In a public pension, there is some sort of tax, which is taken from workers to pay the pensions. If you want to increase pensions, you need to increase those taxes, hence everything else being equal you lower the real wage of workers.
Ok, so what you’re saying, I think, is that if we increase the wages, i.e., if the companies pay the workers more, somehow, tax revenue goes down, which affects pensions. I lose the plot where I inserted “somehow”. I’m missing some kind of connection there that you seem to see but I don’t.
The production of the workers labour is basically split three ways: Wage, company profit and taxes. If the workers productivity does not change, an increasing the wage is therefore going to reduce profit and/or taxes.
Lets say a worker produces a 100 in value. 50 of that go to wages, 25 to profit and 25 to taxes. If you raise the wage to 80, then it is impossible to give 25 to profit and 25 to taxes, as only a 100 in value is produced. As in 100 - 80 = 20 and 25 + 25 = 50 and 50 > 20. So you need to lower profit and taxes so that taxes + profit = 20. If the wage raise is lower, you can get away with just cutting profits, but in this case it has to be taxes as well.
Yeah, so that argument makes sense when your pension is privately funded. I can’t really connect the dots for the public ones.
In a public pension, there is some sort of tax, which is taken from workers to pay the pensions. If you want to increase pensions, you need to increase those taxes, hence everything else being equal you lower the real wage of workers.
Ok, so what you’re saying, I think, is that if we increase the wages, i.e., if the companies pay the workers more, somehow, tax revenue goes down, which affects pensions. I lose the plot where I inserted “somehow”. I’m missing some kind of connection there that you seem to see but I don’t.
The production of the workers labour is basically split three ways: Wage, company profit and taxes. If the workers productivity does not change, an increasing the wage is therefore going to reduce profit and/or taxes.
Could you walk me through how increasing the wage of the worker decreases taxes? I feel like I’m really missing something here.
Lets say a worker produces a 100 in value. 50 of that go to wages, 25 to profit and 25 to taxes. If you raise the wage to 80, then it is impossible to give 25 to profit and 25 to taxes, as only a 100 in value is produced. As in 100 - 80 = 20 and 25 + 25 = 50 and 50 > 20. So you need to lower profit and taxes so that taxes + profit = 20. If the wage raise is lower, you can get away with just cutting profits, but in this case it has to be taxes as well.
You seem to forget that income is taxed.
and profits are also income with some steps in between and there are taxes on profits…
So I just simplify and file those under taxes.