Statistics, hyperbole, and hypocrisy on the minimum wage

Prime Minister John Key claims the Greens’ policy, now also supported by Labour, of increasing the minimum wage to $15 an hour will “put 6000 people out of work.”

Key maintains Department of Labour advice supports his claim.  So I had a look at the advice, contained in the Department’s 2010 Minimum Wage Review (PDF, 2MB).

At page 15, I found that the Department of Labour calculated that increasing the minimum wage to $15 an hour could result in a “potential loss in job growth” of 4,280 – 5,710 jobs.  That’s very different from putting 6000 people out of work.  A potential loss in job growth can occur without a solitary person being put out of work. It all depends on the wider economic policy settings.

Furthermore, the Department fails to show the methodology it used to arrive at its figures, merely citing “Source – Department of Labour calculations”.  For all we know, and Key presumably knows, the Department could have used the same sort of maths as Harold Camping to arrive at its conclusions.

As the NZ Council of Trade Unions pointed out, citing supportive studies, in its submission (PDF, 58 kB) to the Minimum Wage Review:

…any analysis in a New Zealand context needs to draw on the more recent analysis of the behaviour of the labour market. What this has shown is that it is unlikely that an increase in the minimum wage would have an impact on employment.

And does anyone apart from me find Key’s faux concern for some low paid jobs that may potentially be created a wee bit hypocritical in the context of his government directly presiding over the loss of 2000 real jobs in the public sector over the past two years, with the promise of many more job losses from the latest round of Budget cuts?

60 thoughts on “Statistics, hyperbole, and hypocrisy on the minimum wage

  1. Nice cherry picking Metiria.

    If you read the report, it has an estimate of increased unemployment due to a minimum wage increase to $15 per hour.

    AS WELL AS the estimate of lower jobs growth.

    And it also mentions other negatives, like many low paid workers will be forced into lower hours worked, it increases inflation, makes NZ companies less competitive, and companies lower hours and staff numbers leading to less productivity, they have less growth, and some businesses close.

    So if we are discussing a 15% rise in the minimum wage, we should have an honest discussion and look at the many positive and negative effects – not try to cherry pick to make it look all positive (or all negative)

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  2. @photonz1 12:48 PM

    I don’t think there is any cherry picking at all. It is just that the unemployment figures forecast in the review are not statistically significant, and therefore not relevant to the debate. The DoL suggest (without citing methodology) that increasing the minimum wage to $15 an hour could increase the number of people who are unemployed by 4.7%, and the unemployment rate by 0.2%.

    But the Household Labour Force Survey’s measure of unemployment has a sampling error of plus or minus 10,000, or 6.0%, measured at the 95 percent confidence level. So what the DoL are forecasting re an unemployment increase from increasing the minimum wage to $15 an hour is not statistically significant in the context of the measure of unemployment.

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  3. So if I employ say 4 workers, one at minumum wage and 3 more experienced workers at $15 an hour, I would have to increase my other 3 workers to $17.25 to keep things fair.

    This would cost me $14,000 a year in extra wages + $4000 more for the minimum wage employee.

    What do you think I as an employer will do with $18,000 added to my annual wage bill ?

    a) drop one employee
    b) not take on new employees
    c) put up my prices to cover costs and possibly go out of business

    not much in the way of positives for my business or employment of current or future employees is it.

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  4. Oh, and that DoL paper is a pretty shonky exercise, providing the Minister with no calculations as to how they got the figures. It doesn’t reflect well on Wilkinson as a Minister either – a competent Minister interested in developing evidence-based policy would have sent it back and asked for them to be included.

    This smacks of the Minister asking her Department to provide her with the what she wants to hear – in this case a report that attempts to justify no real increase in the minimum wage.

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  5. @nzmr2guy 1:23 PM

    Many employers address increases in the minimum wage by reducing wage relativities. And price increases in response to regulated wage increases don’t disadvantage particular employers’ in the marketplace (unless they aare attempting to compete with cheap imports, which is probably an unwise business decision anyway) because their competitors will be similarly affected.

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  6. @nzmr2guy Why would you need to increase the wage of the previously higher waged employee? Is their work suddenly more valuable?

    Anyway, your thinking does not look at the whole picture. For example – all the minimum wage workers in the country (not just the ones you employ) would have more money to spend so there could be an increase in demand for your company’s product/service.

    When a company has spare cash it doesn’t hire workers if they are not needed. It hires more workers when there is increased demand for it’s product/service.

    Supply-side economics is bunk

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  7. Toad says “…is not statistically significant in the context of the measure of unemployment.”

    …..unless you one of the thousands of people who no longer has a job.

    Toad says “And price increases in response to regulated wage increases don’t disadvantage particular employers’ in the marketplace”

    Nonsense. When prices go up, people buy less.

    So it’s little comfort when you are struggling to survive and keep your workers employed, that your competitors businesses are also in the sh!t.

    Because it disadvantages EVERYONE, makes it worse – not better.

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  8. rimu asks “Why would you need to increase the wage of the previously higher waged employee? Is their work suddenly more valuable?”

    Are you serious? Surely not.

    It’s pretty obvious that when you lift minimum wages, all workers expect to keep their relative wage gap. Otherwise you get those on a minimum wage suddenly earning the same as those who previously were paid more for their experience or skill.

    If upping the min wage is so advantageous to the economy and has no downside, then are you only asking for $15 / hour – why not $30?

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  9. @photonz1 2:34 PM

    When prices go up, people buy less.

    And when wages (especially low wages) go up, people buy more.

    Frankly, I’m comfortable with sacrificing a very small number of very low paid jobs (if that were to actually happen, and there is no conclusive evidence it will) to improve the living standards of a very large number of low-paid workers.

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  10. This chart shows for some sobering reading:

    Chart Here

    Sure, further research is needed, but looks to be a fairly large correlation. What worries me is the youth and maori unemployment, especially after the removal of youth rates.

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  11. Only about 19% of employers employ people on minimum wage. The majority of those employees work for the big takeaway companies, big box companies like JB Hifi, supermarkets, petrol stations. We have also proposed – but Labour hasnt – a transitional subsidy for small and medium enterprises if they are likely to suffer serious difficulty with a minimum wage increase in the short term. Its not for the big corporates though. But thats just a back up plan – the DOL paper is an appalling peice of work and provides no justification for keeping wages too low to live on.

    When prices go up people dont necessarily buy less, especially when we think about where mimnimum wage employees tend to work. We are talking here about minimum wage burger flippers or packers at the supermarket. If your Double Downer costs an extra 20cents because the person who makes them now gets a half way decent pay – not one single less fat slab will be sold.
    meyt

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  12. I applaud the intent of an increase to the minimum wage. I do have concerns about potential negative impacts, but I think it may be one of those areas where we really won’t know the true impact, if any, until we implement such changes.
    I do have some concerns around the effective devaluing of those jobs paying not significantly more than than $15/hr. When I first graduated I got work in a laboratory at roughly $16/hr. It was my first job, and expected low-ish pay but at the time $16/hr was quite a bit higher than the minimum. Many of those same jobs still don’t pay a lot more than $16/hr, so by legislating a minimum of $15/hr there may be a slight unintended effect of disincentivising higher education. If a school leaver can get a job in McDonalds for $15/hr or spend 3 years at uni and then get a graduate job for $17-18/hr I’d argue that for some this could push them away from tertiary education.
    I don’t think this will be a major issue, but it is factors such as this and other unintended consequences which I hope have been considered when policy positions are being considered.

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  13. Higher wages also means more spending in our local economy, greater tax revenue, less kids living in poverty, fewer stressed relationships, less inequity….and all for $80 a week (less than a tank of petrol for some). Sounds good to me.

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  14. @Andrew 3:27 PM

    Sorry, I don’t see a correlation in Danyl’s chart. Between 1999 and 2006 the increases in the minimum wage did not coincide with increases in overall unemployment, youth unemployment, or Maori unemployment.

    From 2008 on, they are all increasing, despite there being no dramatic increases in the minimum wage. Other economic factors must be the drivers of unemployment levels, not the minimum wage.

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  15. Toad says “I’m comfortable with sacrificing a very small number of very low paid jobs”

    Of course you are – it’s not your job you’re sacrificing – it’s someone elses – so who cares if 6000 jobs go?

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  16. @photonz1 5:05 PM

    So do you subscribe to the ideology that any job, however shit the wages and conditions, is better than no job? I don’t.

    Taking your argument to its logical conclusion, you would abolish the minimum wage completely. That would provide a job for everyone who wants one. But half a million people would probably be working for less than the dole.

    Oh, I suppose you would cut that too!

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  17. Metiria says “When prices go up people dont necessarily buy less…”

    Nonsense.

    Petrol goes up – people use less.

    Rents go up – people move to cheaper places, and put more poeple in houses.

    Milk goes up – people buy less

    Cigarettes go up – people buy less.

    And those are all nececesities (or things people are addicted to in the case of cigarettes).

    When you are talking about discretionary items, the effect is even greater.

    I know people with small businesses employing around ten people, and they barely come home with an average income. You force them to pay ten people $80 a week more ($800 / week), and you’ll have ten people without work, about to lose their houses, and costing the govt a fortune in unemployment benefits.

    If you are going to raise the minimum wage, you need to do it gradually in steps.

    Unless you are deliberately trying to shut down NZ businesses, having a huge hike in minimum wages right when businesses are struggling to survive is a crazy idea. (news today that 2600 building companies have closed in the last couple of years)

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  18. toad: during a period of a very low unemployment and pressures to find workers, you are correct in that there shouldn’t be an affect on unemployment levels from an increase in the minimum wage. The economy is booming and every one is happy.

    Economic factors take a while to filter into an economy and are virtually never noticed at the time they were implemented. During and after a recession, and in times of economic hardship is when we start to see the affect of these policies and the chickens come home to roost, so to speak.

    i am particularly worried about the youth unemployment rate spike as i really think that it has to do with youth rates.

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  19. What a great suggestion you have posed at 5:12 pm Toad. Andrew’s link at 3:37 pm to the chart at the Dim Post has given me an idea.

    Given increases in youth unemployment and Maori unemployment follow such similar trends why not introduce a lower Maori rate for the minimum wage as well as the lower youth rate the Act party already supports?

    That would also help bring to fruition my policy of closing the income gap with Australia because it will encourage young people and Maoris to emigrate there.

    I will announce it tomorrow, assuming I get the sign off from Alan Gibbs.

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  20. toad : the dole is about $3 per hour based on 40 hour week, you could make minimum wage $5 and still earn more than the dole, yet you get people sitting on it anyway when there are low level jobs paying at least $13 an hour (4 times the dole).

    Mabey abolishing it to some degree is a good thing, people should have to prove they need it after a set period of time.

    PS: My first job when I left home was $8.75 per hour and I managed to get by in a flatting situation for many years. People need to get off their asses and stop expecting something for nothing all their lives.

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  21. @photonz1 5:15 PM

    Yes, all those things happen. But the people in low wage employment who are currently struggling will have $80 more money in their wallets a week. The price increases will be bugger all by comparison with that, so people at on low incomes will be substantially better off.

    You and I will be slightly worse off, but we can afford it.

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  22. Do the Greenz see inflation as a long term problem and how do they propose to control it?

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  23. @samiam 9:33 AM

    Policy on Green website:

    # Better coordination of monetary and fiscal policy, initially through requirements to comment on how this coordination is occurring in the Reserve Bank Act and Fiscal Responsibility Act.

    # A review of the conduct of monetary policy in light of the likely increased frequency of resource shortage driven price shocks, including the need for better integration between monetary policy and policies design to assist adjustment to such price shocks. This could include consideration of changes to the Reserve Bank Act to make explicit the fact that the Bank currently considers employment and external balance issues when setting monetary policy.

    # Measures to limit future asset (especially house) price inflation such as:
    1. introducing a capital gains tax on all but the family home ( see section 3 above).
    2. reserving land ownership for New Zealand citizens and permanent residents.
    3. significantly expanding the supply of ecologically sustainable affordable housing, included expanded public housing initiatives

    The inflationary impact of increasing the minimum wage to $15 an hour would be minimal and, although there may be minor flow-on into wage relativity related wage increases, largely one-off.

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  24. I think it would be great if the minimum wage could be $15 and keep a hight number of employees. Along with the bad economie I believe it will have more incentive results.

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  25. There is little evidence that areas with job layoffs or stalled hiring include sectors where minimum wage employees are hired. Jobs in supermarkets, fast food, cleaning and carer staff etc are quite constant across the economic cycle.

    Ever heard of the term the greatest good for the greatest number. Hundreds of thousands of people benefits from a higher minimum wage – but there are other workers paid a little more by employers looking for greater choice of worker by doing so. A rising minimum wage provides a chance for these workers to get pay rises too (and mitigates the weakness of unions in the low paid labour market).

    The consequence of any rise in price of labour is improved labour productivity – in fact a too low minimum wage discourages labour productivity. The only way we can increase wealth is through a focus on productivity improvements.

    Compared to these gains – a small job loss and a small price increase is negligible.

    Personally I would have linked the minimum wage increase to compulsory contributions to the Cullen Fund and Kiwi Saver (each at the 2% level – and a further 2% into each from the employer). A 10% plus increase in wage covers the 4% cost to the poorest worker. That would give the Cullen Fund a dedicated contribution and also cut the government cost of Kiwi Saver to zero (ending the subsidy of the richer wage earner by the poorest) – while enhancing total savings levels.

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  26. toad says “So do you subscribe to the ideology that any job, however shit the wages and conditions, is better than no job? I don’t.”

    yes – and I’ve done a number of them. I don’t beleive I have the right to sit on my arse and make other poeple pay my living simply because I don’t want to do a crap job – like they are.

    Toad says “Taking your argument to its logical conclusion, you would abolish the minimum wage completely.”

    You mean like Sweden?

    How about sticking to what I actually say instead of making up extremes and falsely stating that’s what I would do.

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  27. Well blimey, if raising the minimum wage is all positives why don’t we just increase it to $40?!!! It would be great if governments could instantly legislate prosperity for all by a few pen strokes… Unfortunately this is rarely the case.

    There is always going to be a trade-off. Anyone noticed that prices at those establishments that employ people on minimum wages have been increasing their prices steadily over the past 10 years? (Think of supermarkets and the non-oil products available from petrol stations.) You have to concede that some proportion of the wage bill will be passed on to consumers… and it is going to hurt most those of us who spend, rather than save, most of our income.

    Unfortunately the Green party’s policy on inflation control looks woefully inadequate. Do you have any economists in your ranks?

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  28. Photo. As you well know Sweden has a fair and adequate system of benefits which holds a floor at a level under wages which gives a reasonable standard of living.

    Ryan. Presumably you are not on minimum income. So all you are worried about is that low wage workers asking for a living wage will add to your grocery bill.
    Just as well there are not too many economists in the Green party. The success rate of Freidmanite economists predictions has been as good as the guy in Christchurch who claims to predict earthquakes.

    Those of us who have owned a business in Northland, know what happens to small business and the local economy, when wages and benefits are low.

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  29. (wow..!..a new benchmark is set in simplistic analysis…)

    “..Anyone noticed that prices at those establishments that employ people on minimum wages have been increasing their prices steadily over the past 10 years? (Think of supermarkets and the non-oil products available from petrol stations.)..”

    i think you are talking apples and oranges there…

    ..an ‘economist’..are you..?

    phil(whoar.co.nz)

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  30. Kerry says “As you well know Sweden has a fair and adequate system of benefits which holds a floor at a level under wages which gives a reasonable standard of living.”

    Which means it’s so expensive to employ young people, that their youth unemployment rate is one of the worst in Europe (runing 25-30% unemployed the last few years).

    Just like the abolishment of youth wages led to massive youth unemployment here – it skyrocketed to around 25% when youth rates were abolished. Thanks Greens.

    Unfortunately there’s few with business experience in the Green line-up.

    When it cost the same to employ a pimply faceed youth fresh from school as it does someone with far nmore work and life experience, then any employer will tell you who is more employable.

    And surprise surprise – a big lift in minimum wage for youth skyrocketed their unemployment rate.

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  31. @Ryan 5:49 AM

    Ryan, that is a ridiculous argument. Of course increasing the minimum wage to well above the average wage will decrease employment, because the magnitude of such an increase is such that the increase cannot be addressed by other mechanisms available to employers.

    But that is not what the Greens are talking about – they are talking about relatively modest increases in the minimum wage. When the minimum wage was first introduced in New Zealand it was 83% of the average wage, yet we had full employment for many years.

    As for your reference to economist, not all economists adhere to your neo-classical “cost and demand” model of the relationship between the minimum wage and employment. Among those who disagree with you are Nobel laureates Paul Krugman and Joseph Stiglitz (although Stiglitz does question the effectiveness of increasing the minimum wage as a poverty reduction measure).

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  32. toad says “When the minimum wage was first introduced in New Zealand it was 83% of the average wage, yet we had full employment for many years.”

    Full employment? Only as long as you don’t women.

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  33. And don’t forget that back in those days, there were a lot of children. It meant that there were a lot of goods and services that were demanded (children need to eat, go to school and so on), and since children tended not to work, there were more jobs for fewer people. Add to that, there was a massive post war construction programme – for instance, secondary schools were being built en masse (pre-war, stand alone secondary schools tended to only exist in major towns and cities).

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  34. @photonz1 7:09 PM

    Actually, lots of women entered the workforce in the period immediately before when the minimum wage was introduced in 1946. Remember, many of the men were away at war, and someone had to do the work.

    And in any case, back then most families could afford to live on one income because of the high level of the minimum wage. Now they can’t, so we have to prop them up from taxpayer funded programmes like WFF.

    Tell me, who is it who has creamed off the difference between then and now?

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  35. Back in the day, a family could survive on an average single income… Great minds think alike.

    “I can give you another economists to give you a counter view.”

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  36. In recent decades the increase in income and wealth of nations (growth and productivity has improved) has not gone to workers. Profit share to workers has declined and wealth has been concentrated in the hands of a few. Of course in this country, ranked highly in the list of nations with income and wealth disparity, that is very true. As it has been shown (sufficiently to convince the outgoing Treasury boss) that such income and wealth disparity coincides with declining economic performance it is a cause for concern.

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  37. Of course this can all be explained – transfer of domestic production jobs offshore and in return cheaper goods for those remaining in work. A surplus of local workers pushing reduces demand for labour and this coupled with anti-union legislation places downward pressure on worker wages (all those not professionals or skilled tradesmen). To retain an incentive to work, benefit levels are slashed and children with parents on welfare are raised in poverty – the difficulty in realising successful education outcomes for children raised in povery is well known. So while profits returned on invested capital increased in that period the economic and social results were “quite ordinary”.

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  38. Actually, lots of women entered the workforce in the period immediately before when the minimum wage was introduced in 1946.

    How many of those women stayed in the workforce after World War II though? I don’t think it was that many – I seem to recall seeing statistics showing that the labour force participation rate was around the mid 50% range for much of that post-war period. Combine a low labour force participation rate, with compulsory retirement ages and a huge number of children and you can see how you could have high minimum wages without causing unemployment.

    Now of course, you have a labour force participation rate around 67%, no complusory retirement (and an environment where some older people have to keep on working) and a lower number of children. Also, you don’t have society playing catch-up; there is no need for a massive increase in the number of secondary schools, or hydro-electric dams, or the heavy demand for modern technology that there was during the post-war period.

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  39. Perhaps we import wind turbines and most of todays modern technology – PC’s etc …

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  40. Todd says “Back in the day, a family could survive on an average single income… ”

    toad says ” back then most families could afford to live on one income because of the high level of the minimum wage.”

    Just like they can today if they lived the same way. Except today we today don’t want to just survive. We want to be able to have a coffee at a cafe, buy our lunch, have a large tv, cell phone, nice car, buy nice clothes, playstation, labelled shoes, sky tv, have a house with a double garage and ensuite bathrooms, have takaways regularly and eat what we want.

    Living on an average single wage 30 or 40 years ago meant growing your own veges, never going out for coffee, or to a restaurant, kids get hand-me-down clothes (and when clothes wore out everything was patched, trousers, socks, shoes, jerseys – everything) – hand me down toys, and maybe a really old second-hand bike, chop your own firewood to keep warm, share the phone on a party line, old cars that you fixed yourself, home made biscuits, home knited hat, jersey, and scarf, and takaways, ice-cream and lollies were a rare treat.

    My family grew up on a single average wage. What people have now, even many on a benefit or mininmum wage, would been considered a rich family by comparision.

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  41. photonz – have you not ever debated the issue of the relativity between wage income and house prices … or noted how much more expensive power is today … housing and power are necessites. People today struggle to pay for housing and their bills on one average wage, and bills today include internet charges.

    As to the so called extra spending by people today – we have more cars per head because they are cheaper, the large screen TV’s are now no more expensive than the old small screen ones and VCR’s were … much of todays extra spend on Ipods and cell phones – comes from the savings buying cheaper PC’s.

    Sometimes urban myth about people having mroe expensive lifestyles is just that – some people have a regular discretionry spend in restaurants, some people don’t.

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  42. Toad: Thank you for admitting there is a trade-off. My argument is ridiculous precisely because there are always costs to increasing the minimum wage. BTW, downward-sloping demand functions are not endemic to neo-classical economics.

    Kerry Thomas: I’m not concerned about my grocery bill. I am concerned with politicians failing to recognize the impotency of their economic policies. The green party appears stuck in the past, pitting Capital against Labour, whilst the New-Left has recognized that in order to distribute wealth, you must first create it.

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  43. “Just like they can today if they lived the same way”.

    Photo is missing the point as usual. Poor families today cannot live the same way. They do not buy flat screen TV’s, contrary to the myth. They also do not have half acre sections to grow vegies and keep chooks, cheap public transport and housing.
    Necessities such as food and housing were relatively cheaper compared to family median income now. Transport, food and housing were Government subsidised.

    Now! If they do have some land the topsoil has been sold by the developer so only grass will grow on it and their richer neigbours have banned keeping stock on it…

    Low waged people and beneficiaries are faced with lack of work, unreliable (flexible) work, or no jobs, inadequate income to provide necessities and the meanness of those on high incomes, who are no longer willing to pay their share, for affordable housing and transport for the people they have forced into poverty with their decisions.

    As for minimum wages, they insure that employees and tax payers are not subsidising inefficient business. I thought all good right wingers reckon businesses, who cannot pay their true costs, should be allowed to fail.

    Youth rates do not make for more jobs. They just change the age range of those employed. Parents then end up subsidising the employers of their children as I had to do when my kids worked for a certain underpaying burger chain. Most of those kids should be in training, not in underpaid, unskilled jobs.
    If you employ someone in a job where they can get a meaningful qualification you are allowed to pay a training rate less than minimum wage anyway. Though, unlike some employers, I believe employers the have a moral obligation to provide proper training for a future qualification.

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  44. Most of those kids should be in training, not in underpaid, unskilled jobs.

    And many of them are.

    Parents then end up subsidising the employers of their children as I had to do when my kids worked for a certain underpaying burger chain.

    Kerry, even if I were at the old youth rate (~$10.40 per hour before tax), I would still be in reasonable financial condition. Most youth would be in the same boat. Clearly, your children wanted extremely flash toys.

    FYI, I managed to fund an overseas trip solely based on the income I obtained from a part-time supermarket job at a time when youth rates exist, so even then things were very generous.

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  45. Apparently Treasury have given up on measuring improvements in per capita income (GDP). They want to measure happiness. A Gross Doestic Happiness is how we will surpass Australia.
    As for the minmum wage, at some point if it does increase 25% of wage workers will be between it and it plus 10%… to take an example, 25% on or below 16.50 should it get to 15….. Lets be happy…..

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  46. Kerry says “Poor families today cannot live the same way”

    You only made a slight error. Replace “cannot” above with “won’t”

    Kerry says “They do not buy flat screen TV’s, contrary to the myth.”

    Enough have them, that our local public health nurses have a measure of child neglect they call the “flat screen index” – the more the neglect, the bigger the screen size.

    A lot of people in poverty (not all) are there because they make really bad decisions – having more children than they can afford, buying things they can’t afford, failing to train and upskill, and generally failing to live within their means.

    We live pretty well on a single average wage, the the second wage is used for investments, holidays, etc.

    Apparently we should really be struggling to live on a single wage, and we should not be able to keep our heads above water without the likes of hundreds of dollars a month from working for families. But we live well.

    I can buy top label soccer boots for my kids for $100, or I can get barely used ones from the club for $5.

    I can buy a car for $15,000, or if I choose carefully I can get a reliable one for $1500. One costs $50 per week in depreciation alone (and hundreds more to insure), one loses virutally nothing.

    I can get a large car that costs $4000 per year in petrol, or a small car that uses $1500 per year ($50 per week less).

    I can rent a house for a year for just 5% of its cost – that’s LESS that the interest alone, and I don’t have to pay for rates, insurance, maintenances, plumbing faults etc.

    Quite ironic that I’m argueing that we sould live sustainably on what we earn and Greens are arguing that we should be allowed to live unsustainably.

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  47. Never let the evidence get in the way of a good story. Eh Photo.

    “In New Zealand, a study in 2007 by Dean Hyslop and Steve Stillman which looked at the effect of increases of between 41 per cent and 69 per cent in the youth minimum wage found “no major robust evidence of adverse effects on youth employment or hours worked”, in fact, there was an increase in hours worked for those aged 16 and 17″. http://www.dol.govt.nz/publications-browse.asp?BrowseBy=Author&AuthorID=114

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  48. Photo. Have you actually had to live on the sickness benefit with three children for a year? I would love to see you try. It would get rid of some of your comfortable assumptions.
    70% of people live on less than the average wage.

    Flat screen TV’s are certainly not an option.

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  49. Thanks to Tapu Misa

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10728872

    “”But more recent studies have undercut the conventional view, and questioned the evidence on which it was built.

    One large study which analysed 64 US minimum wage studies found not only that there was bias in the selection of published studies towards those which showed negative effects on employment, but that once the bias was removed there were actually positive effects. Probably the strongest and most influential challenge to the traditional worldview came from the work of David Card and Allan Krueger, whose wide-ranging analysis of minimum wage increases in the US in the late 1980s and early 1990s turned conventional economic wisdom on its head and suggested, as one economist wrote, “that economists know less about what the invisible hand is up to than they let on”.””

    We know who paid for those studies.

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  50. Kerry asks “Photo. Have you actually had to live on the sickness benefit with three children for a year?”

    I lived on no benefit for a year – only shared a single part time wage. Then took no pay for several years while building up my business.

    Kerry says “Flat screen TV’s are certainly not an option.”

    Which is why many people who have bought them don’t have the money to feed their kids or take them to the doctor. They are a common feature in houses where kids are neglected, as are dogs, large cars, alcohol, and tobacco.

    I’m not argueing that it’s not a struggle – just that most people could live on a lot less than they think they can. There are plenty of people on benefits of some description who still regularly manage to buy chocolate, chips, coke, etc – things that were considered luxury treats when I was growing up.

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  51. @photonz1 11:11 AM

    I lived on no benefit for a year – only shared a single part time wage. Then took no pay for several years while building up my business.

    Then what did you pay you rent, groceries, electricity, transport costs from?

    Money borrowed from the bank? Presumably if you had no asset, you would have had to have had a guarantor. Most people don’t have that familial security.

    Tax rorts under which you claimed almost all your personal expenses as business expenses, perhaps?

    A good number of years ago, I attempted to set up a printing business. The problem was that I couldn’t borrow enough to buy a decent press, so had to run 4 passes on CMYK on an old clapped out press that often broke down. My problem was an inability to obtain the necessary capital to purchase decent plant. That is what made me uncompetitive, not my skills at running a business.

    So back to working for salary I went.

    Do you really think the future for most people on low incomes and with no capital backing is running their own businesses?

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  52. Photonz, you are clearly full of bluster and bullshit.

    Toad has been exceptionally patient with you, he’s that kinda guy. I’m not.
    Your claim to have lived on one part-time income while unemployed & setting up a business is transparently deflecting the truth. I have a cousin who retrained whilst working part-time as a pharmacist, he got $600 a week to live on after tax with no dependents, not bad going for a part-time income. It all depends who’s doing the part-time work. Burger-flipping it ain’t.

    The reality of living on low incomes for long periods of time is that the stress begins to show.
    Not just in the parents who defer replacing household goods that are wearing out (ever seen a kid put to bed in sheets with rips in them?) but also the kids begin to stop asking for permission to go on school outings, realising that the extra $5 cash may not be available, never mind whether permission would be given.
    I’ve seen kids as young as 8-10 work that one out for themselves.
    Older kids may be grateful for periodic wardrobe top-ups on their birthdays by generous relatives, but it’s hard when there’s a constant pressure to chose and there’s so many items needing replacing.

    My kids wore op-shop jeans, hand-me downs from family & friends, and things I or my mum had made ourselves, but it was not always enough. School clothes were second-hand through a thriving school network, too. Shoes were a constant struggle, especially when teenagers grow so quickly that for once they don’t wear shoes out before a new pair is needed. Blackmailing their Dad (my ex-husband) to pay for school shoes became the norm. Little girls grow up, my friend, and aren’t always happy about having been made to manipulate to get basic needs met.

    My personal cost has been developing chronic illness, some of which I put down to the stresses I was under whilst working part-time, studying and raising children on a restricted income. I frequently ate less to be able to share out meals adequately for the still-growing children.

    I don’t know what my kids will point to as the worst thing they missed out on in those years, but family holidays certainly suffered, and we didn’t have much in the way of outings for movies, sports events or suchlike, which most of their friends did on a regular basis. We only infrequently had a working vehicle, as I couldn’t afford to buy something in good repair, and often couldn’t afford repairs or replacement parts to get the WOF done. Twice I sent vehicles to the tip or scrap merchants because they were beyond recovery.

    Constantly listening to the schoolyard chatter about the events of the weekend can wear a kid down. My son had a few playground fights due to other kids pestering him to answer questions about family activities. Some of the kids wouldn’t credit that he had no opinion of sport, nor ever went to rugby or football games at the Stadium. He had one season of playing rugby, then quit, having proven to his satisfaction that he’d rather not engage with older, heavier and rougher kids on the field, especially the bullies in his own team who marked him for being a newbie. I don’t blame him.

    As for running business to get out of the situation, don’t make me laugh.
    I had one going when I separated from my ex-husband, which I thought might give me enough buffer to keep afloat in the early years of my newly-single life.
    By the time I’d got sole ownership, filed the year’s tax paperwork, paid the tax accountants and checked the business account, I was several thousand dollars to the bad, and it never improved from that, due to a bunch of ‘divorce lies’ my ex told to stop my clients from returning for repeat business. Several of those people later came to me and apologised for what they’d done, but by then it was too late, I’d wound up the business at a loss.
    It left me with a horror of getting myself into any such situation ever again, and a credit rating that was down through the floor. I did manage to get the business credit card paid off and the account closed, but it took me some considerable time.
    The big thing I learnt from all that was that it didn’t matter how good your business skills are (book-keeping, client contact, managing product delivery & sales), what mattered was how well-connected you were to the business hierarchies – and my ex-husband’s ‘old boys’ network’ was far more influential than my own.

    I realise that ‘blame the victim’ is alive and well in the right-wing ideology of this country, but I don’t buy it for a minute, and neither would any intelligent person in their right mind.

    It is shameful that we have such a high proportion of children growing up in poverty in this country, it is shameful that landlords profit from the fact that house prices are so high as to trap low-income families in renting, and it it shameful that arguments continue to be aired about poverty being a result of lack of motivation, etc, etc when if those who owned were investing in businesses that are productive, were creating industry instead of just extracting rents from the poor, the country would be in a lot better shape.

    Capitalism that doesn’t produce effective employment is just not doing it’s job right, and it’s about time someone shoved that fact right back at the NZSE and all the brokers and agents who divide up the margins of profit to their own favour.

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  53. toad asks “Then what did you pay you rent, groceries, electricity, transport costs from?”

    As I said – one part time wage. It can be done. I’ve done it.

    A lot of people are doing it right now.

    katie – it’s not easy to get a business going. 80% of start-ups are not around 10 years on.

    You kids life sounds like the average family when I was growing up – hand-me-down rugby boots that were the wrong size, old hand-me down clothes etc – that was normal for most kids I knew.

    You ask “ever seen a kid put to bed in sheets with rips in them?” Yes – I had patched sheets when I was a kid – no big deal.

    You help reinforce my point, that conditions that were normal in the average family a few decades ago, are now considered unacceptable.

    We expect so much more today, and if we can’t provide that, we want someone else to provide it for us.

    As for rent costs – renters are very lucky thay can rent a house for less than it costs the landlord to own it.

    If the Greens bring in capital gains tax you can forget that. Rents will then have to cover the actual costs of owning a house.

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  54. photonz –
    don’t make assumptions about the cost of renting. I’ve paid rent, and I’ve paid a mortgage.

    The rent on the last house I had for myself, my children, and sometimes a flatmate to help cover costs, was $480 per week. That added up, over three and a half years while I was there, with no maintenance done on the part of the house I was living in (there was a downstairs flat as well), to over $75,000 paid in rent.
    They already owned it freehold, as it was a property inherited by a woman and her brother.
    They continuously failed to repair ordinary maintenance issues, and after I left, I won a case against them at the Tenancy Tribunal. They were manifestly bad landlords, but as her husband was in the property development industry and between them they owned several properties, they just assumed they could cream off the rent while letting the property degrade. Certainly not the only landlords to think that.
    What they were making over the whole property was phenomenal, and they did only those items of work that could be charged against the insurance policy (as storm damage and the like).

    If the banking industry here wasn’t so prejudiced against single women, the amount I spent on renting that flat could have been a sizeable chunk of paying off my own home. The system prioritizes those who already have property, no matter how they obtained it. Meanwhile, those who are obliged to rent are feeding an industry of real estate agents’ commissions, bank fees and conveyancing fees, shifting property to those who want to feed off the rest of the population, including the nearly two decades-worth of students with loans, whom banks have disallowed from mortgages until very recently. It is a very captive market, and not all are from the bottom of the heap. I’m pretty sure that the rent I was paying was more than covering the cost of owning that particular house. I’ve paid a fortnightly mortgage on a bigger house, on a better section, that was less than what I was paying there.

    The other point you made, about conditions ‘that were normal in the average family a few decades ago’ – well, my mother grew up out in the country just after the war in conditions like that, then brought us up for a decade living on farms where she grew the vegies, and sewed most of our clothes, and like most of her generation, she wanted better for her children. We in turn got a better education, got better jobs when we’d finished, and mostly, we have more for our children than we had ourselves. The standard of living in the 1970’s was pretty reasonable in the cities; that’s the standard I tried to maintain for my kids post-divorce but it was harder in a city suburb without a yard big enough to grow veg in.

    In general, Kiwi living standards have risen quite a bit in those decades at the end of the 20th century; what social policy tries to offset is inequality, which is the biggest driver of social unrest, violent crime, burglary, domestic abuse – if there’s not such a steep cliff between the haves and the have-nots, there is less incentive for crime of most sorts, including tax fraud and other ‘white collar’ crimes.

    Back to what Meyt’s post said at the beginning, getting people working is not going to happen in a rush, without some serious investment in productive industries, and while there are so many incentives for people to invest in rental housing, job creation takes a back seat.
    Increasing minimum wage, creating incentives to get apprentices back into the building industry, and ditto for the other trades that are lagging, would be a start, not cutting jobs in all sorts of sectors and making it harder for small businesses to pick up employees.

    There hasn’t been a whisper of policy from the Government to actually soak up unemployed people into real work anytime in the past 3 years, despite Green New Deal policy releases and suggestions from Labour to improve workforce participation. Just budget cutting for Ministries; and slashing staffing numbers in the public service has made no difference whatsoever, except for increasing the numbers of the unemployed. Then they just try to fudge the numbers to justify their decisions, to try to cover over the fact that their ideology doesn’t add up to a solution.
    It isn’t working, so it’s time to do something else.

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  55. katie – if the house you rented was so expensive, and so bad, why didn’t you go somewhere cheaper and better instead of staying for three and a half years?

    A agree about what you say about disincentives for owning rental properties – and this is the first govt that’s put in place policies that head in that direction.

    And the first to talk about reducing our housing debt, and putting money into the productive sector instead.

    As for higher employment – that comes form one thing – companies making good profits.

    Govt employment schemes are largely doomed to failure. Real rise in job growth will always come from the private sector.

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  56. Some attitudes above are Victorian… I present some lessons, just for bigoted.
    The Registrar of Pensions in 1902 believed the aged pension would bring about the “darker side” of people. and after he made some changes the take-up rate fell from 43% to 27%. A colleague in 1919 said having a universal War Veterans pension would encouage “malingerers”. Widows were paid at a rate half of the aged pension.
    Know just a little economic history…
    The min wage was designed to ensure a male bread-winner could support the bread-maker and the little loaves of bread they made…. alm,ost all single women – without the bread-winner – had to work. We had full employment policues froim 1935-72. But after 72 full employmentr was no longer a key government policy tool…. hence real wages began falling (ythere is solid evidence of that for wanting tpo search I could give references…) and we are still having falling real incomes for the majority if we exclude the employer subsidy.
    And back to social welfare….
    Supplementary assistance began to be needed for a small number of low income people from as early as 1951 but this grew to such an extent the landlord subsoidy also known as the Accommodation Supplement was introduced in 1971. Had to keep someone happy…I wonder who?!
    And my conclusions…
    And for those who wonder what the employer subsidy is. Its called Working for Families. Compare incomes without this and see how many fish fingers can be bought for dinner. Keeping warm would be easy – just crowd im witht he neighbours…. If we were brave we would remove both of these subsidies – then see employers and landlords scream.

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  57. Graham – Social welfare costs NZ of 85% (EIGHTY FIVE PERCENT!!!)of all income tax.

    (09/10 year total govt income tax $24.9 billion, total social welfare payments $21.1 billion).

    What is sustainable?

    As you the myth you peddle about full employment in the past – that only holds true if you ignore the existence of women in NZ.

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  58. “..What is sustainable?…”

    ..increasing/changing the tax take/mix..

    ..by reinstalling the pre-cut rates for highest-earners…

    ..by bringing in a capital gains tax…

    ..by bringing in a land tax..(to get the land-bankers..)

    ..by bringing in a financial transaction/tobin-tax..

    ..legalise and tax pot…

    ..make the farmers/polluters pay their share..

    ..crack down on the tax-avoidance trusts..

    ..target those half of top-earners who pay no tax at all..(they just have tax-lawyer/accountant bills..eh..?)

    ..increase/install sin-taxes on booze/cigarettes/gambling…

    ..(in fact..nationalise booze/cigs/gambling..re-establish local trusts to run them..with all profits feeding directly back into the community…)

    ..a sin-tax on unhealthy/crap-food…(no taxes on healthy food..)

    taxing oil company/bank profits to fund eco-industry start-ups/research/development..

    how is that for the first glimmerings of a rational economic manifesto…?

    phil(whoar.co.nz)

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  59. Phutz, all sorts of govt policies past and present and future need to be read in context,including “full employment”. Yes few married women had paid employment, an issue I acknowledged with my reference to them being bread-makers, but they certainly worked. Single women certainly had paid employment though. I also indicated min wage was set up to ensure the married man could financially support his family. As it happens, most in paid work earned considerably more than the min wage making the need for double income families even less of a necessity up until about the mid/early 70s… unlike today when a large proportion earn less than 10% more than the min wage … thus necessitating double income households and the employer and landlord subsidy.
    The min wage * 40 hours would not sustain many or dare I say it ANY households paying an average rent. For a 3-bedroom house in the ghetto suburbs in Lwr Hutt it is $300/week…. Both employer and landlord subsidies clearly needed…..
    The issue is failing capitalism…. NZ can not sustain itself without transfer payments to the middle classes through the employer and landlord subsidies becauuse market incomes (aka wages) have been falling for decades. Others need to borrow simply to sustain what they believe to be necessary – keeping a vehicle on the road because of inadequate/non-exisrtant public transport as witnessed by the large private debt we know have…..
    And then others blame those unable to sustain paid work due to issues such as depression and other issues such as too few min wage jobs subsidiesed by the employer subsidy….het my drift!
    There are ways to address some of these issues. For example: Nationalise every residental property not occupied by the owner – sure provide compensation but at least this would be a one-off and the capital paid to the former owner might then be invested in productive means as rented residental property ranks second last compared to the pokie industry in terms of employment creation. But no one in any semblance of power wants to do this because they have self-interest… easy money from the tax-payer.
    Removing the employer subsidy would be interesting when it comes to the subsequent wage round negotiations…. but at least the marginal tax rate would drop below 45-50%.
    Expressing my true feelings would be edited by Frog methinks….

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