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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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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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.

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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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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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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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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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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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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@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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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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Minimum wage laws…..and the Greens claim they aren’t fascists…….lunacy abounds.

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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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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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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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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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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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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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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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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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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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