Double Double — The Absolute Simplest Look at Wages and Pensions
By Noni Mausa
Double Double — The Absolute Simplest Look at Wages and Pensions
One of the best loved Canadian drinks is the famed Double-Double, a
big coffee with two creams and two sugars from the Tim Horton’s coffee
shop chain. Millions of double-doubles warm grateful workers hands
and wake up their brains on the way to work each morning. Want to
raise a cheer from a Canadian crowd? Just toast the double-double.
But Canadian workers need more than coffee to see them through. They
need wages and pensions. How big do they need to be? In a time of
drooping wages and wavering pensions, we need to know. Let’s approach
the wages, retirement and pension discussion by simplifying it as much
as possible.
Let’s assume that the work life extends from age 20 to 60. The work
that people do before and after those ages is balanced by people who
are not able to work at all, for whatever reason. We’re talking
averages here, spread across 33 million Canadians.
So for half your life you work, and for half (birth to 20, and 60 to
80) you don’t.
As you can see, on average every person working must earn double what
it costs him to live. That extra money pays for the child the worker
is before he goes to work, and the senior he is afterwards. For the
population of Canada to stay level, each Canadian must raise one
child, and he must support himself once he retires. What it costs to
do that is the “lifetime wage.”
How can we calculate that?
Well, to start we can set a lower limit. Each individual must earn or
somehow acquire no less than what he needs to stay alive. A rough
guess for that number is around $800/month. That’s in the range of
what single welfare recipients receive. I have no idea how they live
on that, but thousands of them do.
Full time minimum wage is roughly double that, about $1600/month
before taxes, about $1350 after. (Manitoba minimum wage currently
$10/hour.) This is still not enough to be a lifetime wage. Also,
most minimum wage jobs are not full time or continuous employment, so
the effective income from minimum wage employment is closer to welfare
rates.
Canadians are being exhorted to live responsibly, only bearing
children if they can afford to raise them, saving for their education
and also for the their own retirement. The smallest sufficient income
to accomplish this seems to be about double current minimum wages, or
about $20/hour in Manitoba, $35,000 to $45,000 per year averaged over
a working life.
Business won’t pay such wages if they aren’t forced to. But somebody
must. Why? Not for moral reasons, we’re not dealing with morality
here, just practicality. Whatever way you try to jig the numbers,
half the population depends on the other half just to live. In a
nation, these life-stages overlap so the burden levels out over time,
but effectively one half is always supporting the other.
Paying out to each worker less than double the bare cost of living in
a closed system will result in collapse or shrinkage of the system.
But suppose you don’t treat your nation as a closed system? Maybe you
can outsource some of the cost at the two “nonproductive” ends of the
lifespan. If you want to cut your costs to the bone so your workers
can be paid only their immediate costs of living, you have to tackle
the problem at the child end and the senior end.
At the child end, you can outsource the production of new workers to
other, poorer countries – i.e. depend on immigration for population
growth. That’s one thing Canada is doing.
StatsCan tells us “In 2006, international migration accounted for
two-thirds of Canadian population growth… in the mid-1990s, a reversal
occurred: the migratory component became the main engine of Canadian
growth, particularly because of low fertility and the aging of the
population… Around 2030, deaths are expected to start outnumbering
births. From that point forward, immigration would be the only growth
factor for the Canadian population…”
In Canada in 2010, of the 280,000 immigrants, 60% were “economic”
(adults ready to work.) Another 28% were classed as “family.” The
hard lifting of childbirth and childrearing and child mortality was
done by other countries with no cost to Canada. In fact, immigrants
pay a small but significant landing fee, $500 to $1000 depending on
entry class. We further maximized the value of the outsourced new
citizens by selecting capable applicants free of serious medical
problems.
At the senior end of the lifespan, you can cut elder supports as much
as possible. This is harder to do because elders are aware of the
process and often have younger relatives to advocate for them, but
though it’s going slowly, it is a work in progress.
A maximally efficient economy in a non-closed system would be one
where you import all your workers, keep them as long as you need them,
and repatriate them afterwards. But that is not a nation. Nations
grow their own people, they don’t rent them.
Canada-the-nation may not need to support home-grown population
growth, because we are a nation that encourages many cultures. The
fact that our immigration policy skims good citizens from poorer
nations doesn’t bother anyone except, I suppose, the poorer nations.
But Canada-the-nation must support seniors. Business won’t pay enough
in wages for workers to save money for retirement, and for many people
saving or investing isn’t a reliable strategy. Private business
pensions are becoming quaint luxuries (unless you’re in the government
or you’re a CEO.)
We pride ourselves on being a secure, stable nation. The chaotic,
competitive and short term business community won’t and probably can’t
supply that stability; only a government has the ability over
generations to ensure stability.
A centralized, national fixed-benefit pension, solid and boring and
guaranteed by the government, is the only practical approach for most
Canadians. Additional savings are fine, for people who can afford
them, but millions cannot. Cutting and privatizing senior supports
(Canadian Pension Plan, Old Age Security, and for the very poorest,
the Guaranteed Income Supplement) is the opposite of what
Canada-the-nation needs to be doing.
——————
(This was written in the Canadian context, where our right-wing prime
minister is in the fast lane to transform Canada to conform more
closely to US antisocial policy.)
I think you’re off on the double part. The first 20 years you’re being paid for by someone else who is in the middle 40 so that is already dovered.
Don A
I think you need to read more carefully. Noni was allowing for the middle 40 to be paying for both the first 20 and the last 20. She was just assigning the portions to the persons receiving them, not the persons making the money.
Noni
I think you make a good start here toward helping people understand the fundamentals. I would point out that “saving” for old age is fraught with problems like inflation and investments that go bad. American Social Security solves those problems. Except of course for the political risk. Canada might solve the same problems with some sort of welfare, or general tax, solution. I think that is likely to be subject to even greater political risk, and to a deeper psychological or moral risk: people do not want to live on welfare…. at least they didn’t use-to. It is really too close to slavery in its psychological “feel.”
The adequate wages for basic living fundamental principle that I think you are describing here can in principle be met by a mostly free market idea about wages, and increasing wages over the life cycle… but someone somewhere needs to be making sure that actually happens, or you end up with people not surviving, or not surviving as human, or surviving as criminals with no choice.
I have no doubt that the people who call themselves conservatives these days… the ones at the top, the people don’t know any better… seriously do not care if the people survive. They are motivated by a hate so terrible they have to lie even to themselves about it.
noni’s numbers are pretty rough… but still a good place to start thinking.
here is a slightly different version that says about the same thing
if you imagine a traditional family (and there may be good reasons why you should) the wage earner needs to bring home enough to support four people for about the first twenty years of his “career.”
after the children are grown, he still needs to bring home enough to support four people for the next (last) twenty years of his career: his wife and himself for twenty years, and his wife and himself for the twenty years of non-working life expectancy after that.
you can easily imagine changes to this basic formula, but you need to do a better accounting for those changes than most people do when they assert that either “the free market” or “the government” will meet those needs.
i will note that there is a hidden “retirement plan” in the way i have laid out the picture that you won’t hear from your financial adviser.
actually, I think Noni
may be double counting. once you have the basic for one person, doubling that takes care of the need to pay for one kid for half a working lifetime, plus yourself for the time after you can’t work… equivalent to about half a working lifetime.
of course this brings the “basic wage” down to a basic survival level, and maybe we want better than that, and may even need better than that, but we ought at least to know what we are accounting for.
“…may be double counting…”
No, I don’t think so. It’s easy to get confused becasue we are used to thinking of individuals, not populations. In this example we have, to keep a steady-state population going, four aggregate people: one child, one elder,one worker supporting the child, and one worker supporting the elder. I rolled the two workers together into a single person, but he/they still have to support the elder and the child, one quarter of his doubled wages pays for one and one quarter pays for the other.
I do agree with you that if these numbers work at all, they are the barest of bare bones income. But, to keep this post from becoming a 12 volume dissertation with a long name in German, I left out other considerations, such as:
— reducing the double income to a monetary value obscures vast complexities. It would be better to measure the income in man-hours or some other measure of human effort, but we don’t have a standardized measure for those.
— the actual lifetime wage is probably way beyond the $20/hour I suggest. The good news is, we are so productive as a species that this is easily doable. The bad news is, various economic agents work hard to avoid returning much of this productivity to the population at large. In the aggregate, all such efforts cost more than just passing along the gravy.
Noni
GAI fangirl
Noni
I agree with you on almost all counts. But I think you are still double counting.
You say.. one “person” can live on “$800” (Canadian?)
That one person supports “on average”
one child for twenty years
one aged adult (himself) for twenty years (for which he needs to save the money…or, what is the same thing “pay as you go”.
this looks to me like one worker needing to make “$1600” for forty years in order to pay for himself for forty years, one child for twenty years, and one elderly for twenty years.
this wouldn’t be the first time my arithmetic unit went kablooie. but it wouldn’t be the first time i discovered double counting in someone else’s arithmetic either.
as far as i can tell you agree with me in your comment, in which you think you are disagreeing with me, and you disagreed with me in your Post, in which you had never heard of me.
perhaps where i misunderstand you… lose count
is that first doubling. you double the welfare wage to reach the minimum wage, but you offer no justification for that in terms of “the absolute simplest look.”
i would agree with you that the “minimum” wage is a more reasonable wage in the current economy, but it spoils the logic of your argument to just assume it after introducing the “welfare” wage.
and of course “double double” seems similarly misleading. one double does the job.
Just thought I’d try another way to explain the counting (correct me if i’m wrong)
For the first 20 years of one’s life, a person is non-productive, and therefore must borrow to cover the cost.
For the ages 20-40 one needs to earn their living ($800/month) and the same again to pay off their dept for a total of $1600/month
From 40-60 ones nees their living ($800) plus savings of another $800 per month to fund their retirement
after 60 you live off the savings you earned from the last 20 years.
At 80 you ask the government for a bailout.
This assumes A) all 20-60 year olds are productive members of society, able to work etc. and B) the population size is stagnent, otherwise one would need to save a little extra to raise 2 instead of two kids.
I think this partially explains falling relative wages over the last 25 years. in the past a 4 person house hold would typically have one wage earner (ignoring in-home activities) so that one person would have to earn 4 times the $800, once for himself and one child, plus again for his wife and second child.
As the demographic has changed to have nore 2 earner households. they typical wage has fallen to just 2 times the $800, but now there are two earners.
Cooper
i think you have it about the same as I had it, except that borrowing part adds a new dimension.
first, i don’t think kids “borrow” from their parents.. the parents pay for the joy of having kids… unless you want to think of it as borrowing from their parents and then repaying what they borrowed when the parents are old and need pensions.
SS accomplishes the same thing without “borrowing” at least from any financial institution. This may be why some of its enemies claim it “hurts savings.” Actually it IS savings, but not the sort that can be invested in new production… though it does allow for that sort in a way too complicated for Nobel Prize economists to understand.
it goes like this:
however you “save” for your old age, your are going to be drawing from your savings to pay for your then current consumption after you are no longer working and producing.
any future “investment” has to provide enough “money” to cover both the actual investment in capital goods PLUS the payout to prior investors.
All SS does is collect the “payout to prior investors” and pay it out directly. This still leaves enough “money” to cover the actual investment… provided of course there are people who want to “invest” both in the sense of giving up current consumption and in the sense of using that money to build things that increase future productivity.
SS provides a safety net that if anything should increase the willingness of those investors to take risks.
Let’s leave borrowing, joy, and individual persons out of the equation, as it is obviously confusing us.
Maybe it would help to look at the population in a snapshot, a cross section of the 33 million people we’re discussing. This eliminates the idea of saving or paying forward, because in the final analysis, support for workers and non-workers alike is sustenance given in the present moment. The rest is just hope, fear and regret.
It’s 5:37 PM here. Tonight’s dinner is on the table. The furnace heat is whishing out of the register. The dish water runs from the tap. A kid gets a hug. Okay, now freeze that shot.
In this model, half of them are net recipients of the largesse of the other half. In addition, as well as feeding the kids and the grandparents, they feed themselves.
Individual persons might feed six kids, or none, four grandparents, or none, but on average somebody has to feed those who are not, for whatever reason, able to work.
Also in this model, none of the non-working people are free riders or scam artists. Those people exist, it’s true, but their numbers are absolutely swamped by the 50% who give, or who take, at this instant.
Look how powerful, how important, is the ordinary working person. Because even if the child they are feeding isn’t in their home, he gets fed, somewhere. Even if he is not a sculptor or architect, his efforts are potent enough that in the aggregate, buildings and monuments and roads and schools are built. Even if I never raise a child or care for an elder, my energy can do so.
We get in trouble by focusing only on the $800, when it only symbolizes human effort. The actual support we extend to each other goes far beyond that. And the good news is that we are so productive that this can be the norm, not an heroic ideal.
Noni
Noni
i absolutely agree with you. but i couldn’t get your arithmetic to work.
and it helps to recognize that those kids are future workers, those grannies are former workers and they all pay, will pay, did pay their share.
Actually I disagree. The SIMPLEST way to think about wages and pensions is that they are they same: both a CURRENT cost of labor (along with benefits and any other fringe).
I come from a family of electricians (I’m in business myself). Just about every male in my family tree is in IBEW, the electrical union. The way the electricians work (at least in New York) is that companies do not permanently hire electricians, they essentially rent them from a joint board that governs the industry and acts as a central market for electricians.
The builders must pay, currently, all the costs of the labor to the board. The board manages all benefits and pensions for the electricians. The board is not a business, so it has no incentives to game the pension contributions to push off liabilities, assume outsized returns, etc. They get the cash, they have smart actuaries crunch the numbers, they invest it today in order to be able to pay off in 30 years.
I do not have to worry about my parents in their retirement because I know that he paid into the costs of his pension throughout his 40 year career and that it was well-stewarded.
The only risk is actuarial risk, and if you’re not out to game for profits, actuaries can help to manage that. It’s our system that allows future contributions to be counted as less important that the current wage contributions that really needs to be reformed. It’s all the same.
“The rest is just hope, fear and regret.”
LOVE it.
But to fill out the two-by-two matrix, we need to add Thankfulness.