by frog
About 100,000 New Zealanders receive the minimum wage, which is currently $12.50 an hour. 350,000 more earn between the minimum and $15 an hour.
A survey undertaken by the NZ Herald has found 61% of New Zealanders support increasing the minimum wage to $15 an hour. That is the level supported by the Green Party, the Maori Party, the NZ Council of Trade Unions, and (somewhat belatedly) the Labour Party.
Even Employers and Manufacturers’ Association (Northern) chief Executive Alasdair Thompson admits:
But employment will start increasing so I don’t think there’s the same pressure there was as in 2008 and 2009 to keep a lid on it.
However, John Key has poured cold water on the $15 an hour proposal.
Update 27 January 2010: The Government has announced a paltry increase to $12.75 an hour – barely keeping up with inflation.
I’m somewhat tired of the annual debate about the level of the minimum wage. When the minimum wage was first introduced in 1946 it was 83% of the average wage. However, the arbitrary year by year approach taken by successive governments eroded the value of the minimum wage, and despite a recommendation of the 1972 Royal Commission on Social Security that it be indexed to 66% of the average wage, it fell to a record low of 34% in the 1980s under Muldoon. It currently is 50% of the average wage following last year’s parsimonious increase of 50 cents an hour.
Wouldn’t it be great if the minimum wage were indexed to the average wage, rather than subject to the political whim of the government of the day and the respective lobbying influences of the protagonists in the debate? That would give low income workers security they would at least maintain relativity with those who earn more.
Last year the Unite! Union launched a Citizens Initiated Referendum petition for an immediate increase in the minimum wage to %15 an hour, followed by indexing it to 66% of the average wage. The Greens have got behind the referendum petition – it is our policy after all – so give us a hand by downloading the petition form (PDF) and collecting some signatures.
Cabinet will be considering this year’s minimum wage increase sometime in the next couple of weeks. While John Key has ruled out an increase to $15 an hour, he can surely do better than last year’s 50 cent increase for New Zealand’s lowest paid workers – he doesn’t have the excuse of a recession this time round. Send him an email.
Published in Economy, Work, & Welfare | Featured by frog on Mon, January 18th, 2010
Tags: Alasdair Thompson, CIR petition, john key, Minimum wage, Unite Union
on the trolls and those who are unable to keep on topic
I think that even more important than indexing it against the average wage is to set a three-way relationship between company profits, income of the highest paid employees / contractors / directors, and income of the lowest paid employees or contractors.
Requiring that at least 80% of all profit before labour costs is spent on labour costs, combined with a requirement that no one within the company is paid more than ten times what the least paid employee, would probably achieve this.
The problem with just raising minimum wages and doing nothing else is that it raises demand, giving businesses higher revenue. And that extra money always goes to the wealthy – at which point everyone has more money, but there are still finite resources, prices go up. This leaves the poor in the same position they were before. In other words, raising the minimum wage does help with wealth inequality, but only fleetingly.
Now compare this with measures which link the income of the wealthy to the income of the poor. Suddenly, the rich have a financial incentive to pay lower level workers more – otherwise they will lose their own wealth faster. They cannot pay themselves more without also paying more to the poor. This should cause a sustainable reduction in inequality, and greater economic mobility (because the poor have a better chance of being able to afford education or to invest, and because the gap between the rich and poor is smaller).
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Bro – as an Authoritarian employer, this must really get you in a twist!
Fantastic!
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> their right mind would risk losing everything just to see it stolen by those who
> have no financial interest in the business succeeding?
Under the scheme, not everyone gets paid the same. The rich can get paid up to 10 times as much as the lowest paid, and investors can still make a profit – it is limited to 20% of before labour profits, but they can still make a profit.
So investors and executives have a financial interest in the business succeeding, and in employees being well paid, which is enough to ensure that investment will occur.
> Anybody who takes the risk of going into business and does well deserves to be
> bloody well paid, given it is their own company they should be able to pay
> themselves what ever they like.
They can pay themselves whatever they like – as long as they pay all their employees at least one tenth of what they pay themselves.
The problem is that laissez faire capitalism results in an ever growing gap between the rich and the poor. This gap reduces economic mobility – people on minimum wage cannot afford to start businesses or get more education – which widens and reinforces the gap. You get a small minority who use their current well-off position to exploit people stuck in the poverty trap.
What benefit does it serve to society to allow a small minority be able to exploit the poor and middle classes solely because they already have more?
> There are many business people I know of who have taken huge pay cuts over the
> last two years instead of laying off staff, one chap in particular did not take
> one cent from his business in 09 as he just could not bring himself to make any
> of his staff redundant.
If he had no income from the business, then he wouldn’t be affected by that proposal at all – it is the people who aren’t like him, and unduly exploit their employees that would be affected.
> What you are suggesting is communism.
You probably think anything but laissez faire capitalism is communism, but that is not what communism means. It is a common right-wing scare tactic to try to equate deviations from laissez faire capitalism with ‘communism’. But what they don’t realise is that laissez faire capitalism is actually very unpopular around the world (see http://news.bbc.co.uk/2/hi/8347409.stm).
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Stupid.
If they asked if the readers would like to pay those extra wages in their purchases of goods and services the result would be?
A1kmm,
Under your scheme would the “workers” be asked to financially contribute to the creation, development and infastructure costs required to establish and run the business till profitable?
If not why should they be included in the profit share AFTER the shareholders put up the money to create their jobs?
And if the business runs at a loss will the “workers” cut their wages till the company is back in profit?
ALL workers have the ability to create profit from their endeavours either by starting their own businesses or using a portion of their take home pay to invest in the stockmarket, etc.
Your references to “wealthy” are simplistic in the extreme. Care to quantify what is wealthy?
Heck, I would have been better of (wealthier) on wages then working for myself and employing staff.
But then you can only measure and base your simplistic and parasitic proposal on monetary wealth.
Have you ever started a business that employs people? Were you “profitable from the get go?
How much money did you put in, what security did you have to put up to borrow the money? Dis you ask your staff to take the risk of losing the lot?
Or are you a cloth cap unionist?
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Fly
This does not get me in a ‘twist’ at all, it is never going to happen.
I commented simply because what A1kmm proposes is lunacy.
The very best business I know of pay their staff well, most of them have a profit share arrangement which encourages the staff to be as productive as possible, even the most unskilled workers can make a bonus based on how well the company is doing.
What is being proposed by A1kmm would mean that the business is effectively run by the workers, nobody would bother investing in a business if they were the case.
Staff have little or no financial interest in the success or failure of the business, if the business fails they simply find another job, the one who took all the risks is usually financially ruined for life.
Those who take the risk should receive the rewards, the market should dictate what a worker earns not the government.
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Fitty cent!
What a cheapskate!
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Gerrit said:
> Under your scheme would the “workers” be asked to financially contribute to the
> creation, development and infastructure costs required to establish and run the
> business till profitable?
It is already common for employees of startups, in some industries, to work for less in the expectation that the company will grow, and they will be in a good position in the company later on. Whether or not this happens depends on whether the employee feels that they will have job security in the position – so strong employment laws help there.
> And if the business runs at a loss will the “workers” cut their wages till the company is back in profit?
This already happens – unions / employees are quite often offered a pay cut as an alternative to redundancy.
> ALL workers have the ability to create profit from their endeavours either by
> starting their own businesses or using a portion of their take home pay to
> invest in the stockmarket, etc.
Minimum wage employees cannot realistically create a profitable business, because of the barriers to entry – they simply cannot afford the costs to become profitable. Someone stuck in the poverty trap cannot realistically invest on the stock-market and make profits – there are high transaction costs, speculation induced market volatility, not to mention that impoverished families probably can’t afford to invest anything, and are necessarily risk averse.
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If the workers wage is higher than the value they deliver, then the job disappears.
Why not pay everyone at least $100 p/h. Hell, make it $200. Inflation? Ivory tower economist nonsense!
What do business people know about business anyway….
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“Under the scheme, not everyone gets paid the same. The rich can get paid up to 10 times as much as the lowest paid, and investors can still make a profit – it is limited to 20% of before labour profits, but they can still make a profit.”
I like the idea of increasing the proportion of earnings that goes in wages at the expense of money that goes to passive investors, but I think a one-size-fits all proportion is unrealistic, because some businesses inevitably have more money invested in assets in comparison with the number of employees than others do. A painting firm probably has very little money invested in equipment per employee, but a car rental firm is likely to have a lot of money invested in cars per employee. This means the car rental firm has more shareholder equity per employee, so it should probably pay more in shareholder dividends per employee.
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“at the expense of money that goes to passive investors”
The same passive investors that make the very existence of the company possible.
Do you guys know ANYTHING about business?
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So 100,000 are on the minimum wage and 350,000 are between the minimum wage and the $15 mark?
So you want to benefit a few of those 450,000 and cause the rest to become unemployed? Sounds awesome! We will just have them pay their own benefits too!
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Me too. But that does not excuse paying crap wages to our staff.
If we can’t make it work, we should go back and work for salary, wages, or as ac subcontractor for a while.
That’s what I did, until I got the ring of confidence from the IRD again.
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I have never paid crap wages.
Employees sell their labour for what they deem it to be worth. The employer pays what they deem it to be worth, and for some good employees, that rate is above the odds.
It’s none of the governments business what rate someone will accept. It’s self-defeating anyway, as it drives inflation and increases unemployment. If the increase happens across the board, then all prices rise.
Leaving workers in the same position. Only the numbers change….
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Yes, in the absence of a student loan it does. Your approach does nothing to remedy this, in fact it would make matters worse. The only difference is that the poor would be so much more poor and the rich would be in a different country.
Furthermore, it would be useless. Major investors would just be registered as employees or board members and as a result the 80% would be bipassed by anyone with half a brain; enough investors at 10 times more than other employees will sink a lot of profit.
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I do not expect any government to remedy that.
I have had to be innovative and entrepreneurial and of course to sell of some paintings and the family silver.
I don’t blame anyone, except of course the central planners who brought about this crisis but I have to recognise that although I called all the shots in 2006 I did not have enough confidence in my predictions to take the necessary action at the time.
It’s made more difficult of course by the fact that I have to pay taxes based on the last good year from the income of this terrible year. But being self employed I just have to grin and bear it.
No government is going to legislate to increase my wage and I wouldn’t want them to.
But we live live in separate universes. Those who pay the taxes and those who draw on them’.
The rules are stacked against those who pay.
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Owen
You are not alone, but doesn’t it make you feel all warm inside when you hear the Greens demand more of your money so they can give it away to those who do not want to work or to those who have not planned their lives and have more kids than they can afford?
Do not despair, I think we are in for a major tax shake up in the next few years, those of us who have been bled dry by the left may well be in for some relief and those who make bad life choices may well just have to live them them.
I know I am sick of bailing out ever loser in New Zealand.
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$15 an hour in 2008 would have been the equivalent to the minimum wage level as it was in 1990 – before it was reduced in real terms through the 1990-1999 period.
$15 an hour in 2011 would be below the 1990 level (because of the inflation in the 2008-2011 period).
Unemployment fell while the minimum wage increased from 9 to $12 in three years (2005-2008). What increased unemployment of late has been the Bollard hiking of the OCR followed by the international credit squeeze consequent on the bank debt problems.
It’s gratifying to note that the public no longer buys into the old
fashioned theories of some that there is a link between a higher minimum wage and rising unemployment. No first world nation has jobs dependent on a low minimum wage – not in a global economy where the low wage jobs are transferred offshore.
While National will not agree, this campaign and the public support for it, will pressure them to increase the current minimum wage of $12.50
by the CPI again in 2010 and 2011. Yet the support for a further increase to $15, will help build pressure for a change in government (in 2011 or 2014).
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Apple started on store credit. Dell started on a $1,000 investment. TradeMe was started one weekend by a then student who couldn’t find a cheap heater.
You are speaking through a hole in your head.
Is it hard to start maintain a successful business? Yes. It takes a lot of effort, not excuses.
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SPC, the wages for those on $15 will also need to increase.
Great!
Where will the money come from?
Increased prices.
Who pays those?
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SPC,
Because for some reason $15 being the equivalent to the minimum wage in 1990 does justify such a high rate now?
The minimum wage presently is way too high.
You think that minimum wage increases have no effect on employment and that our country has no marginal jobs? Tell that to the decreasing numbers employed by supermarkets. Tell that to the supermarket employees displaced by automated checkouts and self-checkouts.
Your unemployment levels not going down with wage increases? Its a little something I call growth. Maybe you should look it up. It may not be a good thing but it does have a tendency to create jobs and make even marginal jobs support higher rates temporarily as people become more willing to spend more for the same items.
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Big Bro takes risks.. who knew..?
C’mon BB spit it out.. get this thing offa yo chest..
BTW: by whom and when was the word capitalist first used.. in English of course.. I can help you with risk/s but with words you have to firstly help yo’self..
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Owen,
The rules are stacked against those who pay.
You want the rules stacked against those who don’t..?
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Sapient
Your apology for reducing New Zealand’s minimum wage to the lowest levels in the OECD is noted. But you are economically illiterate on the issue.
Productivity increases every time a low waged job is replaced by new technology investment – the link between low wages and low productivity is well known. This is a good thing, not a bad thing. Employers will postpone new investment while they have cheap labour. But if cheap labour jobs are replaced by new technology the freed up labour can be used more productively elsewhere (this was happening while unemployment fell 2002-2008 and minimum wages rose).
First world nations are not low wage ones and where there are low wage jobs there is poverty/income disparity. Income disparity is not good for economic growth, but trying to fix wage disparity through the tax system is problematic – so increasing wages is preferable.
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The PM has NOT ruled out an increase to the minimum wage this year. Just a one off jump to $15. He has REJECTED calls to reduce the minimum wage and is IMO likely to favour another 50 cent increase (to $13).
Given Labour increased the minimum wage from 12 to $15 over 3 years Mallard’s suggestion that the jump be to $13.75 in 2010 and onto $15 in 2011 is consistent with their earlier approach (and also indicative of the electioneering in 2011).
I note the detail of how the minimum wage fell against the average wage so far it was only 1/3rd in the early 80’s – its rise since to 50% of the average wage (while the minimum wage actually fell against inflation) shows the effect of the loss of the old well paid “working class” union jobs we had in the protected (pre global free trade) economy.
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You have long since proved you are economically illiterate on any issue.
Here is a point for you; we are not a first world country! We are a third world country living on borrowed wealth and pretending that we are first world.
Productivity only increases because you get more profit per dollar invested. If there is no job for the displaced individual to go in to then there will be unemployment, lasting unemployment. There is only so much productivity that a society can take, at a certain point one person is producing goods for a 1000 where it was previously for 10 and most of that the 99 displaced will stay displaced for almost every other area is experiencing the same. Keeping the minimum wage at subsistence level at least enables them to have a job without burdening the tax payers and ultimately this means greater investment and more jobs; even if not so much as with lower efficiency.
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“6.72% and dropping like a stone!”
Cripes!
Hope we don’t hit .03%
That’d be the Final Act!
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Sapient, I am making the case for the economic arrangements in a first world nation and so are all of New Zealand’s political parties.
You are arguing from the position that we are a third world nation – a delusional starting point. Just look at our per capita (we are in the lower rungs of the first world and some developing countries are catching up and paying higher and higher wages to their workers) and compare it to real third world nations.
National – which has the aspiration to see us remain a first world nation won’t accept your logic either. It’s primitive old school economics they have also outgrown.
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Ah! But national does accept my logic. A $0.50 increase is just that. The political pressure is for more and JK knows he must cater to the masses. JK also knows that you have to be retarded to think $15 is a good idea. JK raising the minimum wage by $0.50 is a “your fracking retards and your going to frack yourselves over due to your ignorance but just so you don’t lynch me I will make it look like I am listening”. He does it about many things, old JK does; it seems wise in the short term but he will go down as an appeaser without balls.
In a first world country it would still be stupid to have such a high minimum wage. The minimum wage should never exceed subsistence level; ever. If it drops below then the state has to start subsidizing but if it rises above then jobs are sacrificed and taxes must increase to account for the greater outgoings from a smaller tax base. You may not perceive it as fair but fair is exactly what it is. If they want a higher wage they can earn it by working their arses off, founding their own business, or getting a fracking education. There is nothing holding anyone back from getting an education save their own mental retardation. There are some industries which can afford to pay workers much more and there are some which can barely afford to pay them what they do now. It is not the place of the government to enforce a straight line, it is the place of the unions within each area to rally; if the area can afford pay increases then they will happen without lay offs, if not then they will have to toss up between lay offs and higher pay or the same pay but no lay offs.
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Sapient – you claim National accepts your logic – but have no proof.
You say Key is only about appeasing the will of the people when he increases the minimum wage each year (by an amount similar to the CPI increase). A political party in a democracy has as one of its two principles, appeases the will of the people (the other and always in contradiction to this is to shape public opinion to that the party members activism).
The National Party has given up trying to reduce the minimum wage. It has given up your logic, and this should not be a surprise as it has set its course to raise New Zealand’s wages not reduce them. This is in keeping with modern economic thinking for a first world economy.
The goal is effiency and productivity. We rightly leave the low cost wage jobs to the third world competing on price and look to innovate and add value.
PS No first world nation does as you suggest. Can you even name one first world economy with a lower minimum wage than us – for I cannot. Even the American (only increased once since the 80’s, in 2008, is about the same as us – depending on currency rates. Their low wages resulted in the sub-prime loan attempts to make homes affordable to them – and we know at what cost. Income disparity has negative economic effects.
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Now jolly well look here!
Ask the Prisoners at your Local Jail what the minimum wage is.
Else your Civil Duty atrophies.
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Sapient is planning a Canal from his home to the sea (it’s well known mate), using Prison Labour – (bussed, en masse from their shipping cantainers) – to launch Honest Hone’s Kauri Arks (hand carved) from Palmy To The Sea!!! (i’ll be there – but not rowing)
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Key is appeasing the people and unfortunately you are correct that appeasement is the mainstay of political parties. That it is the main stay is immensely unfortunate but follows from a democracy full of idiots. It is appeasement an a unwillingness to hurt the largest group even for the ultimate good of the nation that leads to much pain.
The ideology of the National party has always been clear. There is no sign that the ideology has changed and the policy certainly does not indicate anything more than a mocking appeasement. If the party, and key, considered it necessary to raise the minimum wage so as to ‘encourage’ a high wage economy then you would see a rise of more than fifty cents. It is you who proposes the position contrary to experience, it is you who must provide evidence.
We need low wage, low efficiency, jobs. Unless we kill off most of the population the only alternative to these jobs is unemployment. The people on the minimum wage simply don’t deserve any more than they are presently getting; if they did they would of gone out and got that much. I have worked many minimum wage jobs and in every one I have accepted that I do not need nor justify a higher wage as my additional skills grant no benefit to the job; who needs a checkout operator who specializes in cognitive neuroscience? In those jobs I have earnt myself promotion by dedication to the job, though they be low waged. It is not hard and anyone who cannot is simply not worthy of higher wages (or, potentially, life).
No, the subprime crisis was the result of federal regulations on banking practice. Mostly in regards to fractional reserve and risk. There is no reason why someone on the minimum wage should be buying a home. We have discussed this previously and BJ and Gerrit totally gutted you.
No one else in first world countries which are held hostage by the large middle and lower classes adopts this policy? Because that is such a good reason for us to not do so?
As turnip has remarked previously, The US is the perfect example of the effect of employee cost on unemployment. Their minimum wage may be our level but the hidden costs are absolutely massive and thus we find massive unemployment.
The supply and demand is similar to evolution. Both are incredibly complex if you seek to know all the intricacies but can be understood very simply; one would have to be an idiot to not understand them. I would suggest you do not understand supply and demand.
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Theres already a canal, I just need it a little deeper.
Its quite handy, runs through the ranges too.
Prison labour? I was thinking unemployed unionists, but I guess they have the same IQ and concern for society.
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Trevor.
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SPC,
You were wrong on the economic freedom of continued borrowing and your economic theory on increased minimum wages is equally so.
Off topic a bit, but relevant to minimum pay, look at what Cullen did in 2008.
He outsourced the management of the New Zealand debt to an private American company (with global reach).
http://www.northerntrust.com/pws/jsp/display2.jsp?TYPE=interior&XML=pa ges/nt/0802/pressRelease.xml&prd=primary/pressrelease/1231542456620_29 7.xml&nxml=/content/pages/nt/0409/63913851_3892.xml
With New Zealand’s debt management outsourced, what independence does the New Zealand government have in enabling a minimum wage increase?
How has this slipped under Keith Locke’s and the Greens radar? Is this the reason we have to have an “audit” of ALL New Zealands resources?
When Northern Trust says dig up the gold, coal, etc. to fast track debt repayment, how much leverage does the government (National, Labour, Greens even) have to refuse them?
Question for the Greens should be for how much is Northern Trust clipping the ticket and how much better would it be if that money was retained in New Zealand to enable better resources for the people of New Zealand.
For a left wing government the Labour party sure turned to some right wing ideological partners.
That is why I’m so against borrowing, you become the pawn of the lender (or their management corporate identity).
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As far as I can see there are actually two different issues when discussing minimum wages:
1) What is the total “wage bill” the entire economy can sustain
2) How is this money distributed amongst working people
So then we reach the question: should the minimum wage be set at an absolute level (say $15 per hour), or a percentage of the average wage (say 83% as it was in 1946)?
My personal preference would be to have the minimum wage set as a percentage of the average wage, and let the strength of the economy determine what the average wage is. Further more, I would like to see a maximum wage set as well, and have this indexed to the average wage.
It comes down to what sort of society we want to live in. I don’t expect the liberals and neo-liberals to like this idea. But I suspect a more equitable distribution of wealth will lead to a more harmonious society with lower levels of crime and better overall health statistics to name just a few benefits.
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Problem with a maximum wage is the ease it can broken let alone enforced.
More state employees to “supervise” private company financials?
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I said “…at the expense of money that goes to passive investors”
Big Bro replied: “The same passive investors that make the very existence of the company possible.”
Passive investment is one of the factors that an economy needs, but economic risk-taking and hard work are also crucial. Higher earnings motivate people to do more work. Higher potential gains from taking calculated economic risks encourage people to take more calcualted economic risks. But higher returns from passive investment? That doesn’t really motivate people to invest more money, because if they have it to invest they will invest it, and if they want to spend it instead of investing it, then higher returns are unlikely to make them change their minds. Therefore a higher return on hard work or investment based on calculated risk is of greater value to the economy than a higher return on passive investment.
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It made it possible for economies to grow by enabling large numbers of people to invest in productive assets.
More recently the Limited or Special Partnership has financed the growth of the entrepreneurial companies of Silicon Valley and of Film companies around the world.
When we had Special partnerships in NZ Strada of New Zealand was the world’s largest financier of musicals and brought millions of dollars back into NZ.
I still get royalties from my investment in Les Miserables.
Cats, PHantom of the Opera, Starlight Express, Chess, Time, Les Cage aux Folles, Guys and Dolls (and other reruns)).
The whole point of Limitd Liability companies and partnerships is that the investors are passive and let the Directors and managers run the business.
What is your alternative and what would superannuation funds invest in without them?
The risks of Special Partnerships where higher than with Limited Liability Companies but the potential returns were higher. The return on Cats, and Phantom of the Opera were massive as were the returns on the special partnership that financed Intel.
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“Higher earnings motivate people to do more work”
Utter rubbish!
Are you telling me that our nations productivity improved year upon year as the minimum wage increased?
NZ has a real problem with productivity, IMHO it has little to do with the wages we earn and far more to do with the ridiculously long hours.
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Our labour productivity is actually quite high.
It is our capital productivity that is so low and that reflects a heap of deadweight costs especially in property and land developement but generally an excessive compliance burden and the consultancy burden on just about everything.
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Sounds like samiuela would like to live in;
“a more harmonious society with lower levels of crime and better overall health statistics”.
Jeez Trev! Can’t have that!
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Trevor, most companies paying the minimum wage are able to pass on their higher wage costs. So they can simply plan to increase their prices when the higher minimum wage came in. There was little problem in the 2005-2008 period when the wage rose a $1 each year.
In nearly all cases all that would happen is that costs will be passed on to consumers in supermarkets, at fast food outlets and firms paying for cleaning etc. The money saved by government (higher taxes off wages and reduced WFF costs) would help them pay increased wage costs to care workers and hospital service staff.
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Owen,
The facts don’t seem to match your theories.
Lets start with the facts. Our capital productivity is indeed low. It was significantly higher in the 1970s, but then it went through a great decline from 1982 to 1992 and has largely stagnated since.
See, eg:
http://www.stats.govt.nz/browse_for_stats/economic_indicators/producti vity%20statistics/productivitystatistics_hotp1978-2008.aspx
Now let’s take your theory that our low capital productivity is due to “an excessive compliance burden and the consultancy burden on just about everything” and test it.
The biggest change in capital productivity was the decline from 1982 to 1992. Was 1982-1992 when capital productivity declined a period of great increase in regulation? No, it was the exact opposite – the period of rogernomics, of deregulation and the introduction of laissez faire.
Your hypothesis is rejected.
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Sapient what supply and demand factors? What old fashioned thinking!
It’s like a general telling WW2 soldiers how to fight as they did in WW1. It appears learned, but its nonsense.
If low wage job exists in a first world nation (within a global market) it is because there is a domestic service NEED being catered to. Price inelasticity exists in nearly all these areas – higher minimum wages won’t end cleaning jobs or fast food outlet jobs or care worker jobs or hospital support staff jobs.
As for supermarket jobs – there is the issue of customer preference for “teller” which will negate total replacement by machines. This is because of competition between chains for consumers.
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Gerrit
You say I am wrong. I do not agree. Were you debating, or assuming some role as judge on the issue?
I note you also claimed I was “wrong on the economic freedom of continued borrowing”.
I do not agree. I have not debated the point about economic freedom in relation to borrowing. In past debates you have claimed that our economic freedom is limited if we have foreign debts as part of opposing borrowing (and have tried to say this could involve environment costs via being forced to allow mining to get Greens to go along with your thinking). I have argued that some government borrowing will always be necessary (for investment for growth as business does) and that some borrowing to even out the economic cycles is also required – provided government pays back debt when we have budget surpluses from realised growth. The government is able to borrow now because we paid back debt in the 1999-2008 period.
The real issue is of course accurate budget forecasts across the economic cycle, so planning can be done based on having the right information.
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Sapient
I suppose you see nothing incongruous about aspiration for high wage jobs akin to that of other first world nations – to retain skilled workers in the global market on the one hand and saying on the other
New Zealand needs lots of low wage jobs to provide full employment. And your low wage jobs would be premised on reducing the wages of 100,000 people from 12.50 (the lowest in the OECD) to much lower levels.
I simply say that few new jobs would be created by cutting the minimum wage – new jobs in what area – supermarkets, cleaners and careworker jobs come from relatively inelastic demand factors.
And if say 10,000 new jobs were created by having a an $7.50 an hour minimum wage – is it worth the economic cost of 100,000 people not getting $15 an hour but only $7.50?
And as for creating full employment – the RB’s anti-inflation policy is premised on not allowing this. There is a hole in your thinking a hole. It’s not premised on the way the real economy is and nor is it based on understanding the roles of players in the economy such as the RB – who sort of think it ideal that there is a reserve pool of unemployed most of the time to be available when peak of the cycle growth comes in (lest there be wage inflation caused by shortgae of labour).
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SPC,
Oh I like that logic. “It is old therefore it is automatically invalidated”.
Supply and demand applies everywhere an economic transaction exists. Everywhere where the human psychology balances the pros and cons of a situation.
If a low wage job exists in a first world nation it is because a low wage job exists in a first world nation. Without further information you can only extrapolate that there is no initiative (I.e. a high minimum wage) to eliminate such jobs.
In relation to supermarket jobs and prices being passed on to customers, yes. Some staff will be retained generally and the prices of those staff will be passed on to consumers. The difference though is that a place with the same turn over but fewer staff will have less increased costs and thus less costs to pass on to the consumer, this means that they will be able to offer lower prices and attract more customers. There is a point where customers will simply prefer an automatic checkout to paying an extra $50 every time they shop. A 12 checkout store can easily be turned into a 16 auto and 2 human store. It would vastly decrease costs and increase unemployment. The lower prices would attract more people. Shelves would get larger so that fewer grocery people are needed and eventually some may, as has happened in japan, be replaced by entirely automatic stores that are effectively massive multi-terminal vending machines.
If high-wage jobs can be created they will be created regardless of a low minimum wage as people will migrate to them just the same. The only difference the minimum wage makes to the development of high-wage jobs is via taxation. With a subsistence level minimum wage there should be jobs to spare, people will naturally be able to migrate to higher paid (i.e above the minimum wage) jobs as a result of demand.
To ensure that each industry is paying a fair amount is not the job of government for government can not know what is fair and a blanket measure such as a minimum wage can only ever hurt when it is used as a tool to increase wages. To ensure that wages within a given industry are fair is the job of the unions. The state must only set a minimum wage that ensures society is not burdened with picking up the tab of the companies; the minimum wage should be set at the subsistence level of an individual worker who is renting with others and working 30 hours per week. There is no excuse for any more than this. If the worker is worth more the unions will get the worker more. I don’t expect anyone to live at the same price as I do – mostly because of living costs based on location – but I need only work 11 and third hours per week to live damned well. 120 is a bit low, but 250 is far more than sufficient; at 30 hours per week that needs only $10 per hour before tax.
P.S. Have you ever walked in to a McDonalds kitchen? It is incredibly automated. There are timers and computers everywhere. The majority of the staff are hired simply to flip. If the wages go higher those flippers will easily be replaced by machines. Given the degree of automation presently, going full auto or with only one or two staff would not be that hard.
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The negation arguement to increasing the minimum wage is this
Gerrit and the PM got this right – it is higher costs for the services provided by the low wage workers
But sapient believes
—- “So 100,000 are on the minimum wage and 350,000 are between the minimum wage and the $15 mark? So you want to benefit a few of those 450,000 and cause the rest to become unemployed? Sounds awesome! We will just have them pay their own benefits too!”
that only a few of 450,000 would benefit (which is totally untrue as all would get a wage increase) and most would somehow lose jobs. A totally inaccurate arguement. All 450,000 would get a wage increase and very few jobs would actually be at risk.
450,000 people getting a wage increase who would have more money to spend on goods and services is not bad for economic growth in the economy and growth results in more jobs and less need for beneficiary dependency. Yes sure it might add costs to the purchases of those paying mortgages but that would only depress the housing market – which is no bad thing.
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sapient if one extended your arguement from not regulating minimum wage levels to the environment – would your position be only sufficient regulation to allow business to continue to operate?
Degradation not a problem, relative poverty not a problem – provided the environment still supports continuing economic activity and the wage allows subsistence living…
A little dehumanising a worldview for mine.
Imagine the tax susbisdy for someone in a $7.50 an hour job (40 hours to your good living $300 before tax) supporting a wife and children via WFF.
It’s nonsense the only way to reduce the tax distorting effect of WFF is to increase wage levels (and also allow the non working partner access to the dole), not reduce them.
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SPC,
If those 100,000 are getting $12.50 now then evidently their jobs are economic at that rate. With a half decent union there is no reason their wage would reduce to the $7.50 mark unless the union decides it wants more revenue via more members. Given a reduction that large it is hard to imagine a union not forming. The extra 10,000 would have jobs without the need for sacrifice by the 100,000 to the degree you cite.
My preferred form is actually entirely different to the minimum wage but could be compared, in part, to how the railways were a sink for the unemployed. This sort of policy is not inflationary as those employed there are excess and the sink would not compete for these individuals. In practice the inflationary effect of full employment is the result of competition for employees leading to higher wages, by creating full employment with jobs presently bellow the minimum wage there should be no, or next to no, inflationary effect observed as those lower wage jobs are inherently less attractive than those which already exist at a higher wage rate and as such those jobs presently at or above the minimum wage will not face any practical increased competition for workers. The minimum wage rise would, I would suggest, actually be more strongly inflationary as it forces companies to pay higher rates regardless of supply of workers and as such some companies will be instantly put the the highest they can afford where as increased employment might not put them so high due to there being a decent supply of workers.
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SPC,
Increasing the minimum wage to $15 would increase growth and compensate for the lost jobs? Awesome! Following you logic increasing the wage to $200 per hour would create massive growth and there would be jobs for everyone and everyone would be happy and rainbows would be in the sky always!
You say that the PM and Gerrit get it right and imply that I get it wrong. They are the same fracking arguement! Increasing the costs of the services provided by workers will make some jobs uneconomic unless you expect inflation to entirely cancel out the wage increases. Increasing the minimum wage by $2.50 will result in a great number of jobs becoming uneconomic. Not all of those 450,000 will benefit from greater wages as a good number of those 450,000 will have no job from which to get paid.
The minimum wage should not provide for someone to support a wife and child. That is a different matter entirely. The wife should support herself and the child should have never been born. The luxury of a stay-at-home wife is not one that someone on the minimum wage deserves or needs.
My argument is not for not regulating wage levels, I have stated this clearly. You can not extend my argument to the environment but yes, if there is a cost placed on the degradation such that the degradation is entirely accounted for plus some then I am happy with it.
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I related to the environment issue as it is a common theme for the Green’s to develop policies supportive of the well-being of the environment and the human society dependent on it.
Gerrit and the PM are right to say there would be increased costs to consumers from higher wage levels – but neither would claim that great numbers of existing jobs would be at risk. To say your arguements are alike is nonsense.
The minimum wage increased from $7 to $12.50 in less than a decade – how many jobs were lost (unemployment is no higher now that it was 10 years ago and this is during a recession at the moment!).
You have to ignore the facts and postulate your logical theories – logic which does not relate to the first world economy of the 21st C is not logical it’s insanity.
Your opposition to WFF AND to the existence of a minimum wage above susbistence levels is again noted. But our minimum wage exists in an economy with WFF and it makes sense to increase it in that context.
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Sapient, big bro, Gerrit – you guys might find this worth a read (PDF 460kB). It pretty much debunks the neoliberal “increasing the minimum wage causes job losses” refrain.
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You are asking for the wrong thing. Instead of demanding the minimum wage go up, demand the government not tax the first $25K. Sure, they might have to budget and reduce expenditure down to essential items, but every other wage earner faces issues like that.
It would do a lot more for the economy, and all tax levels benefit.
And rather than insisting the minimum wage be indexed to the average wage, insist the tax thresholds are indexed.
Employers, workers – everyone wins.
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So all in all, given our experience with falling unemployment as the minimum wage increased from 7 to $12, there is no reason not to continue with that course so that it does increase to $15 an hour.
This the public supports and Mallard has proposed an increase to 13.75 this year and to $15 in 2011. Given the past, this is logical. National is more likely to support an increase to $13 this year and $13.50 in 2011. If they were to return to office – this path would result in a $15 an hour minimum wage being reached in 2014, rather than 2011.
A prediction – c2017 after a first or second term Labour government it will be higher than that c$17.50 (and the campaign will be for a $20 minimum wage).
A little premature maybe but I feel a certain sense of vindication for my opinion from the way the politics is now developing.
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zen tiger, there is no reason for a higher minimum wage campaign to include advocacy for a low rate of tax up (say 10 cents) to the minimum wage as well – I would prefer this to indexing the minimum wage to a level of the average wage.
I think at $15 + CPI indexing (from 2008) and a lower rate of tax is optimum.
No one on the top bracket proposes doing away with huge salary increases – in accord with the global market – while seeking a lower top rate of tax.
PS It is I agree preferable to consider adjustment to thresholds rather than simply cutting tax rates WHEN there is a budget surplus.
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SPC,
You expect the PM and Gerrit not to understand that increased costs translate to decreased demand?
We had massive growth over that decade, though not as much as elsewhere. The recession did very little to reverse that growth. It can hardly be said to have nullified it, which is essentially what you base your point on. That there was such an increase in unemployment when we go in to a slight recession shows exactly how close so many workers are to being non-profitable. Increasing the minimum wage to $15 would have seen all of those whom became unemployed and more loose their jobs.
it is you who is ignoring facts, it is you who is forgetting the effect that correlations have. What you are doing is similar to saying that punching a hole in a container of water has no effect on the level of the water while ignoring the fact that water is being poured in to the container at the same rate as it is pouring out.
I am looking out for the well-being of the environment and society. It is, in fact, why I am arguing with you now for what you propose would hurt society. Taken by your ideological stupidity you would hurt that you consider yourself to be helping.
No, it does not make sense to fix a problem in one area by creating a problem in another when you can fix the original problem without creating a new one. WFF is stupid and so is increasing the minimum wage to account for its stupidity.
If you want a high-wage economy there are many things that need to be done. A few quick bullet points in relation to the fundamentals rather than the infrastructure (though a high speed connection to Singapore is a vital part).
* Pay beneficiaries more if they are infertile whilst on the benefit (Depo, IUT, permanent solution).
* Make parents adopt their children and prove they are able and willing to support them. If the parents are not a couple the first adoption option goes to mother and mothers parents. If the parent chooses not to adopt the child or is shown to not be able to support the child or to dangerous then the child is put up for adoption and the parent gets a strike (partners as separate). If the parent gets two strikes they have had their chance and get permanently sterilized. They have the option of having their gametes frozen should they latter gain the ability or will to support the children.
* Teach logic in schools
* Introduce a comprehensive religious education program
* Eliminate religion and ideology
* Keep the student loan (very important)
* Introduce a flat tax rate across all areas including the non-family home.
* Introduce a citizens dividend of $5 per hour worked up to 20 hours per week.
* Introduce a land tax for a large proportion of the tax take.
* Decriminalize all drugs and legalise all but the worst. Factor health and rehabilitation costs in to the cost of purchase of all drugs.
* Totally reform the benefit system and integrate a work-for-the-dole scheme such that an unemployed individual working 20 hours per week would be supported at subsistence level.
* Eliminate the minimum wage and allow the benefit rate to act as the effective minimum wage.
Etc, Etc, Etc.
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SPC – on one hand you want the employer to pay, on the other, I want the government to take less. My idea is fairer.
And there would be a budget surplus if we cut government spending. Let’s precipitate it by thinking of the lower paid workers. Let’s get this greedy government to stop ripping the workers off!
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@ZenTiger 2:47 PM
ZT – Green policy is to increase the minimum wage and eventually index it to 66% of the average wage AND to make the first $10K of income tax-free. Best of both worlds, as I see it.
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Sapient, you are very confusing. Three ideas you have:
1. Teach logic in schools
2. Introduce a comprehensive religious education program
3. Eliminate religion and ideology
3 cancels 2 and highlights the need for number 1, I suppose.
As for: eliminate religion and ideology
Aside from the minor inconvenience of trammeling over basic human rights, have I misunderstood? By eliminating ideology, would that mean banning Al Gore films in schools?
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“Green policy is to increase the minimum wage and eventually index it to 66% of the average wage”
Tell us the rest of that policy Toad, where is the bit about indexing the dole to the average wage?
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My 2.58 post should have read
zen tiger, there is no reason for a higher minimum wage campaign NOT to ALSO include advocacy for a low rate of tax up (say 10 cents) to the minimum wage as well – I would prefer this to indexing the minimum wage to a level of the average wage.
I think at $15 + CPI indexing (from 2008) and a lower rate of tax is optimum.
No one on the top bracket proposes doing away with huge salary increases – in accord with the global market – while seeking a lower top rate of tax.
PS It is I agree preferable to consider adjustment to thresholds rather than simply cutting tax rates WHEN there is a budget surplus
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You mean this one bro:
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Zen Tiger
A higher minimum wage provides higher tax revenues to government – this helps government afford a lower tax rate.
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Not quite Toad. I thought Green policy was no tax on the first $10K in exchange for new taxes on other things: “tax the bads” mantra. Unless you’ve changed that tune, then the tax “break” is immaterial, as we’ll see additional taxes replace the PAYE relief, and government continues to grow to demand more expenditure.
Saw a government tender the other day to “incorporate climate change principles into tertiary education”. What a pitiful joke at the expense of tax payers.
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SPC – It helps the government spend more money. Has the government decreased its spending in the last 10 years, in even one year? No.
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That is the one Toad.
Why not be a bit more honest about why you guys want the minimum wage to rise, the reality is that you only want to look after the bludgers and are using the min wage as a way of giving more of my money to the parasites.
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Zen Tiger
A higher minimum wage provides higher tax revenues to government – this helps government afford a lower tax rate up to the minimum wage.
I prefer a 10 cents tax up to $25,000 to no tax up to $10,000.
toad
I think before setting the minimum wage at 66 cents of the average wage one should build a floor at 50 cents (where it is now) and push beyond that, but without fixing a higher amount. Perhaps a minimum of 50% and maximum of 66%.
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toad,
that pdf says nothing that we have not already discussed.
Nothing in there on individual responsibility to get of fthe minimum wage.
Setting a higher minimum wage based on your and SPC argument is the trickle up theory. Well if you dont like the trickle down theory what makes you suggest that the trickle up theory will work?
Because that is what that fancy pdf says. Higher wages will trickle up to higher consumption (yeah? – but trickle down does not?), higher consumption means a bigger tax take, means bigger government expenditure.
Nah, just does not ring the right bells somehow.
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The famously lost and indefinable figure of Trade Unionism watches his life’s work disappear before his eyes.
Sapient; Like most Groups you’ll find good and bad amongst them.
In many cases these people were the very defining factor in our idea of a civilized society.
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Sapient
Until the world is changed to be governed by your logic – policy development occurs constrained by existing realities. The government promised not to change WFF, it develops minimum wage policy in this framework.
We had one of the largest falls in unemployment in the western world – and this while making THE largest increase in the minimum wage. And our growth was not that good compared to many of the others.
Growth will return soon and unemployment is today still no higher than it was when the minimum wage was $7. We will have the minimum wage at $15 by c2014 and unemployment will be less than when the minimum wage was $7. IMO the benefits of falling unemployment should be shared with those getting a job gaining a reasonable wage and not a little more than the benefit.
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Icehawk
You say my hypothesis is rejected because:
“The biggest change in capital productivity was the decline from 1982 to 1992. Was 1982-1992 when capital productivity declined a period of great increase in regulation? No, it was the exact opposite – the period of rogernomics, of deregulation and the introduction of laissez faire.”
You are looking at trend lines from 1982 to the present which tell us some useful things but I am referring to a study just done by some colleagues who specialise in such matters and which focuses on the difference between the productivity factors and the impact of general economic conditions today.
I do not profess to be an expert in productivity buy my understanding is that when any economy goes through a period of structural reform and capital assets are being moved or displaced then capital productivity will decline during that restructuring. It’s the pain before the gain.
The study showed that since 1995 (when the RMA constraints began to kick in (especially long delays and high compliance costs) the capital productivity gains in the actual plant and machinery base where overwhelmed by the loss in productivity of the major investments of capital in land and buildings.
When companies in NZ have to invest millions of dollars just to build a supermarket and wait ten to fifteen years for permission to open their doors even when the building is largely complete that is a huge amount of capital lying idle. THis is why no saw mills or timber processing plants are being built in NZ and we export so much timber as raw logs. You can get a consent in Australia for a few score thousand dollars in a few months and have certainty of outcome from day one. Here it costs millions, takes years and with no certainty.
That is the situation today. We take longer to get a consent for a major piece of infrastructure than most countries take to build it.
This has nothing to do with the conditions during the reforms of the eighties. This has to do with the here and now.
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SPC,
Your argument would be correct if all the employees kept their jobs and they all received the wage increase and some magical fairy was giving the companies money to account for this that somehow did not result in massive inflation. However, in the real world this is not the case. People would loose their jobs and become wards of the state. In those companies which stay afloat the wages of those who have lost their jobs would be diverted to those who have retained them so ultimately the wage increase would not increase tax take at all, it would just change who it is taken from and increase costs elsewhere. I would also note that those companies which go under will no longer be paying tax, nor will the employees who find themselves on the dole. Furthermore, due to the progressive tax rates the state receives more tax from a dollar to a person in a higher bracket than from a dollar to a person from a lower bracket so decreasing company profits ultimately decreases tax take even before you take into account the investment incentives.
I am reading toads article now, thus far it does not look convincing.
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Gerrit
The thing is, discretionary spending on property is not currently taxed, but the spending by the poor is taxed via GST. This is why trickle down and up have different tax effects.
Of course trickle down would work if there was opportunity to invest in economic growth in non speculative fields.
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Mark,
Indeed, and as I say there is an important role for trade unions in society. The problem is that invariably those whom rise to the top are rabid little beasts which represent the bad very well. Deluded that they are right and they are some sort of hero to the repressed they hurt those they claim to protect and assist while stroking themselves as they watch their reflection in the pool. Meanwhile Echo continues to suffer.
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Sapient
There was a trial, from 1999 to 2008 – the minimum wage increased from 7 to $12.50 and was there massive inflation and was there job loss? Unemployment was falling until Bollard hiked the OCR – to fight inflation from the speculative boom in property and the middle class sense of wealth from this (as well as imported oil price increases and the like around the same time). Yet you say an increase to $15 – much less than the earlier increase, would somehow risk job loss. But the evidence does not support your claim. Logic whcih fails in practice needs to be re-examined. I once had your opinion (in 1999) – as I preferred less unemployment and was more concerned about creating growth and more jobs to end the hardship of those on welfare. I was wrong, the evidence has changed my opinion.
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SPC,
Again with the fixing of problems by causing problems elsewhere.
Again: G.R.O.W.T.H.
The logic has not failed, you have failed to take into account the variables. Someone says that all things travel in straight lines, you point at the moon and say “HA!”. You fail to account for gravity.
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Gerrit
The thing about higher wages leading to higher taxes leading to money being available to government, is that this is money that does not need to be borrowed. I would have thought you would have supported that, unless your economic line is predicated on using deficits to justify less spending and surpluses to justify tax cuts for the well off. The classic line of the political right, or am I “left” with the wrong impression.
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Sapient
You will have to elaborate on your 3.50pm post, I am sure you know what you mean, so please explain.
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SPC,
Government does not need to borrow at all by cutting expenditure. There will have to be a balance, hence my support for digging up gold and coal to boost the government coffers.
We need to get away from borrowing especially since Cullen privatised the management of debt to an overseas corporate.
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SPC I like how you hide the truth in your posts.
For example:
You have made the following statement the min-wage rate rose and unemployment fell. You then use that statement to conclude an increase in the min wage will have no effect on the unemployment rate. Could you please explain how the min-wage is the only variable that acts on the unemployment rate?? Could you also explain how you ignored the largest expansion of credit in the whole history of the human race?? Could you also explain how growth is going to come back in the next couple of years?? Where is this growth coming from??
All the growth during the years 2000-2010 was pretend it was built on top of the largest credit bubble we have ever seen. It is wishful thinking on your part to state it is coming back in the next few years. Thanks to the Keynesian economists who have crawled out of the rocks they have been hiding under since the 1970’s stagflation. I would suspect the pain being felt around the world is going to last a very very long time, just like it did during the great depression.
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O.k so your going after the minimum wage but what about the largest item of expenditure: a roof over ones head?
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Gerrit
I am a little confused by your position – I had thought it was that if we lived within our means, we would not be forced to open up lands for mining by those foreigners we were indebted to. Now you say living within our means AND do mining.
I agree about balance, but government revenue naturally increases as we come out of an economic downturn, the most important thing is to restrain spending and maintain tax revenues during the upturn (to repay debt).
As to what Cullen did, one presumes he was acting on Treasury advice, were they wrong?
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turnip
I claimed that we made the largest minimum wage increase in the 1999-2008 period of the entire OECD. Fact.
I claimed that we enjoyed falling unemployment during that period – including having the lowest unemployment rate in the OECD for much of that period. Fact.
Nothing about that is untrue.
As to whether the minimum wage is the only variable that acts on unemployment rate, I have never claimed that it was.
Others who claim that it results in a higher unemployment rate have made that claim – take your question to them.
I have only shown that their fears were proven wrong, the unemployment rate fell while the minimum wage increased.
I was a surprised by the result (1999-2005), concluded why this is so for our domestic service sector jobs and now support increases in the minimum wage.
It appears that most $7 an hour jobs in 1999 were still economically valid at $12.50 an hour (the increase in pay is even more if you include the end to the youth rate). And given the nature of the jobs and the ability to pass on costs they would still be around at $15 an hour.
As to credit expansion, Keynesian economics and the prospects of growth (when interest rates for the US will rise and the dollar faces losing its reserve currency status), I can understand American pessisism. But we are by Oz the growth continent and we also supply into the Asian market. Not our problem.
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jh
Just imagine a time when the minimum wage was 83% of the average wage (1946) and nearly all were aspiring to own their own home and section – there was virtually full employment and everyone with a job could look to cash up their family benefit and place a deposit. And there was mortgage payment tax relief.
And compare it to today, now people get help to afford to rent a flat and we have the second most unaffordable housing in the world after South Africa. People on the average wage are looking to rent for life rather than buy – the forecast is home ownership falling to 40% (as the baby boomers die off).
There are few ways of changing this. We can but try. It means higher minimum wages, which provides upward pressure on wages for skilled work. It means to cashing up (compulsory) Kiwi Saver accounts to provide a deposit on a house. It means continuing with WFF and bringing in non working partner access to the dole (to provide income security). It means reducing speculative investment in rental property.
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“There are few ways of changing this.”
According to the Press, house prices are climbing due to a shortage of supply as construction has fallen off and immigration. Gareth Morgan states in his book “After the Panic” that there is (at time of writing) intense lobbying to increase immigration. This is what we do we stimulate the economy through immigration. Coleman announced that having done an equilibrium analysis the govt has decided that immigration is “good for everyone“.
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There is no reason why immigration should increase the cost of housing any more than immigration increases the cost of cell phones or computers.
IT does so only if the market cannot respond rapidly to a change in demand.
Houston was able to absorb 130,000 households from New Orleans after Katrina with only the tiniest blip in house prices and that settled down by the end of the year. But you can buy a section in Houston for only $40,000 and they have had no bubble and no bust. But they don’t have any zoning either.
And it has the most rapid growth in employment in the US and one of the most rapidly growing economies.
People are fleeing California for Texas now because of affordable housing and the housing stays affordable.
Have you noticed the way cellphone prices have increased as demand has increased? No? Why not?
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It would be more accurate to say that immegration increases land prices. This is because despite increasing demand there is no change in supply. The cost of housing is different because houses can become more dense in population and land previously allocated to productive endevours such as farming can be turned in to housing.
So immegration does increase property prices but not via the cost of housing so much as the cost of a single family living on a, relatively, large peice of land.
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Sapient
There is not an urban economist in the world who agrees with you.
Yes the land price increases in highly regulated markets because the supply cannot respond to demand.
Land actually means a piece of land with a certificate of title and on which one can build a house.
IN some few jurisdictions house price construction can fall while land price rises (and indeed this was the case in 1995 in NZ) but over time the cost of the house rises too because councils demand development contributions and develop increasingly complex building codes that take more time and more fees.
Your theory about increased density has proved a nonsense in the UK which probably has the most inefficient and unaffordable housing in the western world. The average UK two storey house has an area of only 85 sq metres (and that includes the staircase). That is what increased density means to the UK family.
CAn you find me a city where an inner city house costs less per square metre than a house in the suburbs or on the periphery (given the same household income for the two neighbourhoods.)
Where is your source of this theory?
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Owen,
Yes. If land is zoned or otherwise regulated such that the ability of the market to respond to demand by increasing supply is limited then prices will rise with increased demand due to increased competition for the limited resource. Where land is not zoned or otherwise regulated this is less of a problem as the avaliable supply is so much larger as a result of land being diverted from other areas, but the limited supply is still a problem.
Whenever a block of farm land is purchased to be used for residential development that decreases the land availible for farming. Assuming that demand for farming stays the same then then average price of farm land will increase as the market is not able to react by creating more land at a price reasonable for most utilisations. This also decreases the amount of land availible for purchase by property developers and accordingly increases the price of these developments as a result of increased land values. An increased price of new development changes the desirability of such a move and thus increases the acceptable cost of living where they are presently and causes land prices to rise. It is supply and demand but supply is limited – one could say restrained by nature – and so demand works not like it does for a cellphone but to increase the price of land.
You yourself frequently talk about how restrictions are the cause of high house prices; here the restrictions are not impossed by a regulator but by nature and the end effect is exactly the same unless you are willing to pay the cost of creating land. We are not Dubai, our land prices are not high enough to justify that and thus we are limited to what we have. Unlike Japan and the Neatherlands we do not have handy areas easy and relatively cheap to ‘reclaim’ either.
As to density, I am saying that a half-acre in the suburbs will almost always cost less than a half-acre in the centre of town. Because of the cost difference that half-acre in the centre of town is far more likely to be developed in to high density housing as this splits the rates between several different families instead of just one and thus makes it economic to inhabit. It may even be developed in to a tower block (with more land area perhaps). I made no statement that living in the centre of town was cheaper but that higher density in the centre of town makes living in the centre of town more economic as a result of land values; per square meter.
The construction of houses is not so constrained as the creation of new land at a reasonable price and thus the construction of houses is able to respond to market forces by increasing supply and this could leed to increasing or decreasing prices of house construction depending on the factors of supply and demand involved in house construction as demand for house construction increases.
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New Zealand is only 1.5% urbanised and since the removal of subsidies farmland is being taken out of production.
The impact of housing occupancy on the supply of rural land is totally insignificant except where regulators require minimum lot sizes of 20 ha and other nonsense.
Sorry, if by economic you mean that the cost of housing per square metre is lower in the centre of town than in the suburbs I would love to see an example – pari passu.
Why do you think those two storey UK houses are only 85 sq metres?
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Owen,
What?
Housing occupancy is not what I am talking about here in relation to land prices; what I am talking about is that extra people generally means a greater demand for land and that a greater demand for land – a resource for which the production can not be practically upscaled – result in greater values, and thus prices, being attributed to land.
As I said in my last post, I do not expect the cost to be lower per square meter in the center of town. I expect the cost to be much higher. What I am saying is that it is more economic, more financially viable, for a half-acre property in the centre of the city to be high density than low density. More people paying and more people to spread the cost across. Its kind of like splitting the bill for a cab, could be rather expensive if you pay all of it but if you have four friends to split it with it becomes next to nothing.
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Well the higher the value of land the more likely it is to be sub-divided or built on with high density. And land in desired locations – in cities with high paying jobs – will attract buying demand from those with ability to pay high prices.
But immigration is not the issue in that case.
I am not sure it is an issue at the moment in the wider market
either – housing shortages are noted when rents spike up and people have to sleep in garages and the like.
Immigration can cause rising house prices in areas where they choose to reside. The capacity of the market to respond is not helped by speculation in buying up existing properties rather than building new homes, which is why those interested in economic growth, a functioning market and affordable housing need to support one and not both.
This is particularly so at the end of a growth cycle when building work tails off until a shortage emerges.
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At the present time affordable housing is proving a stimulus to economic growth and employment growth.
Have a look at the statistical analysis of the performance of the different States of the US.
The US is a wonderful source of info because it has fifty controlled experiments.
People and jobs are migrating to the states where housing is affordable because it has a massive impact on net income.
So its like the environment and economic growth. They are not mutually exclusive at all.
IN fact the dirtiest environments are in the poorest countries.
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Owen wrote “There is no reason why immigration should increase the cost of housing any more than immigration increases the cost of cell phones or computers.”
Owen – where have you been the last decade? Of course immigration levels are directly related to house prices. There have been dozens of articles on how there are not enough new houses being built when we have 50,000 new immigrants per year, and how this pushes house prices up. And in years when immigration is low it reduces presure on house prices.
Of course it is different to cell phones and computers. If we need an extra 50,000 cell phones we can order them immediately – the market is instantly satisfied.
If we need 20,000 new houses this year for additional population, but we only build 10,000, we can’t ring up and order a further 10,000 houses to be delivered next week. It might take several years to make up that sort of shortfall. In the meantime you have several people bidding on the same house, instead of one person with the choice of several houses with no competition.
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Photonz,
The matter is that Owen knows perfectly well that immigration increases prices. It is in his interest to hide this fact because he is one of the people benefiting from this the most.
I must say, this is my first time debating with Owen and he makes SPC and Sofistik look brilliant. At least in so far as they reply to a part of what you post; most of the time.
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photonz
Where have you been the last decade.
My colleagues and I have been studying house prices and housing markets for decades and I can assure you that the controlled experiments that have been taking place around the world shows that you can have massive immigration without any severe or long term rise in house prices provided the housing market is lightly regulated and allowed to respond.
I just gave an example of how Houston was able to house 130,000 immigrant families following Katrina and house prices barely moved at all and soon settled down.
We have created a housing market in New Zealand which cannot respond to changes in demand. It did not use to be like that but it is now and I documented the reason in my 1995 report to the Reserve Bank and predicted this boom and the impacts on house prices, interest rates and our currency.
You assume that housing markets are rigid while recognising that cell phones and computer markets are responsive. But we have made it so and made it so deliberately and we don’t want to undo it because the vast majority of the middle and upper class are terrified of an affordable housing market and don’t give a stuff about the young generation who want to set up house at an affordable price.
This is the selfish generation at work and many of them dress up their protectionism in green drag – much like the Europeans with their food miles etc.
Right now in Kaipara District the compliance costs to create a new lot are more than the section can be sold for. (without including the price of the land.) Why would anyone create a lot when Council and consultant charges etc are $65,000 and lots are selling down the road for only $55,000.
In Houston (one of the most rapidly growing cities (both the economy and employment) you can buy a lot for $40,000. Naturally Californians are migrating there in droves yet the prices don’t go up.
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Sapient
Please explain how I benefit from the rising costs and from immigration.
I am a pensioner and spend my time fighting the regulations that keep house prices high.
Unfortunately most of my group spend time making sure no new residential developments go through and no new housing estates are built because they fear the increased supply will reduce the value of their house.
Of course they blame urban sprawl etc.
IF you want to defame me you should at least provide some evidence to support your defamation.
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Yawn….Green economic dunces think money falls from the sky….whos suprised?
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Owen,
I apologize if I was wrong but I had the impression that you were a property developer or at least heavily involved in the housing market.
Am I at least correct in assuming that you own multiple properties? If so the benefit from increasing immigration and land values is rather obvious.
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Owen – I’m picturing you, beslippered and dressing-gowned, fast asleep with your TV Times open on your lap, remote dropped on the floor, snoring a pensioner snore – am I getting the picture?
Today in Southland, it’s hot and us young’uns are outside, picking plums and gooseberries, thinning the Keswick Codlins and netting the blueberries. There’s a bright golden haze on the meadow etc.
Your Big Farm Day out sounds (and looks) … big! I don’t suppose you’ll be offering a complimentary pass to a lucky Frogblog commenter, as a gesture of goodwill
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Greenfly
I only use the word pensioner to make an ironic point. I don’t believe in retirement because it is the world’s most deadly disease. And I hardly ever watch daytime TV – except for the odd cricket or rugby match. I spend most of my day at my computer writing essays, columns or reports or papers for conferences – mostly international. The rest is spent gardening or designing gardens and buildings.
My first degree was in architecture and have always designed houses for myself and the odd friend or relative.
I currently own two properties but only because I created a lot off land owned byy my Maori neighbour (which helped finance the treatment of his hemophiliac children) intending to build on it but the Council stuffed me around so much I gave up and bought an existing cottage further up the road. Then when I went to sell it the market crashed. It’s a splendid section if anyone want to buy it.
My venture into “property” develop was to develop two lots that I put together and then subdivided into 7 as a managed park to demonstrate a much more efficient way of developing land in the countryside and one which gave people what they wanted while enhancing the environment. Most of the lots were sold to divorced women, (because they were affordable and provided a safe environment for them and their kids) while I planted 80,000 trees and plants in the park. It is not a farm park because the typical lot size is only 2000 – 4000 sq m and makes no pretence to be a farm. The local council picked up on the idea but still set the average lot size (including the park) at 4ha (that most stupid number of the planning fad) which makes the whole idea unworkable because the park becomes too large to manage with human labour and a ride on.
I had to sell up when I had an aortic dissection which I thought was going to permanently cripple me – but it didn’t. I am hardly a property developer – other than by definition for the tax department. I am an architect, my wife is a garden designer and we like to create wonderful environments wherever we go. It just gets harder and harder as the regulators try to tell us what we should do with our property and of course most of them have never put a spade in the ground or hammered a nail into a piece of 4 x 2.
YOu can go to facebook and look at some photos of houses I have designed and some views of the park.
Best photos are under Rangiora Road (6 photos).
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Sapient; I’ll have to take you to the Kapital and intoduce to some Trade Unionists who are genuine.
The problem with the Ratbags is they get all the Media Attention.
Our quiet achievers don’t seem to count for much.
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Owen,
Any non-profile images posted on your profile are presently limited to friends.
~
Mark,
Would you consider Sue B genuine? I have had many conversations with her, none of them having the effect of encouraging respect for her brethren.
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Sorry about Facebook.
I thought I had changed my settings.
Will try again.
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Owen,
More personal information is available and a single photo from the Rangiora album. I do like the look though.
Greenfly might be a little disappointed that so much room is dedicated to grasses rather than edibles
.
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Could you try again.
I have gone through and changed the settings to “everyone” wherever I could.
You can see the grasses because they are in front of the Rangiora Rd house while the vegetables are scattered around the back, not to mention the vineyard, the olive groves and the general orchards which are scattered through the 13 acres of park.
You will see in the photo of “where we are now” the raised vegetable gardens and the pizza/bread oven.
Assuming I have got the settings right at last.
Greenfly should be happy with all the recycled timber in interiors – mostly from shelter belts from Far North.
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Owen,
I have checked again. Your ‘recent activity’ is now visible while it was not before. There is still only the singular picture of the front with all the grasses. Is it possible the others are not uploaded?
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Weird.
I can see them all of course and they all have the same privacy label so I don’t get it.
I shall try figuring it out tomorrow.
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I think I have figured out what I needed to do. I have posted the albums to my profile so there are there I think – straight up.
But just in case here is the living area (as a public link) of the last house we lived in. Not a piece of stainless steel or other hard materials in site. Of course the concrete block is hard but not shiny and it makes a great heat sink around the fireplace. Note the t and g Totara Floor from a Maori Trust forest up north.
http://www.facebook.com/photo.php?pid=30329135&l=f032145c26&id=1011811 548
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Owen,
Problem fixed.
Looks good, even if the living room looks a little cramped. Very nice wood. Its good to see that the wood has not been overdone, as seems to be a common disease. The contrast with the concrete blocks is a little odd though.
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Owen – but the NZ housing market IS highly regulated, and IS very slow to respond, so immigration DOES have a large effect on housing prices.
We have further tax regulations that encourage people to buy rental properties, and many have been scared off investing into the sharemarket (by 1987) and now finance companies.
We now have even more complex and expensive building regulations that have gone way over the top.
For two decades sucessive governments have repeatedly passed regulations and made decisions that have made houses more and more expensive.
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photonz1
Yes the NZ market is highly regulated and is very slow to respond so immigration does have a large effect on house prices. That is the point. But this is a matter of choice not a matter of some rigid law of economics.
We know what to do to prevent this problem of volatility but chose not to do it – and indeed chose to do everything that makes it worse.
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Sapient and others,
Now that I have fixed the problem and you can all inspect the work of a greedy property developer I can answer a few questions and provide some explanations.
First, I am surprised that Sapient finds the last house ” a bit cramped”. There are only two of us and the dogs and its all we need. The rooms are human scale rather than the football fields in McMansions. I thought you would all approve.
Someone asked what I would recycle. Well I recycyle anything were it makes sense.
The roofs on those houses are recycled eggcartons etc impregnated with tar. Called Onduline and a wonderful roof and about a third of the price of coloursteel etc. I presume everyone on this blog uses Onduline. Never rusts and no need for nail punches, and no reflection or glare.
Second, just about all the timber is recycled in that it is from shelter belts thinning and millings. Hence poplar and japanese cedar. Most people are afraid of them because they do not do their homework. The decks are poplar and the sarking and lining is japanese cedar.
The floors and beams are totara from Maori Trust forests. Not recycled although Totara is a weed up here and good forests must be thinned to allow the Mighty totara to grow large and mature to provide heartwood.
So the totara I use here is young totara with small timber sizes. If you look closely you will see the beams over the windows are laminated to an I beam cross section. It has to be Hall’s totara because regular totara has very low shear strenght. An totara axe handle snaps with the first blow.
Hence too, the flooring is v jointed which gives the attractive resort look but accepts that the totara will move – the gaps appear but you do not notice it.
Poplar decking tends to wind around the knots but if you cut out the big knots it is then better than pine which tends to cup.
If I had used the timber that most people buy from the yard the houses would be hugely expensive.
But by knowing my timber and how to use them the housing is affordable.
Sapient does not like the raw block against the timber. Matter of taste. A coat of plaster fixes that.
Happy to answer any other questions now that you can see what I actually do on the land.
I know many of you will hate it but that’s life.
Just go to Facebook and enter McShane. The photos are now up on my profile so are fully accessible.
They should all be in one album or two at most but never figured out how to control that.
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Owen,
When I say cramped I was referring not to the size of the house but how much furniture you had crammed into what seemed to be you living room.
I was going to link to the relevant picture but there is again only that one picture showing.
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As I understand it the link I provided does just take you to one location and nowhere else.
Its so you can bypass the normal restraints for a particular person or group.
But I certainly hope that if you google Facebook, go to Facebook and then search Owen McShane,you should end up at my profile with the four albums under my pic.
GOod luck.
Yes, the wide angle lens does make it look cramped and we only have the balinese sofa inside in winter.
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Owen,
I have been accessing it by searching from my facebook account. When I do this there is only the one image available. You are correct, however, that the link you have provided gets past whatever is stopping the display. Though it only allows access to that one album.
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Nice place, Owen.
What would be the difference in price (roughly speaking) between “buying from the yard” and what you’ve done?
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When I pretend to be an outside I Google Facebook. Then search Owen McShane.
And then when the page comes up click on either Profile or Wall – and all four albums are available.
Have you tried Wall (when I click on that the button says “everyone”.
Not much point setting everything to everyone if it locks everyone out!
But I must say I have never mastered Facebook. That’s why there are four albums instead of two!
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I could see it easily enough.
People may need to be logged in to Facebook?
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Difficult to tell because this was built several years ago and prices have sharpened this year.
But I built the house for 230,000. But then I was my own builder and bought my own materials and employed all the contractors and of course was my own architect. I guess I saved 30,000 on the raw timber at least.
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BP and Owen,
I was logged on every time, I have just cleared all of my cached data and tried three different browsers and it still has the singular picture when accessed through searching. I tried google with “facebook “Owen McShane”" and still there is the singular picture.
The link works but otherwise I am perplexed.
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Can you get to here?
http://www.facebook.com/people/Owen-McShane/1011811548
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Then click the link “Owen Mc Shane”
Then click the Wall tab.
You should see four pictures.
Click on each picture to see the rest of the gallery.
Does that work?
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BP,
Yes, that works.
I had not though of looking at the wall, there is no reason I can think of that they would appear on the wall but not in the gallery. I guess I am still a facebook novice.
As a side note, the gallery page is still restricted:
http://www.facebook.com/photos.php?id=1011811548
I apologize for the inconvenience caused by my inexperience with this (or any) social networking site.
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A rising minimum wage results in students not having to work as many hours to support themselves while studying. This opens up study to more people (of course students dependent on work income are in trouble when jobs are unavailable).
Many minimum wage jobs are done by students (retail) by people returning to the workforce after having children (hospital service workers, cleaners, care workers).
Thus it helps study and supports families (second incomes reduce WFF costs). Otherwise it places upward pressure on jobs where some skill is required but where unions are in a weak negotiating position.
The economic framwork is built around maintaining a permanent level of unemployment as a counter-inflation policy, thus unions are kept in weak negotiating position where staff are unskilled or can be trained up quickly on the jobs. Only a policy of having a minimum wage which enables a sufficient level of income (comparable to Super) mitigates this and provides a level playing field.
What level of income?
Minimum after tax – Dole for a couple (as the non working partner is not eligible for the dole)
or IB/SB *2
Super for a couple
Maximum – Same rate as in 1990 when the benefits were cut? ($15 an hour in 2008, this year to $16). This about the same as for a single rate person on Super *2.
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Petty bourgeouis, >$50,000, so you expect a better class of people to want to work for the “minimum wage” when it is $15 than when it is $13 ($12.50 + Keys 50 cents 2010).
Actually the class of people prepared to work minimum wage depends on the unemployment rate at the time.
A better class of person worked for the minimum wage of $7 in 1999 when unemployment was higher than it is now, than work for you now at $12.50. And a better class of person that would at $15 as well, given unemployment would still be lower than it was then.
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Unemployment is higher than it has been for years…. but that’s ok, I wouldn’t expect you to understand…
(sorry If you are not actually a socialist)
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Mr 11:23 ‘over ego’d’ etc. – you’re a Good and Generous chap! Thank you for your thoughtfullness and support for a more equitable minimum wage!
You can by the way, look foward to hiring fewer people, not less.
Either way, there will be more people freed from working under your arrogant right wing regime, so it’s a good result all round!
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As someone ‘right wing’ (my income >$50,000) i fully support raising the minimum wage to $15 ph despite the obvious negative economic effects. It will mean that i will hire less people, i’ll be able to increase my prices citing the increase in minimum wage and be able to invest in the soon to be very lucrative mining industry
Yus!
However what tops it off is that i will be able to expect higher quality employees which means the people that will normally be getting these minimum wage jobs will not be employed. Unfortunately this means that no one will be paying for unions and even more socialists will be living off my taxes and spending their time doing worthwhile things like whale watching, spitting on police officers and harbouring terrorists.
Goodness me!
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“there will be more people freed from working under your arrogant right wing regime, so it’s a good result all round!”
I am glad you are in agreement my little greenfly, increasing the minimum wage will result in less people employed. Meaning that I, the employer, gets a greater pool of people to chose from when deciding who to employ and those ones without experience (i.e. young people) won’t get a chance – $15 an hour is a fortune!
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Frog! Scarey Time Distortions!
Step away from the Tardis!
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Speaking of Sue Bradford greenfly, she still hasn’t tracked me down as you had cautioned, but if she does I have a weapon of mass destruction waiting for her – my wife!!!
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We weren’t Shunda, but now that you’ve mentioned her name (Fool! She’ll be on your scent already!) I say, stay cautioned. My prediction for when she does come knocking on your door: (squealing is unbecoming Shunda!) Sue and Mrs Barunda will become fast friends. Sue is kindly and open, as I presume is Mrs B. I suggest you busy yourself in the laundry with washing smalls or something, while they get to know each other (and give the spare room a lux – Sue’ll be staying over!).
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Increasing the minimum wage will increase the disposable incomes of people. More disposable income will increase consumption. More consumption will need more production. More production will decrease the unemployment rate.
I just wanted to share a basic rule in the science of economics. I don’t live in the NZ. So, there might be some exceptions there.
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Mr Bob – Don’t be so condescending it’s quite rude..
Increasing min wage increases cost to employers which increases cost of product, which increases inflation, which decreases the real min wage.
It’s pretty easy to use an economic formula if you don’t quantify it
From an employers perspective I WOULD have to decrease staff numbers, or increase prices dramatically say… 20% to compensate for the higher wage, and give me more profit 
Oh Gee whiz…
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The obvious solution to all the problems of the poor is to increase the minimum wage to $100 dollars an hour because this will lead to more spending and more money flowing through the economy and more consumption will need more production and more production will decrease the unemployment rate and so on for ever.
In fact why stop there?
Let’s increase the minimum wage to $1,000 an hour.
We shall leap to the top of the OECD tables. It’s worked for Mugabe.
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Mr ‘Extra Ego’ – you might well raise the price of your product, just as we may choose to stop buying it.
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@Owen –
Nice piece of Sarcasim!… Of course, As we increase the Minimum wage we also increase the margin in the ‘Wage Arbitrage Play’ between ourselves and China [and all other low wage economys and those who seek to externalize the true cost of production to the environment and human rights abuses]…
When NZ signed the free trade agreement with China, we consigned ourselves to race to the bottom… and increasing the minimum wage is just struggling against that reality.
Ain’t Globalisation Grand?
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Any one in tourism who wants a higher wage is up against the fact that their employers are on a race to the bottom and customers will just choose a different service provider or destination. In Nigeria an airport porter may only earn as little as $1 per day (as I remember it from a TV program). The Paula Bennett saga touched a nerve as many lower paid workers were reminded that here is a class of beneficiary who earns more than they do. It angered Sue Bradford as it exposed that anomaly.
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Mouse,There is no race to the bottom.
There is the law of comparative advantage. So there are a multitude of races to the bottom, to the top and to the middle.
The way to stop people damaging the environment is to encourage them to earn more and the way they do that is by exporting to us.
And yes Globalisation is wonderful. Had it not been for the invention of the container I shudder to think where the NZ economy would be now. So praise be to that company that first loaded a container ship in New York harbour in 1957 (I think it was).
Do any of you understand the law of comparative advantage or even know what it is?
REad Mike Moore’s book and learn how the world actually works.
And remember New Zealand’s rural economy was built on child labour. The whole school system was built around it. And no harm was done. I used to love helping load the hay bales during the baling season – and I was 10.
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I didn’t want to be rude. There might be some exceptions according to which products you produce heavily and how expensive your other costs (raw materials, energy, taxes, interest rates, etc.) excluding the workforce.
Increasing min. wage doesn’t cause inflation if the production volume increases by the same ratio. However, almost all of the economies in the World need inflation due to the current financial crisis. Because demand is poor everywhere. Sales are so poor and corporates go bankruptcy. Low demand causes much more unemployment especially for the countries which can’t compete with the biggest industrial material exporters like China, US, Germany, etc. In the short time, less than 1 year, inflation rate may raise temporarily which the economies need. I expect higher inflation rates Worldwide for the next 2 years.
You can’t increase the min wage to $1,000 and you can’t decrease it to $1. If you do so, your currency will be meaningless. There are margins, rates to maintain the balances. So, if the unemployment rate increased from 5% to 10%, the marginal unemployment rate is 50%. So, 50% increase in the min. wage will be the correct point to maintain the balances of economy. However you and all of the other countries can not compete with the biggest exporters in the same or similar products. If Germany does well in automotive and China does well in electronics you should find another products to sell to the World. So, increasing or decreasing the min. wage can not affect competition power in those products. Because the difference between their costs and the others’ costs can not be covered by changing only the min wage.
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@Owen – Do any of you understand the law of comparative advantage or even know what it is?
I think I understand Comparative Advantage… I have had the privilage? of working for several Multinational FMCG business’ in various places around this lovely Blue Marble… I have had the kind of first hand experience that makes one feel some what uncomfortable.
Oh… and I think I was an Act supporter at that time in the my evolution of thinking… So, hey… there is hope for everyone!.
Keep Looking and and keep questioning your belief system… I only hope Mike Moore is capable of the same.
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Bob,
For each step there is only a portion that goes on to the next step, if ultimately less comes around to the start then there is a decline rather than growth.
Basic economics plus math.
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jh, you say that the
“Paula Bennett saga touched a nerve as many lower paid workers were reminded that here is a class of beneficiary who earns more than they do.”
What class of beneficiary?
No beneficiary, in the same domestic situation as a person with a job, gets the anywhere as much. I suppose you mean when a few exceptional cases get taken out of context and those with a disposition imply from that something quite untrue.
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Treasury reports….
* nil – “an option favoured by many businesses”;
* $12.75 – linked to CPI,
* $13.10 – equating to the increase in the average wage which was estimated to constrain job growth by between 400 and 900 positions.
* $15 – “which did not have much of a rational basis” and would cost between 5400 and 8100 new positions.
* and $16.75 – “which is two thirds of the average wage.
(And don’t get all angsyt about it – these are real numbers by economists that have the information to make accurate forecasts, not just politically minded people with no reference)
If you hate the young, the poor, and the unqualified then go ahead with raising the min wage to $15 per hour!
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George, can you provide a link to that report?
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Frog,
According to this it is straight from the mouth of the Wilkinson.
http://www.guide2.co.nz/politics/news/small-increase-in-minimum-wage/1 1/13792
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So hundreds of thousands of New Zealanders could have had a substantial increase in income – with an increase in minimum wage to $15 an hour.
(450,000 are on up to $15).
And Treasury forecast jobs losses between 5-8000 if this occured – showing some amateur estimates were way overstated.
The many would have been better off with a minimum wage at $15, but the objections of a few businessmen with influence in and or voer the National Party scuttled that.
The increased wages would have generated sufficient tax to cover the cost of 8000 unemployed onto the dole (when taking into account savings on WFF and accommodation supplements the government would have been reducing their budget deficit).
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SPC,
Yes, at that ratio I am inclined to support the move; though it may be a less than ideal solution. I am still on the fence as to if the extra unemployment is actually desirable though; I have yet to settle on a unemployment target.
That said, the tax revenue could decrease. We do not have a flat tax rate so we collect just under half the revenue per dollar from the workers comparative to the company. The money is more likely to circle through the economy again but I do not know if that will equalise the tax take.
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I should clarify that as being desirable only if there are substantial cuts to WfF exceeding the value of benefits for those made unemployed.
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“sapient” who do you think are the people that will suffer the most? “that ratio” is not exactly from an objective source as George pointed out…. Are you saying that 8000 people should loose jobs so that others can get paid a little bit more? I mean.. 2.5 for 8000 jobs…
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Charles the figure of 5400 to 8100 comes from Treasury, quite an objective source. If anything any “ideological” bias would be to exaggeratring the number of lost jobs.
But I would imagine Treasury has been looking at why so few jobs were lost with the previous rise in minimum wage (7 to $12 1999-2008), and gained sufficient knowledge about the employment market here to dismiss the market ideology and explain why it fails to apply.
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Charles,
I am generally against any increases in the minimum wage. I do believe, though, that it is what most benefits society that ought be sought. If an increase in the minimum wage may be shown to provide more benefit than detriment then I will support it.
Normally, I advocate that the minimum wage be sufficiently low that there is no sacrifice of employment but sufficiently high that a single individual may support themselves without state support. The latter takes priority to me and must take priority to anyone whom cares about society else revolution seize it.
A minimum wage of $15 is cited by treasury -a source that, if anything, has an interest in over-citing the figure- as resulting in only 8,100. now, it is true that 8,100 is about a 7th of the total unemployed at present but I would point out that five years ago unemployment was 90,000 rather than 60,000 and government was worried that the pool of unemployed was too small and was in crisis over the matter.
By no means am I sold on the matter of a minimum wage increase as I have yet to establish what I consider to be a sustainable level of unemployment and am unsure precisely what effect it will have on the economy. I am merely stating that I admit it may be plausible if we can get our budget to balance out first. I do not have the numbers to do a complex analysis but assuming that each person whom becomes unemployed is single and receives $300 per week ($217.60 gross UB plus some form of accommodation supplement) and assuming that only a quarter (25,000) of those whom were on the minimum wage were receiving benefits exceeding $100 (and assuming all the others received no assistance) then the increase breaks even in terms of state expenditure. That is excluding the 350,000 bellow the $15 mark whom may also benefit and save money. There will be less tax take as a result of a lower tax for people on lower incomes relative to companies. As I have said, I do not have the data for a complex analysis but it does seem plausible, though until I see all the data I will remain unconvinced.
As for suffering, there are easy ways around that; could even turn a profit.
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Sapient, I doubt any job losses would really result in a higher level of unemployment over the medium term – the RB’s anti-inflation policy is premised around one tool being maintaining a pool of unemployment (certainly Brash saw it that way), which continues to apply in any case.
Remember a lot of the low wage jobs are done by people who are students who upskill (if they work less hours because they can earn more per hour, this frees up work hours to others).
The real issue is whether some unskilled older workers refind work easily or not. If not, the answer is wage subsidy (the government pays the single rate dole to the employer who pays them minimum wage – say for the first year. even better where there is some on the job training involved).
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Sapient, while the non working partner is not eligible for the dole the minimum wage really should be sufficient to support two people.
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SPC,
I know that treasury screws up often, but I don’t think they are quite on your level.
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SPC,
While the non-working partner is not eligible for the dole the law should be getting repealed. There is no need for such stop gap measures as raising the minimum wage to account for two individuals when the needed change could be done much more simply and with far less cost.
Wage subsidy is an option, but only as a one off. This subsidy should only be available for the time that individual is meant to stay in the workforce and for individuals unlikely to be able to re-skill given their age and condition. Of course, that does have the potential to create a succession problem as older workers are retained at the cost of younger workers simply because older workers are cheaper. I prefer the railways option; though obviously not on the railways.
I will apologise for my 11:41 PM post. It infuriates me when people have something explained to them time and time again, as simplistically as possible, why their point is worthless and yet they still bring it up. It is no different from creationists.
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If unions were not totally useless then there would be no point in even having a minimum wage.
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Your problem? Their conclusion of few job losses, speaks to them not accepting classic market ideology – which would forecast higher job loss. It surely speaks to some assessment of the employment market concerned to ascertain why classic theory does not apply (post free global free trade market economic policy settings, few remaining local low wage jobs are subject to competitive market price pressure).
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Sapient, unions are not useless – but the combination of ECA, global free market free trade and RB policy settings to maintain a permanent pool of unemployed – totally depowered them.
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Sapient, while there is no eligibility for the non working partner to get the dole, your arguement needs to be stated as, if there was any significant reduction in mimnium wage there would have to be eligibility to the dole for the non working partner.
But the problem is, many couples have children and are eligible for minimum family income under WFF – so if you lowered the employers wage cost you would increase cost to government/taxpayer.
Within current policy settings – which are bi-partisan, an increase in the minimum wage to $15 makes the most sense.
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SPC,
The non-working partner should, so long as they are genuinely seeking work, be paid the dole. That they are not is not a problem relating to the minimum wage but to the way the dole is legislated. The solution is to fix the legislation.
You argue that reduction of the minimum wage such that a couple can not support a family on the minimum wage will increase costs to the tax payer as a result of WfF. You are correct. Your solution is not. The problem is WtF; replace WfF with the “Citizens Loan” (think multi-purpose student loan with discounted interest rates).
As to unions, they are powerless because they are useless. They should be able to adapt easily. That thy cant is the fault of organizers and the stickiness of employees.
They state clearly that increasing the minimum wage will cause job loss. Your conclusion that increasing the minimum wage does not cause job loss is hardly supported by that statement.
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Sapient, the issue is not that they forecast job loss, but how little job loss. Which even moved you to reconsider your own position.
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SPC,
Actually, I reconsidered my position prior to the first posting of those statistics. The post where I state as much comes chronologically before the statistics on (I believe) the same thread. My previous position was based on the assumption that a lower level of unemployment was generally desirable for the good of society. While this is true, the accounts of my uncle -a government employee somewhat of an expert on the matter- have given me a historical perspective that leads me to believe I was overstating the undesirability the present level of unemployment. Unless we can decrease our spending and/or increase our tax income then this level of unemployment is excessively high as we need to raise our gross product to correct our account balance. All the treasury statistics have indicated is that money could, potentially, be saved by raising the minimum wage; if this can be shown to be sufficient then I would support it.
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SPC – did you factor in loss of productivity to companies and the country of 8000 less workers?
Increases in the minimum wage need to reflect the state of the economy – larger increases when companies are doing well and can afford it without job losses, and business closures.
And small inflation only increases when there is high unemployment and when times are so tight that businesses are having to lay off people even without having large increases in pay costs enforced upon them.
Many companies are currently cutting overtime, cutting hours or working days, freezing and reducing pays – all to keep workers on.
Asking for a massive 20% increase (nearly ten years worth of inflation rises)at the current time is absurd.
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photonz, your post could have been made before the Treasury forecast of only 5400-8100 jobs being lost.
Their assessment clearly shows that most low wage jobs are not that price sensitive and your alarm to be misplaced. Can you even name businesses reliant on minimum wage labour that could not pass on their costs?
You presume that the jobs not so price sensitive in good times would become price sensitive during a downturn. That is unlikely, people still buy at supermarkets, theatres are still open, operating businesses still need cleaners, rest homes need carers and support staff, and also do hospitals.
Besides has the government not already reduced public sector jobs by thousands during a recession. Their rationale is that it reduces the budget deficit, and so might well a $15 an hour minimum wage.
“SPC – did you factor in loss of productivity to companies and the country of 8000 less workers?”
A countrry’s productivity is not actually measured that way. If it were there would have been improved productivity with falling unemployment (1999-2007). As it happens the reverse is true, because the more productive workers are always employed (and that is how it is emasured by those working).
And if that were the economic concept, the RB’s policy setting which is to maintain a reserve pool of unemployed would be a cause of lower productivity and thus be inconsistent with policy to improve productivity. That policy has much greater impact on employment levels than any minimum wage under $25.
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SPC – your comments make no sense. If most minimum wage jobs are not price sensitive, then why not double them instead of just a 20% increase?
You don’t know any business who can’t pass on minimum wage increases? What? How about any business producing products that are exported, or any compete against imports – they will all stuggle with increased wages. Think food, wine, fruit etc, any clothing, appliances etc. Major NZ companies have recently set up offshore factories because they can’t compete using NZ labour – appliances tapware etc.
Others can’t compete because of labour costs and have closed up shop or gone bust include vineyards, orchards, and food producers.
And then you think there’s no difference between good times and a recession – what planet do you live on?
How many business owners have you talked to in the last year? With all due respect, do you have any idea of what has been happening in the last year?
Also you think 8000 people who go from working to not working make no difference in productivity?
I don’t give a toss how you measure productivity, or spin the figure – any fool can see that 8000 people working will always be more productive than the same 8000 people not working, (in addition to sucking up benefits paid for by those who do work).
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Just as a general comment:
Productivity per worker is a good measure for a company but a poor measure for a country. This is because, while a company can fire employees and thus increase its productivity per worker, a state retains citizens and must actually support them when out of work (effectively creating a negative productivity). Since citizens cost resources to support “productivity per citizen” is a far superior measure for countries.
Also, the 8,100 should not be taken as a general rule. Rather this low amount is reflective of the fact we have been experiencing a recession and thus many of those on the low wage jobs that were at least semi-elastic have lost their jobs as a result of decreased demand and thus a shift in the marginal benefit of each additional worker. Were the minimum wage lower many of those people may not have lost their jobs. Were we not in a recession we would see far larger numbers.
That said, the ill effects of unemployment can be effectively neutralised with the appropriate measures and thus the point at which the minimum wage should be set is purely one of economic reasoning. Because of this I can not state if the wage should go up or go down as I do not have the needed numbers.
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