by frog
Last year, with the economy in the depths of recession, the Government managed to increase the minimum wage by 4.2% from $12.00 to $12.50 an hour.
This year we’re supposedly coming out of a recession. Even Employers and Manufacturers’ Association (Northern) chief executive Alasdair Thompson, who advocated a nil increase in the minimum wage for 2009, admitted earlier this month that:
…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.
Thompson indicated that a 50 cent increase to $13 an hour would be acceptable to the EMA.
That’s what I was quietly expecting, so it came as a shock when Labour Minister Kate Wilkinson announced yesterday that the increase would be only 25 cents an hour to $12.75.
That’s just a 2%, which barely keeps pace with inflation. So much for Wilkinson’s line that: “The Government is focused on the need to find a balance between protecting jobs and ensuring a fair wage.” Even if you accept the neo-liberal assertion that modest increases to the minimum wage inhibit job creation, which studies such as this refute, there is not balance at all here – other than the “balance” between the extent to which the taxpayer and the employer contribute towards the earning of employees on low incomes.
Take the situation of a couple, one working 40 hours a week for the proposed minimum wage of $12.75 an hour and the other an at-home parent, with two young children, paying the average rent in Auckland of $384 a week. Their in the hand income is derived from:
| Nett minimum wage | $417.12 |
| Family Tax Credit | $146.00 |
| In Work Tax Credit | $ 60.00 |
| Accommodation Supplement | $199.00 |
| Total received in the hand | $822.12 |
The Government seems hell-bent on maintaining huge state subsidisation of low wages. A massive 49% of this family’s in-the-hand income is paid not by the employer, but by the taxpayer.
Isn’t it time the employer, who profits from the work done, contributes a greater share?
Published in Economy, Work, & Welfare by frog on Thu, January 28th, 2010
on the trolls and those who are unable to keep on topic
Increasing the Minimum Wage causes unemployment.
If you want evidence of this go and look at American Samoa. The US federal government increased the minimum wage to 7.25 in 2007. For American Samoa this increase is being phased in at 0.5 a year until they reach 7.25. In American Samoa the min-wage was 3.25 so this change is eventually going to more than double the minimum wage. The Ironic thing is that this is actually the republicans fault since they opposed the entries in the law which would of exempted American Samoa.
The effects of this law have been devastating to American Samoa’s economy. One of the two tuna factories has already closed down and the other one has cut employers. Both of these factories account for 50% of the islands employment. I can’t see how the other plant can remain open with a rate of 7.25.
This law highlights a problem with minimum wage laws, since they don’t factor in the cost of living. The idea that the US federal government can impose a minimum wage across the entire US is absurd.
NZ suffers this problem too except on a smaller scale, of course no one would deny that the cost of living between Auckland and the West Coast are very different and therefore how can you set a single minimum wage that covers the entire country.
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Turnip28, no-one here is suggesting doubling the minimum wage. The Greens are advocating a modest increase of 20%.
And lets not get hung up on anecdotal evidence, where a whole number of factors other than the minimum wage can have a bearing on employment in particular scenarios.
Take a look at this controlled study (PDF), which found no evidence that modest increases in the minimum wage cause job losses.
The study compared the impact of changes in the US Federal minimum wage in New Jersey with changes in the neighbouring state of Pennsylvania where state minimum wages were already above the Federal minimum and remained unchanged. Thus Pennsylvania played the role of a ‘control’ in the study. The study revealed that, on balance, the increase in the minimum wage raised employment, rather than lowered it.
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Labour calling for $15.
Job that was generating $1 worth of surplus value at $12 now produces -$2 of value at $15.
Job disappears.
Why not make the minimum wage p/h $20? $30? $1,000?
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Why not go heaps beyond a living wage, BP asks.
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turnip28
I do not know the details of the Samoan economy. But I do know the Samoan economy is different from New Zealand’s. Our minimum wage workers are mostly in service industries (cleaners, burger flippers etcetera) jobs that must be done. These jobs will not be lost if the minimum wage increases.
The losers will be those whose income depends on profits. Raising the minimum wage to $15/hour would reduce profits (I think using a very rough calculation) by about $2b a year. But that $2b will be spent in the local economy, creating more jobs, whereas if kept as profits a great deal would have been repatriated as profits by OS owned corporations or spent overseas on luxuries.
peace
W
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Pay your workers a decent wage Peter, you miserable rat!
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Or the person working on minimum wage could live within their means. There is no reason someone on the minimum wage should be able to support a stay at home partner and two children. It is ludicrous.
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Valis,
You are already asking to go heaps beyond a living wage, so BP’s suggestion is not that out of it.
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Sapient – a wife at home who has just given birth to a child and has another in nappies. Is that not a reason? How is that ‘ludicrous’?
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Why not go heaps beyond a living wage, BP asks.
To me $15 just seems fairly arbitrary and I suspect BP sees it that way too, hence his suggestions. What is the $15 figure based on, exactly?
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Ever wondered why Tahiti is soo expensive to visit.
The minimum wage is US$26,000 pa.
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Actually Bliss the loser will be you since the service business will just pass the wage cost onto its customers, the net effect will be price increases.
Labor costs for service industries could make up any where from 20% to 80%. So If you assume 25% which I think is what McDonald’s NZ states is the average wage cost for its franchise. A 20% increase in wages would equals a 5% increase to the companies costs. The company wont absorb this cost they will pass it on in the form of higher prices.
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Greenfly,
That would be a reason to work your buttocks off.
The minimum wage though should be sufficent only to support an individual. People do not have a right to procreate, nor a need. There is no good reason that someone working in a totally unskilled job should have the luxery of a stay at home wife and children. That wife should be out producing paperclips and the children should be but a twinkle in the eyes of the parents.
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turnip28
Yes there will be price increases. But they would be matched by bigger wage increases for the low paid. I would loose out as I am not on a wage personally and my house hold income is *way* above low paid.
So I would be worse off. Perhaps I should change my mind?
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sapient – Those comments negate any claim you might have made for divinity then.
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They’re software developers, so they earn many times the minimum wage.
I’m just pointing out a simple principle of economics. If the job doesn’t add any value, and costs the company to provide, then it disappears. The alternative is to pass the cost on, this driving up the cost of living, leaving you in the exact same place you started.
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People have an obligation to procreate otherwise that is the end of us! A parent (not necessarily a wife) caring full time for children is not a luxury but an important contribution to the next generation. Families matter more than most things!
I agree. I would like the minimum wage set to the cost of maintaining two adults and two children in a three bedroom house, working full time on that wage. The minimum cost of sufficiency for that group.
A decent state housing programme (as proposed by the Green Party) would go a long way to lowering those costs.
peace
W
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Why not throw in a swimming pool, two cars and a trip to Australia?
Actually, upgrade to business class. Wouldn’t this make everyone happier?
Meanwhile, many NZ businesses close. The profit margin disappears. Many move. Those who must stay, increase their prices to account for the higher overhead. Cost of living goes through the roof. People leave.
Money doesn’t grow on trees.
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Bliss
Global Warming will be the end of us.
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“Money doesn’t grow on trees.”
And yet you’ve invested in forestry.
Frog said: “The Greens are advocating a modest increase of $20%.”
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Oops, thanks for pointing out the typo greenfly. Fixed now.
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Bliss,
I object to that assertion. By no means is it an obligation, at this point in time. The world is already vastly overpopulated and is becoming more so by the day; if anything we have an obligation to not procreate. Even assuming we did have an obligation to procreate, that obligation would be on the strong, smart, and adaptable; not on the runts of society.
Procreation, esspecially of such inferior genes, is not a benefit to society by a cost.
~
Greenfly,
On the contrary, I am adopting the Jewish and Islamic “redemption through works” philosophy rather than the Christian “redemption through faith”. if anything it reinforces my divinity.
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There is a point where a job isn’t worthwhile offering. So it disappears, or you pass the cost on, thus driving up the cost of living, bringing you full circle.
Again, why $20(%)? Why not $23? $29? $1,259?
If the shop assistants, drivers, stockers, packers etc are all earning 60K , and what does that do to the price of your bread/books/shirt/shoes/whatever?
Only the numbers change….
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You can make it whatever you like. $20. $30. $100. Take your pick.
But every job that does not produce in excess of that value per hour disappears, unless the cost can be passed on, in which case you merely push up the cost of living.
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Just a random comment about the wife and two children thing. You might argue the wife should go back to work.
But in lots of areas of Auckland child care costs so much that unless the wife is earning quite a bit per hour (well above the minimum wage) it really isn’t worth her going back to work until the kid turns 3 and she can get 20 hours free care.
I remember somebody telling me that childcare in their area was $80/day. So, if the wife worked 8 hours at $12.75/hour and paid 20% tax she would make, wow! $81/day.
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The issue hasn’t ‘gone away’ Bluepeter – National has offered a miserly 25 cent increase to the minimum wage and you, doubtless unaffected by the paucity of the increase, see fit to expound your views on it (I smell paternalism) National have shown their disdain for low wage earners, as have you. The issue is still in front of us but your opinion on it seems hardly worth having (or at least only worth 25 cents).
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I would like the minimum wage set to the cost of maintaining two adults and two children in a three bedroom house, working full time on that wage.
Turnip also pointed out in his first comment the possible folly of mandating across the board MW increases regardless of local factors. How do you incorporate that, or do you?
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I am not going to discuss eugenics.
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I’m quite happy paying the lowest earners $100 p/h, just as soon as you tell me where that money comes from.
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Cleaning and burger flipping jobs are not going to disappear. The extra money injected into the bottom of the pay structures brings all sorts of economic benefits that are not obtained by retaining that money as profits.
Why $15? Good question. I answered that. I think there should be a formula (which may lead to regional differences).
Costs go up, of course, followed by prices. But wages are not 100% of the cost structure so the costs would go up less than the wages. We are no longer in a cost plus world so prices go up even less.
blissfully
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You’re assuming there are enough profits.
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Quite ludicrous – those who expect to be able to live a normal human life on an ordinary wage simply don’t understand that they exist to serve the capitalist economy, not the other way around.
Might be worth adding a new subject to the the school curriculum – reality studies. The main thrust being to inform people to expect less, a simple message – you are garbage, will be treated as garbage and better shut up – should be relatively easy for somebody on the minimum wage to teach, so it wouldn’t cost much.
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“those who expect to be able to live a normal human life on an ordinary wage simply don’t understand that they exist to serve the capitalist economy, not the other way around”
Do you have stats on the number of people employed on the minimum wage? Cause I’d debate the minimum is the ordinary. And in the above scenario there are 4 people trying to live on one minimum wage.
I see the importance of a minimum wage (and tax supports) to close class divisions, but isn’t it semantics debating a dollar or two when we as taxpayers/ wage slaves (as mentioned above) are already supplementing their income to the tune of 50 odd percent?
Perhaps by removing income based taxation (at the very least for those earning below 40-50k) and implementing a significant ‘profit’ tax (on capital gains, dividends and the like) it would send appropriate signals to those profiteering off these low income workers, and incentivise the reinvestment of profit into business growth and wages.
Just an idea, (and I am obviously not an economist) but when the cats already have the cream we should focus on the real causes of poverty (capital and profit), not argue over the semantics of whether the poorest in society deserve 12 or 15 crumbs.
This line sums it up for me:
“Isn’t it time the employer, who profits from the work done, contributes a greater share?”
How can the capitalist argue with this – surely market forces dictate that if an job requires any state subsidies then the job isn’t economically viable and shouldn’t exist?
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How can the capitalist argue with this – surely market forces dictate that if an job requires any state subsidies then the job isn’t economically viable and shouldn’t exist?
You talkin’ about public transport?
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Also the Accommodation supplement is not a tax advantage to the employer but rather the landlord.
You are pricing in a housing bottom when you create an accommodation supplement. How can rent and by the extension of rent house prices reach a bottom when left-wing politicians create price supports in the market via accommodation supplements. The continual unintended consequence of left-policy never ceases to amaze me.
Essentially an accommodation supplement is nothing more than price fixing on the part of the government. Come on Greens time for some free market solutions.
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“Perhaps by… implementing a significant ‘profit’ tax (on capital gains, dividends and the like) it would send appropriate signals to those profiteering off these low income workers, and incentivise the reinvestment of profit into business growth and wages.”
It’s a nice idea, but having opened our economy to overseas competition to the extent that we have, a profit tax would simply send investment and business to greener pastures elsewhere (‘greener’ as in greenbacks, rather than in leafy, chlorophylly types of things). A people-centered economy requires much more fundamental change.
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Frog-
simple answer:yes.
Longer answer – I once challenged the Hon Ms Dyson on her championship of the WFF policy, on the grounds that this isn’t helping families, it’s subsidising employers, as is giving an accommodation supplement to renters, without making it easier for people to own their own homes – ie: gives a subsidy to landlords, directly from MSD funds.
Sue B was standing right next to her, noddling vigorously, while Ms Dyson flapped her mouth without words a couple of times, then gulped and rejoined with “that’s an interesting point”.
BP-
employers should not be getting subsidised by the taxpayer in this manner.
If an employer can’t afford to hire workers at a resonable salary, perhaps he shouldn’t be getting the luxury of a company car, tax perks for plant write-off, loan finance costs written off as expenses, business travel written off as tax expenses, etc; oh, and that pesky little matter of profit for the shareholders, which should definitely not be underwritten by the taxpayer.
Ditto those who are renting property at a rate that is unsustainable, and being subsidised for their greed by a State who interferes in the property market in order to perpetuate the speculators bubble!
DON’T whine to me about beneficiaries when the business and corporate sector in NZ are the biggest rort on the taxpayer in any country I’ve seen!
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“Essentially an accommodation supplement is nothing more than price fixing on the part of the government. Come on Greens time for some free market solutions.”
Actually, it’s price fixing on the part of only one part of the government – the Wellington City Council, and maybe other councils, has argued for increasing rents on council houses as the increase would largely be covered by central govt funds, via the accomodation supplement. In other words, the council wanted more taxpayer’s money. Silly, but that’s what you get when you try and fix capitalist economics with sticking plaster.
A free market solution would work – all that is required is for lots of people to decide not to live in houses until the price comes down. Again, government is the villain – local government should see homelessness as a sensible market choice and stop cracking down on it.
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At last! Thanks for that Katie.
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LucyJH,
My argument is not that the wife should go back to work but that the wife should be working and the children never should have been born in the first place. Childcare does not factor in.
That said, child care is very expensive and I would like to see the cost come down substantially. This could be done easily by altering how the DPB is allocated and creating community crèches.
~
Bliss,
Eugenics need not be discussed, don’t try and dodge the issue; that was a periphery comment and you know it. You argued that having children was an obligation, a boon to society, I argued that the population is already far over the carrying capacity of this planet and still increasing. My point was that having children was not an obligation that benefits society but an activity with significant cost for society. When these individuals expect society to fork out to support their children just because they can’t be bothered to obtain the needed skills for higher pay, not only are they imposing a significant cost but they are being blatantly parasitic.
~
Sam,
Yes, it is ludicrous to expect to live well without putting any investment in to one’s own future. Those on an ordinary wage can easily live a normal human life, but we are not dealing with them here; here we are dealing with those without skills whom have done nothing to justify a higher wage.
Perhaps we should add a new subject. Teach people that if they want anything in life they have to work for it rather than expect nanny state to give you everything you want at a cost to those whom actually bother to do something with their life.
There is a quote that is over 2,100 years old. It summarises the matter brilliantly:
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“here we are dealing with those without skills whom have done nothing to justify a higher wage.”
So supposing everybody goes off and gets a university qualification, explain to me who is going to do the cleaning and cook the burgers?
McDonald’s isn’t going to close, we aren’t going to work in filthy workplaces – either we are going to have cleaners with degrees or we are going to import people who never had a chance to get education.
Last I was working in dogsbody jobs (in London), loads of the people there had tertiary qualifications (one shop assistant I worked with was a Russian rocket scientist – Russia was full of highly educated people who couldn’t get jobs), or were immigrants working illegally, or both.
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Sam,
That really depends on policy. An increase in the wage would initially be observed due to a decrease in the supply of willing hands, this would prompt increased mechanisation and so many of the jobs would no longer be needed or would be able to be done by a fraction of the people. As supply dwindles further wages would increase such that there would be less incentive for them to get a degree as, while degrees would pay much more, the pay would be pretty decent at the stores. There would be pressure put on government to import people. As Katie pointed out the other day, Pacific Islanders would fill many of the jobs.
If you combine it with decreased birth rates then we can easily afford to help the uneducated of other countries by importing them to work here and giving their children a chance at a decent education and health system.
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“As supply dwindles further wages would increase such that there would be less incentive for them to get a degree as, while degrees would pay much more, the pay would be pretty decent at the stores.”
So you are wanting an incentive to not get a degree now? Before you were complaining that those on low wages hadn’t upskilled themselves, now you want a wage rise for the unskilled. Agreed.
“There would be pressure put on government to import people. As Katie pointed out the other day, Pacific Islanders would fill many of the jobs.”
Just as long as Pacific Islanders don’t make the mistake of following your advice and upskilling.
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Sam,
I don’t want the incentive, I would rather that everyone was an academic but in reality we need some people doing menial tasks; at least for the moment. People whom have earned degrees -unless they are anthropologists- have improved their skills and because of this they can demand a higher wage. The more people with those skills, the less the wage will be comparative to if there was fewer. Assuming a constant population, more skilled means less willing to do unskilled jobs. Less willing to do unskilled jobs increase the wage for unskilled jobs assuming that demand does not decrease at a similar or greater rate. Those whom train thus receive benefits and those whom do not train receive benefits from other people training, of course the more Pacific Islanders we import the less they benefit.
As we are presently we can not support a massive academic population, but skills need not be only academic.
If the Pacific Islanders up-skill then we import more, perhaps from other locations. the more we import the better it gets for them, the worse it makes it for unskilled labourers here. Besides, it is unlikely that the Pacific Islanders will up-skill given they will likely be older and would be receiving, assuming we don’t import too many, a pretty decent wage.
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Yeah I also anticipated a 50 cent increase.
This sucks for those on low wages, but the political gift (the surprisngly low 25 cents) this gave Labour – launching its many not the few theme to re-connect with their working class voter base is immense.
I suspect National will come to regret this option.
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SPC – yes, Labour have moved strongly and Anne Tolley’s $26 million ‘gift’ is a late Christmas present, bigger and shinier than they could ever have hoped for.
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Frog – you take a two decade old study, in another country with a different economy, that was resrticted to s single type of business in as single industry, and say that’s it’s proof that raising the minimum weage doesn’t cause job loses.
If that is truely the case then why not make the minumum wage $100 per hour?
Meanwhile, back in the real world, where more businesses than ever are going under, and more poeple than ever are losing their jobs, a 20% increase in the minimum wage for many struggling businesses means just one thing – having to reduce to 20% less workers – or worse – closure.
Asking for the equivalent of an increase of ten years annual inflation at a time when unemployment is high and businesses are struggling, is nothing less than a brain explosion.
Real world calling greens – come in greens…….
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The restraint on the minimum wage level is its relationship to the average wage set in the “marketplace”. This places an upper limit. The Greens target 66% of the average wage (it is now about 50%).
As to why $15 – this is the rate (adjusted for CPI) it was in 1990 (to 2008).
Shortly afterward benefits were cut (and alongside this compensation via the accomodation supplement) and the policy from 1990 to 1999 was to move the real value of the minimum wage further and further down. This reduced the incentive to work – and as we now know few jobs were created by the low minimum wage, thus few were lost when it increased from $7 to $12 (1999-2008).
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“This year we’re supposedly coming out of a recession.”
I really don’t think so
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SPC – you contradict yourself.
You say a large increase in minimum wage from $7 to $12 (1999-2008) has not resulted in any lost jobs.
You say that minimum wage needs to be lifted to $15 just to be equal the inflation adjusted 1990 rate.
Which of your two positions are you taking – that the minimum wage has dropped, or had a large rise?
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Photonz,
SPC is saying that there was a rise in nominal terms but a drop in real terms.
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If the inflation adjusted rate actually dropped, then it nullifies the arguement that a huge rise in minumum wage (because there wasn’t one) did not have an effect on employment levels.
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Photonz-
what SPC and Sapient are alluding to is the fallacy that was behind the mooted drop in minimum wage rates in the early 90’s – that if workers cost less, employers would have more of them.
There was no commensurate increase in the numbers of low-wage jobs during the period 1999-2008.
In fact, many factories closed and moved their operations to Australia during that period, due to hostile takeovers and asset-stripping (eg: F&P, Canterbury, aluminuim production, etc).
The excuse given was not the rationale that actually showed to be true – actual practice was to pocket the difference in the wages bill, then when the business still proved to be unprofitable, to shift production to another country. (ie: cash-up the business and leave town)
There was some increase in fast-food employment during that time, due to franchise wars around the country (Restaurant brands trying to gain ascendence over all other outlets), but this did not mop up all the available labour-force.
Those who could, left the country to try for work elsewhere; the rest are our ‘long-term unemployment’ figures for the past decade.
It’s easy to see if you travel around the country and visit small provincial towns; the ones that lost their only major employer, are ghost towns now (Patea, anyone?), or have a community that struggles on for most of the year, with an influx of seasonal workers for the harvest season.
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Thats not what I was alluding to but, meh.
Photonz,
Remember that the shape of a graph can be influenced by the span. If you start the graph in the early 90’s then end it today you will see a general negative trend if you average the points. If you start it before the minimum wage increases (nominal terms) and end it jsut after the wage increases then there is a positive slope in real terms.
If you graph growth rates of people between 30 and 100 you will get a very different rate of change to people between 0 and 30.
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The notion of setting the minimum wage to some percentage of the average wage makes no sense. Say that increasing it to $15 achieved the desired percentage – now everyone who was being paid $15 before is going to move to $18, those who were on $18 to $22 and so on, which means the average wage goes up by 20%, therefore the minimum has to go up to $18 and the cycle starts again. So either prices go up correspondingly so that businesses can afford the increases (and no one is any better off), or jobs are cut.
Much better is the idea of pegging it to the CPI or inflation, as has been done here. The time for attempting any significant movement in the minimum wage would only be at the peak of a boom, certainly not in the throes of a recession.
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Greg, that argument would have some validity if the minimum wage adjustment accrued like compound interest does. But it doesn’t – it is a one-off annual adjustment.
What’s more, if wages at the higher end of the scale were to drop, as they could in a serious recession, the average wage and therefore the minimum wage could go down.
The Green policy, as I understand it, is to initially increase it to $15 an hour, then to 66% of the average wage (that was the recommendation of the 1972 Royal Commission on Social Security) and then index it to a basket of price indices with the proviso that it not drop below the average wage.
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Greg, the Treasury forecast of minimal job loss if the minimum wage was increased to $15 (5400-8100), clearly shows that most low wage jobs are not that price sensitive. It’s hard to name any business reliant on minimum wage labour that could not pass on their costs.
It is a presumption 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 thus its worth it, even in a recession.
An increase in minimum wage to $15 would add spending power to the economy (there would be added costs passed on to the wider market by the businesses employing them, but inflation is low at the moment and this makes it a good time to act). A recession is the right time for this increase and on the back of an envelope one can figure the increase could also reduce the government budget deficit (hundreds of thousands paying more income tax, and government savings in accommodation supplement and WFF tax credit liability over dole costs and increased government service cost liability).
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PS, As to the effect of raising the minimum wage on the average wage. First $15 is not so much as 66% of the average, so any increase of this sort would not beg the question of a further increase being activated.
The Greens target 66%.
Your concern would be totally nullified, by adopting a policy of establishing a floor and a ceiling for the minimum wage between 50 and 66% of the average wage.
As to policy on increasing the minimum wage in that context, I would suggest there were two options – the average CPI or a necessities basket (excluding discretionary items such as new cars) for the minimum wage and benefits.
Should wages be increasing faster than the CPI, so that the MW was falling back to 50% of the AW, then a larger increase could be made. If however other wages were falling relative to the CPI, and the MW was rising to 66% of the AW, then a lower increase or none.
An increase to $15 is required first to build in the between 50 and 66% context.
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All comes down to, “if a business is that sensitive to paying another $2.75 per hour they should close right now and save us all the bother”. On the other hand prime offenders at this end of the market are the supermarkets and fast food chains and I don’t see any of them closing if wages rose. They certainly didn’t when the Youth rates were amended.
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Scott, the problem with a across-the-board rise is that you do hit all the struggling businesses, along with the profitable ones. An extra $2.25 an hour is more than $4500 a year per employee. And as I said, it’s not just the employees who are on the minimum wage that get affected, it has a cascading effect – this seems to be ignored by many people. Secondly, even if they don’t close, they may employ fewer people, perhaps not replacing those who leave, which is much harder to pick up than when people are “fired”.
SPC, first, my impression was that the govt had capped public service jobs, rather than reducing them by thousands, but I could be wrong there. Second, some businesses are more sensitive to a recession than others – people will buy cheaper, or less often.
I have no problems with maintaining a minimum wage in line with the CPI (or a necessities basket if that is any different) – my issue was with pushing for a large (20%) increase that applies to every single business whether they are profitable or barely so. I also wonder why 50%-66% is considered appropriate – apart from them being nice round numbers, has there been any work to establish what an appropriate minimum actually is? Tying things to an average wage seems to be an ideological goal more than anything else – i.e. it’s less about what’s needed to “survive” than to try to ensure noone gets too much more or less than anyone else.
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An alternative to raising the minimum wage would be to make the first few thousands of dollars of income tax free. For example, a 50 cent per hour hike in minimum wages equates to around $1000 per year. $1000 per year in tax at 20% tax rate is the amount paid on $5000 per year of income, so making the first $5000 tax free gives the same increase in take home pay for a full time worker. It does make part time work more attractive.
The down side and which might require a tweak in the other tax thresholds is that the $1000 per year comes off everyone’s tax even the highly paid.
Trevor.
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Minimum wage laws…..and the Greens claim they aren’t fascists…….lunacy abounds.
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I also like the idea of a tax-free threshold as an alternative. Either set at around $5000 as you suggest, or in the $20-25,000 range, which gives the ability to reduce WFF (especially for people earning >$40-50,000) and simplify a lot of the tax system.
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@Greg 10:07 AM
The revenue from the income tax and GST that would result from increasing the minimum wage would allow the Government to provide a significant subsidy to businesses that are genuinely struggling.
But the low minimum wage we have now effectively means the taxpayer is subsidising the likes of Restaurant Brands, Progressive Enterprises and Exxon-Mobil through Working for Families, Accommodation supplement etc.
& @Greg 1:23 PM
The Greens support a tax-free threshold. But in addition to raising the minimum wage – not as an alternative.
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If the minimum wage jumps a massive 20% to $15, then companies who can, will pass on costs (many can’t, and may struggler to survive or more offshore). Other wages, particularly close to the minimum wage will also have to increase to reflect higher skills and experience.
The lowest paid will be hit by price increases, and increases in rent and mortgage payments when the reserve bank ups interest rates to try to stop inflation cause by wage-induced price increases.
There will be a call for a big hike in minimum wage to pay for all the increased costs, which will lead to more increased costs. And of course with inflation at this higher rate, those with inflation adjusted wage contracts will also need larger than normal pay increases.
Of course the price increases because of a minimum wage increase will effect some things more than others – food, takaways, public transport, – which will hit worst on those with the lowest incomes.
All the meddling suggested by others above with tax thresholds and the like is totally pointless, and is nothing more than shuffling deckchairs. It wouldn’t make a shred of difference, when 40% of households already pay effectively ZERO tax (one of our problems).
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A couple of points: 1 New Zealand and the OECD, and 2 the post GST change.
1 It would be interesting to see, disturbing really, whether New Zealand has the largest percentage of workers directly affected by such a modest minimum wage. in the OECD; and how many more would be if the $15/hour campaign was to succeed. A very large percentage I suspect, and probably the biggest within the OECD. Does anyone have access to minimum wage data for the OECD?
2 As well, if the example above is looked at the $417 met, plus FTC plus IWTC plus the landlord subsidy we see the overall improvement in net income of $8.50 for a 40/hour week after tax. Assuming all the non-rent is spent then our family is worse of after the GST increase from 12.5% to 15% by about $10/week. They loose out. Spening all the non-rent money of GSTable items is not hard. The amount to spend after rent is $436. The Otago Universoty Department of Human Nutrition has estimated the cost of a basic food diet in Auckland for our family to be $203 (61 father, 58 nmother, 50 for a 10 year old and 34 for a 5 year old) leaving $233 for everything else (public transport, power, schooling, clothes etc).
Conclusion: Our (capitalist 0 economy is pretty sick really with so many poor people struggling and being told to live within their means. If they did the recession we have had would plummit into a depression because retail and service oriented industry business would fall considerably with consequential job losses. Tis no wonder they want us to spend, spend…..
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photonz
There were also massive increases from 9 to 10 to 11 to 12 over 2 years, 1 April 2006 to 1 April 2008. That’s 33% in 2 years.
Treasury forecasts the loss of 5400-8100 jobs if the minimum wage was $15. It did not forecast a scenario where the increase was to $13.75 from 1 April 2010 and $15 from 2011, which was Labour’s way to phase in the increase. That’s 20% in steps over 1 year period (or an increase from 12 to 15 over 2 years, less as a percentage than occured 2006-2008). Labour in government could bring in $15 from 1 April 2012 and that is only an increase of 25% over 4 years (from the $12 in 2008).
Let’s note that some of the pay increases received by top earners were rather large in past years (in fact there is a tradition of public sectior pay being reveiwed every so often and then large pay increases being given – to MP’s for example).
So it’s not that big an increase and doing it phases means less than 5400-8100 jobs would be lost.
Note that the Oz minimum wage is already $14.32 and of course their international consumer good buying power is over 20% greater than ours (currency difference). Their minimum wage will be $15 this year or next. The minimum wage is the only area where we can actually determine to match them and deliver on it (albeit with the 20% less buying power in our currency).
If the government means what it says and it knows the Treasury forecast is of little job loss (and there may be budget advantages if anything), why is it not doing something?
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PS I don’t get your apparent concern for those on low wages. It is a totally fallacious/ridiculous arguement.
You talk up the size of the increase in their income and then you exaggerate the cost increase that would accrue. The cost rises would be marginal, the income increase relatively large. There is no doubt anyone up to $15,000 would be better off in the short term and in the long term.
Everybody on wages up to $15 would be better off. These hundreds of thousands would get regular CPI pay adjustments afterwards. At the moment some employers have left unskilled workers above the minimum wage without an increase for years. So as the CPI lifted the MW to $16 and $17 they too would be better off. And as you note employers do like to pay workers more than the minimum, so those in the $15-20 range would get increases as and when employers could afford it – thus sooner, with an increase in MW, rather than latter.
Are you not really saying, why should people with more money pay some higher costs so the lower paid can have an increase in their standard of their living. Crocodile tears/phony empathy/specious reasoning. You are trying to con people.
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SPC – $12.50 to $15 is a 20% increase. A 20% increase talked up or down is still 20%
We had massive increases in the minimum wage in the 80s (70% and 20%) quickly followed by massive inflation, which wiped out the all the wage increases to a point where everyone was WORSE off.
If everyone gets a rise, then the minimum wage will drop back to where it was compared to the average wage. Everything needs to go up to stay indexed – pensions, acc, etc.
Asking for a massive pay hike equal to nearly ten years inflation, at a time when the economy is at it’s worst, unemployment is at it’s highest, and businesses are going bust at a record rate – shows a disconect with economic reality.
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Get real, Photonz.
Inflation in the 80s was not caused by increases in the minimum wage.
Inflation caused by wage increases will be small because the money that is paid extra to workers has to come from some where. It will come from profits.
I have said on this thread that I would be worse off with an increase to minimum wage. But I am still in favour.
peace
W
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Before wage increase can come from profits, there have to be resonable profits.
Right now profits are the lowest they’ve been for years.
And if profits drop badly or turn negative, the easiest way to get them on track is to cut jobs.
I couldn’t think of a worse time in the past twenty years to ask for a whopping 20% increase in the minimum wage.
Unless you are one of those people who think having lots of unemployed people is a good thing.
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Actually the cost of the MW increase will come through when costs are passed on. The inflationary impact of these is less than the increase in wages for the low paid. So they would be better off – those on fixed incomes get CPI increases to compensate them.
But what whopping increase in the unemployed – Treasury forecast 5400-8100 if it went up to $15 this year – it would be even less if over 2 years as Labour proposed.
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