest-paid workers on average lending their employers an extra £120 million.” It noted that in the United States the poorest generally were paid weekly.

Not so much actually, it’s usually fortnightly over there.

Bt what are we to do about such trivia? The argument made is that all should have the ability to ask for weekly wages. Which doesn’t really work – what is the extra cost to an employer of running extra cheque runs – OK, bank deposit runs these days – and calculating stuff weekly not monthly? I’m willing to bet that the cost of processing a payroll is more than 15 pence per person (£8 divided by 52 weeks) meaning that such a change would actually decrease the money pot available for paying wages.

As ever in matters of the economy there’s a lot that happens out there and most of it doesn’t matter a damn – or, more accurately here, has already been solved. The optimal answer for the system as a whole is where the interest losses to the worker equal the costs of payroll preparation.

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