Government stuck in the ‘80s on the minimum wage

Sometime around now, Cabinet will be undertaking its annual review of the minimum wage, which currently stands at a lowly $13 an hour. My bet is that we will see another effective nil increase, with the minimum wage being adjusted upwards no more than the level of inflation over the past year. That would be consistent with what John Key’s government has done since it came to power.

I also expect that the Government’s excuse for consigning workers to live on a wage that is completely inadequate to support their families will be the same as it has been over the last three years – a claim that increasing the minimum wage to a liveable level will cost jobs.  Last year, John Key claimed increasing it to $15 an hour would cost 6000 jobs. That claim appears to be an exaggeration of Department of Labour advice.  The Department  provided no methodology for its calculations, but suggested that a minimum wage increase to $15 an hour could slow job growth by between 4100 and 5890 jobs.

I find the purported Government concern about a decline in job growth completely hypocritical, given the number of jobs the Government is itself shedding in the state sector.

What’s more, John Key failed to mention that Government also had advice from Treasury that countered that from the Department of Labour – advice that suggested increasing the minimum wage would most probably not cost any jobs at all.

(It) has not been true in the past, so without new evidence the balance of probabilities is that a higher minimum wage does not generally lead to higher unemployment.

I’m with Treasury on this one.  There has been extensive research into the employment impacts of increases in the minimum wage over the past thirty years, starting with the landmark 1992 paper by US economists David Card and Alan Krueger. The NZ Council of Trade Unions’ submission to the current minimum wage review contains a literature review of that research (Appendix 1, pages 56-73).  What is clear is that things are much more complex than John Key asserts. There is no clear evidence, either internationally or in New Zealand, of a causal relationship between moderate increases in the minimum wage and employment or unemployment levels, and this has become increasingly evident over the last 30 years.

Increasing the minimum wage, first to $15 an hour and eventually to two thirds of the average wage, will help both reduce inequality and poverty and reduce the reliance of many low-income New Zealanders on taxpayer-funded financial support. It’s time for Government to listen to the Green Party on this issue, rather than submitters like Federated Farmers and the NZ Retailers’ Association who lobby for low minimum wages out of their own members’ self-interest.

61 thoughts on “Government stuck in the ‘80s on the minimum wage

  1. Surely increasing minimum wage means the business owner picks up the higher wage tab is possibly forced to close his\her doors.

    = more people out of work
    = less tax take as business owner has folded up

    Other effects

    = offshoring of manufacturing to cheaper labour overseas (job losses)
    = reduction in staff numbers to offset cost (job losses)
    = reluctance to setup a business and employ people (less new jobs)

    less jobs, less businesses, less tax take.

    Interested to know for the above points why this would not happen.

    Like or Dislike: Thumb up 9 Thumb down 9 (0)

  2. if a business can only survive by paying slave-wages..

    ..it is not a viable business…

    phil(whoar.co.nz)

    Like or Dislike: Thumb up 11 Thumb down 7 (+4)

  3. @nzmr2guy 4:27 PM

    That may be the intuitive approach if you assume that if something (in this case labour) costs more people (in this case employers) will purchase less of it.

    But it’s clearly not that simple. The numerous studies since the Card-Krueger one in 1992 Denise linked to demonstrate that in this case the intuitive response is wrong. Those studies do not demonstrate the effects you suggest, and some even show evidence of small but significant increases in employment levels resulting from higher minimum wages.

    One factor is that people on low incomes spend everything they earn, and the increased spending from raising the minimum wage has a stimulating effect on the economy and on employment because it increases demand for goods and services.

    Other reasons the evidence does not support your simple model, nzmr2guy, is that paying employees a higher wage incentivises greater labour productivity, and that it reduces employee churn and therefore reduces both employer recruitment and training costs.

    Like or Dislike: Thumb up 12 Thumb down 4 (+8)

  4. nzmr2guy

    Who pays unskilled workers minimum wages and exports overseas and who produces for the domestic market paying minimum wages, when they can import from low wage economies? We no longer have such jobs in a global market.

    1. Our minimum wage jobs are exclusively in the domestic economy.
    2. These jobs are in the services sector (cleaners, carers, retail and fast food and such).
    3. A higher minimum wage does not force anyone out of business, it just means they pay higher wages (as do their competitors) and pass on the costs to their customers.

    The consequence of low minimum wages is felt in cost of government subsidy via WFF and or accomodation supplement.

    A higher minimum wage simply reduces inequality in society. The cost to those on higher income levels is in rising prices for retail, fast food and caring work (also some companies get charged more for cleaning work done for them by outside contractors).

    Like or Dislike: Thumb up 4 Thumb down 3 (+1)

  5. Good points there toad, I feel slightly more enlightened. I disagree with phil..even if the business offers a slave wage, you get the value of learning on the jobs skills, the value of a days work and earning your own money, and mabey its a catalyst to drive people to better things.

    To many people expect someting for nothing these days, im only 35, but I learnt good work ethics, the value of a dollar, the value of a hard days work and being a productive citizen non reliant on other taxpayers.

    My first job was $4.32 per hour in the mid 1990s.

    Like or Dislike: Thumb up 7 Thumb down 3 (+4)

  6. Bloody hell nzmr2guy, how do expect to get on Phil u’s Christmas card list with a post like that. But well said, you’re on to it.

    Like or Dislike: Thumb up 2 Thumb down 1 (+1)

  7. “..im only 35..”

    nzwhatever is from the t.i.n.a-generation…

    ..that unfortunate age-group suckled on that neo-lib bullshit..

    ..the poor souls are so lost they really do think there are no alternatives to the randian-crap they preach..

    ..it’s hard to tell if they are dumber than they are deluded..

    example one:..those employers paying slave-wages are having their suck-business-model subsidised by the state..

    ..in/with income/accomodation top-ups..funded by taxpayers..

    ..yet another example of capitalism insisting on socilaising costs..

    ..and privatising profit..

    ..and i thought these rightwing numbnuts were meant to be against all that subsidy-stuff..

    but hang on..!

    ..if they stick to the randian-prescription..those subsidies would end also..

    ..eh nzwhatever..?

    ..’cos you are ‘ok’ now..eh..?

    ..and have that arrogance of the 35yr old that it will only get better for you..

    ..from here on in..

    ..so you will never be faced with that slave/poverty-wage..eh..?

    ..it is other people who will be screwed/driven into misery..

    ..but the rand-ite dosen’t give a flying fuck about that..do they..?

    …selfish/greedy/nasty little creeps they are..

    ..you do all know that rand is also keys’ political-hero..eh..?

    …he is proud to have soaked up her nonsenses of bodice-ripping/mills & boon bullshit…

    ..the philosophy of selfishness/greed..

    ..this is the curse of that t.i.n.a.-generation..

    ..they really do believe that there is no alternative..

    ..when clearly…there is..

    phil(whoar.co.nz)

    Like or Dislike: Thumb up 1 Thumb down 7 (-6)

  8. @phil u 7:29 PM

    Hey, give nzmr2guy some credit – at least he took on board and acknowledged he learned something from my 4.46 PM comment.

    I think it is far better to attempt to persuade commenters with evidence, rather than your style of labeling them as “Randian” or “Neoliberal” and thereby categorising them as the enemy.

    That said, I think there comes a time to give up and presume commenters from a right wing perspective are purely ideologically motivated, and have no regard for the evidence.

    But I don’t think we have reached that with nzmr2guy – he seems interested in learning from the evidence.

    Like or Dislike: Thumb up 4 Thumb down 2 (+2)

  9. get a grip toad..!

    he is just spouting the same randian-nonsense he has every other time…

    ..and..know yr enemy..eh..?

    ..this idiot wants/preaches babies to be forcibly removed from single parents and given to ‘normal’-families..

    ..how much more barking does he need to be…?

    ..derision is all he deserves…

    ..(but he does have his use as a foil..and as a working example of yr self-interest/greed-driven/fuck-everyone-else..i’m ok..!..neo-lib/randite..

    ..and thus a good/useful enemy-identifier..

    phil(whoar.co.nz)

    Like or Dislike: Thumb up 1 Thumb down 5 (-4)

  10. @phil u 8:15 PM

    Has it not struck you that those of us who support ecological sustainability and social justice in Aotearoa / New Zealand are in a minority at the moment, given the election result.

    We need to turn that around. I think the best way to do that is to present the evidence to those like nzmr2guy who have been indoctrinated in neo-liberal ideology, and try to persuade them that the evidence does not support their ideology.

    Your approach, Phil, is to attempt to bully and intimidate. I’m afraid I don’t have much time for that. It doesn’t fit well with my understanding of the Green appropriate decision-making Charter principle.

    Like or Dislike: Thumb up 8 Thumb down 2 (+6)

  11. i laugh at their idiocies…

    ..point out the lack of logic..etc..

    ..i don’t need to ‘bully/intimidate’..

    ..i have other weapons to hand..

    phil(whoar.co.nz)

    Like or Dislike: Thumb up 0 Thumb down 7 (-7)

  12. No matter what he says, Toad, he’s a meat-eater and must suffer the Cleansing Fires of Hell Phil!
    Not til the very fleshy Flesh is stripped from that Sinful Carnivore’s bones , will Phil give him Credit for his ideas.
    Flay him, Phil. Lay into his meaty hide til he Repents of his eye-toothed, incisory ways.

    Like or Dislike: Thumb up 4 Thumb down 4 (0)

  13. LOL If I lost my job id gladly work for $13 an hour, or $10, whatever, so long as I didnt need to leech from the system.

    You see good upbringing and solid work ethics learnt in those < $10 an hour position taught me the value of working for I want in life.

    – a house
    – money to educate and raise my child
    – money to help family
    – money to pass on to my children

    those values are being destroyed by the welfare state and those that brand us as rich and not paying our fair share.

    Like or Dislike: Thumb up 4 Thumb down 2 (+2)

  14. Phil, be warned. This thread is about the minimum wage. Any further comments about diet will be deleted – keep those to General Debate or other relevant threads.

    greenfly: I can see where you are coming from, but don’t bait/encourage him to continue off-topic.

    Remember it is about the minimum wage. Employment relations and poverty generally are okay here, but move too far from that and I will start deleting/moving comments.

    Like or Dislike: Thumb up 2 Thumb down 1 (+1)

  15. frog..do you mind showing me where i have mentioned diet in this thread…?

    ..’cos i haven’t…

    phil(whoar.co.nz)

    [frog: Sorry Phil, I accept you haven't. I wrongly assumed you had from reading greenfly's comment without reading the thread properly, and didn't want it going down that path.]

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  16. nzmr2guy

    Anyone losing a job would happily work rather than remain without the means to afford a home, and provide for their dependents.

    But why should the minimum wage not be $15 an hour?

    Holding down the minimum wage level does not increase the number of staff working as carers, or cleaners, or in fast food and retail.

    What is with the inference that keeping the minimum wage low reduces welfare dependency, if there are no extra jobs resulting it just means working for less and little more than provided from welfare.

    You seem to think being prepared to work for little more than the dole proves the person is hard working and not a welfare dependent and therefore justifies themself to you. But their children would still be raised in poverty and you don’t want to help them by supporting them getting a higher minimum wage. Mean.

    Like or Dislike: Thumb up 3 Thumb down 0 (+3)

  17. me mean ? no… I have my own kids to raise and house to pay off, and started with nothing as well, I pay a fair amount of tax already and get little to no benefits available to me.

    Why should I have to pay more to lift someone up from $13 to $15 an hour when I had to work for years to get paid anywhere near that and had no help ?.

    People expect something for nothing and that is not fair.

    Like or Dislike: Thumb up 4 Thumb down 2 (+2)

  18. That was not official treasury advice (which is probably why you linked to Patrick Gower’s slanted take, rather than the actual treasury paper). Note that Patrick fails to actually give the content of the entire e-mail? (Context is important, and perhaps showing context would have destroyed his slant).

    Anyway – the official treasury advice at the time can be found here:
    http://www.dol.govt.nz/publications/general/ris-min-wage-review-2010/review-2010.pdf

    I was going to extract the analysis, but Eric Crampton does it so much better:
    http://offsettingbehaviour.blogspot.com.au/2011/11/treasury-on-minimum-wages.html

    Like or Dislike: Thumb up 2 Thumb down 0 (+2)

  19. nzmr2guy

    Why should I have to pay more to lift someone up from $13 to $15 an hour when I had to work for years to get paid anywhere near that and had no help ?

    You should bear in mind inflationary effects 1995-2011.

    For your $4.32 example c. 1995;

    (i) Puchasing power per dollar for food has declined about %36
    (ii) Puchasing power per dollar for housing has declined about %61
    (iii) Puchasing power per dollar for transport has declined about %27
    (iv) Every 1995 dollar equates to $1.69 in Q4 2011 dollars

    http://www.rbnz.govt.nz/statistics/0135595.html

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  20. Also, in support of Toad’s and SPC’s comments, there has never been any evidence produced to support the proposition that a single business in NZ has folded solely as a result of increasing wages, voluntary or compelled.

    Like or Dislike: Thumb up 2 Thumb down 1 (+1)

  21. “Every 1995 $ equates to $1.69 in 2011 dollars.” so based on my first job of $4.32 an hour thats $7.30 in todays money so $13 is quite generous then.

    Everyone needs to start somewhere, those low level jobs are not designed to be careers, and home ownership pfft, a dream, I couldnt even look at owning my own home until many years later and not until I was earning $15 an hour in a skilled IT job.

    It sicken me that do gooders can sit there in closed rooms and decide how to take more hard earned money from my family and give it to those who dont want to work to get ahead in life.

    Like or Dislike: Thumb up 2 Thumb down 2 (0)

  22. @nzmr2guy 10:40 AM

    It sicken me that do gooders can sit there in closed rooms and decide how to take more hard earned money from my family and give it to those who dont want to work to get ahead in life.

    Huh? One of the reasons I support increasing the minimum wage is that it will reduce the amount of tax revenue that is spent providing government financial support to low income earners.

    Or if you are talking about beneficiaries, surely increasing the minimum wage would provide an added incentive for them to look for work.

    Like or Dislike: Thumb up 4 Thumb down 1 (+3)

  23. @ nzmr2guy

    I guess the point I was trying to make is that the minimum wage issue is not one dimensional.

    It’s not purely about the nominal value – it’s about the effective purchasing power of that dollar to consume goods and services on any given day.

    Put simply, if there is no effective incentive to take on lower wage employment (i.e. the gap between welfare and working is too small) and if the purchasing power of low wage employment is too constrained (i.e you can’t pay your bills) then the taxpayer ends up footing the bill anyway.

    Better to put more cash in peoples pockets (and thereby circulate it throughout the economy) and have them produce goods and services than have it purely as an expense on the public balance sheet paid for via taxation, or more accurately, borrowed from offshore with interest.

    PS – I just noticed Toad said the same thing!

    Like or Dislike: Thumb up 2 Thumb down 0 (+2)

  24. Where to start.

    Firstly, minimum wage jobs are careers for many people. There are plenty of people who don’t have the abilities to upjob themselves from the strata of minimum wage.

    And this is only going to get worse with time.

    Secondly, minimum wage jobs are bad for the state, as then the state (which is us) needs to pay top-up benefits to workers.

    Thirdly, because of the state subsidy to low wage workers, businesses that do pay decent wages are disadvantaged, not once, but multiple times, as they pay to support a competitor’s business through the benefits system.

    Fourthly, any business that pays minimum wage is a low value business, and thus is contributing to New Zealand’s poor living standards problem. Businesses that bad deserve to fail.

    I could go on, but the bottom line is this: the best outcome for the country is to raise the minimum wage frequently and aggressively. Sure, there will be fallout, but that fallout is the price to pay to realign our low end economy.

    Like or Dislike: Thumb up 3 Thumb down 0 (+3)

  25. Well I guess the only way to achieve that then is to tax people with more dollars a higher %, different sort of discrimination \ class warfare I suppose.

    Wonder if the money could come from somewhere else ? ie death penalty for, rape, robbery, agravated assault and murder..for a start. Think of the savings made on court costs and incarceration.

    Those savings could be redistributed to the poorer, resulting in all the good things you seek and have mentioned above.

    Or is it more moral just to keep taxing people ?

    Like or Dislike: Thumb up 1 Thumb down 1 (0)

  26. nzmr2guy – are you replying to me? If so, how does your post relate to mine?

    I’m on record numerous times as saying we should not increase our tax rates or coverage. An increase in tax revenues will come from increasing GDP. The problem I have is convincing people that we’ve been in decline for 50 years and need to start fixing it.

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  27. @ nzmr2guy

    You appear to be totally missing the point. The whole purpose of a minimum wage rise is that it reduces the burden on the State and hence, the taxpayer.

    Not sure where the whole death penalty non sequitur comes from (given that it has been definitively proven in the US that it costs more than life imprisonment (source: http://www.amnestyusa.org/our-work/issues/death-penalty/us-death-penalty-facts/death-penalty-cost) but why not extend your proposition for tax infringements and other white collar crime as well.

    I mean, why stop at aggravated assault? That would be class discrimination.

    Like or Dislike: Thumb up 2 Thumb down 1 (+1)

  28. I am sort of curious how nzmr2guy works out that heavier taxation of the upper income earners isn’t justified, given that the effective tax rate that on their dollar 200001 is not within cooee of the tax rate on dollar 80001 or 60001 that the rest of us pay.

    The short form is that in a fiat currency environment supporting market capitalism and backed by fractional reserve nonsense, the only way to prevent massive inequality from developing is a strongly progressive tax system. That’s just the way things are. Now if you think about it, we’ve already discussed ditching the fiat currency and the fractional reserve, we’re not wedded to the “anti-capitalist” movement necessarily, but it IS the environment we are in, and the result of that environment is that we need the progressive taxes, the Capital Gains and another tier or two of rates… or we can watch our GINI soar out of sight, carrying our chances of actually improving our economy with it.

    Like or Dislike: Thumb up 3 Thumb down 2 (+1)

  29. Soaring GINI isn’t going to kill us. It just winds Phil up.

    Falling standards of living for 50 years is killing us right now. We have half a century of going down the pan to undo.

    There’s a priority issue here. And more taxation isn’t the cure, and may make matters worse.

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  30. I think you’re wrong about whether the soaring GINI can kill what NZ is/was. If we turn it into a mini-USA we’ve died. It is that simple.

    The falling standard of living is related to the encouragement of inequality… though I do take your point that it is more than simply GINI.

    The research shows that more equal societies grow BETTER than more unequal societies. That’s a real result.

    http://www.imf.org/external/pubs/ft/fandd/2011/09/berg.htm

    Which explains a lot of the failure of the neo-liberal agenda. However, for us, the matter is more complex still.

    We seem to often assert that we’re an Island far from any markets, which is true, and then attempt to overcome that issue by ACTING like we’re right next to those markets and simply need to try harder to compete in them… which is not.

    There is NO way for New Zealand, in a reality based economy, to compete on an equal basis in any manufacturing or technical capacity, with countries which have the population and proximity to markets that are enjoyed in the rest of the OECD. That’s not going to work… it CANNOT work.

    At which point we either bow down and press our foreheads to the floor in obeisance to the principle of comparative advantage (as we have been doing since we got Roger’d so thoroughly), accepting our inevitable fate under that scenario of becoming a third world primary producer, or we accept that our position requires something a little more pro-active.

    Personally I like option 2. I like the idea of taking control of our monetary system and through it, our economy. I like the idea of getting people back to producing things here… because there is no such thing as a post-industrial economy.

    We have the energy resources, and we have the people still. What we don’t have is a government smart enough to recognize that selling off assets to pay current accounts is as fatally stupid as burning your house to stay warm.

    Maybe that isn’t stupid enough given the state of NZ housing , but I am sure you get my meaning :-)

    As for more taxes making matters worse, I would aver that it makes a difference who pays the tax. The GST increase was stupid. Another income tax tier above – say $200k? That’d be a bit more sensible. A CGT? That would be a bit more sensible. Using either of those to pull BACK on the GST? That would be a bit more sensible.

    Higher taxes on everyone and everything? Naahhh… the point is to achieve greater equality, which brings with it greater trust and more willingness to opt-in to the system.

    ciao
    BJ

    Like or Dislike: Thumb up 2 Thumb down 0 (+2)

  31. nzmr2guy

    Are you under the illusion that you contribute in any way to the wages paid by employers to their employees?

    “Why should I have to pay more to lift someone up from $13 to $15 an hour when I had to work for years to get paid anywhere near that and had no help?”

    That is the single most stupid and selfish thing I have read on this blog in years, maybe ever.

    As for

    “People expect something for nothing and that is not fair.”

    Are you really arguing that workers are being paid for nothing, if there ever is a pay increase? Or just the poor on minimum wages.

    Like or Dislike: Thumb up 5 Thumb down 1 (+4)

  32. What is with the latent hate for poor people getting a better deal that now exists in this country?

    Whether it’s the children of the low paid workers or the children of beneficiaries getting food in poor area schools, or rental property being upgraded with compulsory insulation, or the minimum wage being increased.

    Is it hate for poor people, that some would make their children pay for as well?

    Is their some sort of subtle indoctrination that comes via globalisation where we are no longer divided by nationality or race but by class – class as determined by income and wealth?

    Thus there is growing tolerance for increasing income and wealth inequality within nations (instead of between nations) at the grassroots.

    Thus we are losing any sense of community with those with lower income and wealth levels, as if they are a foreign underclass in our own country that we no longer care about.

    Surprisingly the people more concerned about it now are the same people who brought us globalisation in the first place (because inequality is bad for longer term economic progress), internationalists and local Tresury officials – but less and less the local people themselves who call themselves middle class.

    This would prove the point of a Tory politician Randolph Churchill who said his party had nothing to fear from the extension of the franchise. The poor masses having political citizenship would drive the middle classes who voted Liberal into their arms.

    He was right of course, as Clegg proves to this very day. Why, well middle class people can endure the struggle to better themselves and be seen as better than lower working class by their merit best (coexist with the great wealth of the upper classes), if they fell that others have it worse than them. Thus they feel that their greater virtue and character is being rewarded. Essentially it’s based on the notion that the underclasses are not as worthy as their betters.

    We always prided ourselves as having left the class system behind and building a country where there was no real poverty. It aint so anymore and many like it that way – what’s in it for them, if the poor get help, they ask.

    Like or Dislike: Thumb up 4 Thumb down 0 (+4)

  33. SPC : I contribute when I buy their goods, business owner increases costs to cover increase in wages, these get passed onto consumers like myself and also the low wage workers we are supposedly trying to help.

    Im not saying low wage workers do nothing, but the difference is skilled vs unskilled work. Skilled work is in demand, you cant change that and consequently it will command a higher pay.

    Unskilled work can be filled by almost anyone, so naturally you dont need higher salaries to attract people when youve got 100+ applications to a job that anyone cne perform.

    If unskilled workers want more money for the work they perform than they need to get skills that are in demand or work their way up in their industry and become managers or supervisors.

    Like or Dislike: Thumb up 4 Thumb down 1 (+3)

  34. SPC: I dont hate poor people LOL :) I just dont want to give them MY money which I have ear marked for more important things, like

    a) making sure my daughter has an education
    b) making sure my daughter has her own home to raise her family
    d) paying for my own medical bills
    e) covering myself if I ever become unemployed
    f) putting a roof over my head
    g) helping out my mum and dad who are not as well off

    In short, my money is used to ensure that neither myself or family need to burden this country for anything.

    And if I have some $$ left over I spend it on consumer goods and do my bit for the economy, spending is good for businesses isnt it ?

    This is the values I will teach my kids, and the values they will teach theirs. Anything bad about this ?? Anything that effects this list is not going to get my vote, family comes first.

    Like or Dislike: Thumb up 2 Thumb down 0 (+2)

  35. I contribute when I buy their goods, business owner increases costs to cover increase in wages, these get passed onto consumers like myself and also the low wage workers we are supposedly trying to help.

    nzmr2guy

    Here’s the thing about the market.

    The moment you as a buyer refuse to pay a higher cost for a good or service, a producer will respond by lowering price (or holding their price to maintain profit thereby reducing demand). Pretty much every good or service is subject to this demand elasticity.

    If profit is reduced to the point that an enterprise in non-economic, the player tends to exit the market.

    If the market continues to be profitable, the producer will remain and endeavour to seek fresh market opportunities or reduce other elastic costs to increase profitability.

    I think you would be hard pressed to find minimum wage employers (supermarkets, fast food outlets) that aren’t profiting handsomely from their workers low wages and could not afford to provide a living wage.

    That said, there is probably still a place for a transitionary arrangement between business and Govt to subsidise this change for a period (either directly to the employer via top-ups or preferably, via tax breaks to low wage earners.)

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  36. I fear that Patrick Gower’s reporting has led you a bit astray here. Gower cites as “gotcha” a single email from a single Treasury analyst that says that changes in the youth minimum wage in the early 2000s had little effect on youth employment. That’s true. It’s also true that the labour market was very tight at the time; it would be a bit heroic to extrapolate from a single email from a single Treasury analyst about a related issue to that Treasury would support your quest for a $15/hr minimum wage.

    What did Treasury actually say in its 2010 advice to the government on the minimum wage? The year of the Gower “gotcha” email? That it was a really really bad idea to increase the minimum wage while employment figures were looking so shaky. They specifically recommended that year against increasing the minimum wage from $12.75 to $13.
    http://www.dol.govt.nz/publications/general/ris-min-wage-review-2010/review-2010.pdf
    http://www.dol.govt.nz/er/pay/backgroundpapers/Minimum-Wage-Review-Cabinet-Paper-2010.pdf
    Check both of those for Treasury’s views.

    It’s a bit of a stretch to cast Treasury as supporting a $15 minimum wage.

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  37. @Eric Crampton 8:59 PM

    Eric, you may have a point regarding the Gower reference.

    But do you have any response to the minimum wage literature review contained in the NZCTU submission (presumably compiled or overseen by NZCTU economist Bill Rosenberg) that Denise Roche linked to?

    That would suggest, imo, the evidence of any causality or correlation between the level of the minimum wage and employment or unemployment rates is extremely weak.

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  38. The Ministry of Labour also gave the government advice.

    Interesting how many people would benefit from an increase to $15 an hour (well over 200,000 – and many others who are always paid above the minimum so employers get to choose who they employ would also get an increase) and how small the loss of new jobs would be (the loss of existing jobs being too small to quantify).

    http://www.dol.govt.nz/er/pay/backgroundpapers/2010/minimum-wage-review-2010.pdf

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  39. As a lame excuse for not increasing the daily wages, the government functionaries always come out with funny ideas. Many a times they would say that this meager increase would place a heavy burden on national exchequer.Why do they forget that the money in national exchequer belongs to the taxpayers of this country. Anything done for the welfare of poor taxpayers should not be considered as a burden. A state is meant to look after its citizens. It is an obligation.

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  40. @Toad: I do indeed. Check this post from May.
    http://offsettingbehaviour.blogspot.co.nz/2011/05/minimum-wages-addressing-more-sensible.html

    Long story short: there’s plenty of recent US evidence that minimum wages of the level prevalent in the US (ie. very low relative to average wages) do little noticeable harm. But the earlier studies, from a period when minimum wages were much higher relative to average, did show substantial harm. Conclusion: Don’t worry about minimum wages where they’re <35% of average, worry a lot about them once they hit 45%+ of average.

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  41. @Toad: One other note: I basically trust Chris Doucouliagos’s work on whatever he does – he’s a truth-seeker and he’s careful. He’s the one whose meta-study found that there’s likely little real effect of minimum wages at levels more recently experienced in the US. I can believe that. Just like a “You must be at least 2 feet tall to enter” sign at a bar probably doesn’t keep many people out.

    But Chris has another study that Bill Rosenberg never cites. The one where he shows that unions do substantial harm to physical capital formation. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1014306

    I’d love to know why Rosenberg holds the one Doucouliagos study in such high esteem but ignores the other.

    Note also that if you ever phone Chris up and ask him whether he’d think there are any implications of his US study for minimum wages around New Zealand levels – ie, very very high relative to average wages – he’ll tell you you can’t extrapolate from that study to NZ numbers and that demand curves for labour have to start sloping downwards at some point.

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  42. While it may seem relatively low and insufficient for cost of living expenses, our rate here in the US is substantially lower. You guys as a country are far more progressive and understanding. The rates paid in this country are essentially under the poverty line for living. We need reform quickly and hopefully a new presidential change will result in some relief. Thanks for the reality check.

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  43. Sounds like more extremist right-wing Key-party agenda items :

    Uuion-busting, Wage slashing, Beneficiary bashing, do away with minimum wage, slashing workers conditions etc..
    then Tax-cuts for top 10%, Wage increases for CEOs etc. (eg 68k), BMWs for Ministers.. maybe upgrade to Rolls/Bentleys ?? etc WHAT NEXT ??

    OH DEAR.. 3 years of this !! Roll-on 2014

    Kia-ora

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  44. OH DEAR.. 3 years of this !! Roll-on 2014

    I do hope you are not under the misapprehension that Key and co will be rolled.

    Not a cats chance in hell. Hell will freeze over first.

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  45. While it may seem relatively low and insufficient for cost of living expenses, our rate here in the US is substantially lower.

    Yeah… but… you have that wonderful safety net system that looks after people who fail to achieve the American Dream and fall on hard times.

    I just can’t quite remember it’s name….

    ah yes…

    it’s coming…

    Yes!

    Jail.

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  46. Clearly a lot of debate on this … I fear I may be a little late.

    To add my two penneth … think about the economy in terms of the incentives that exist – incentives to work, incentives to spend, incentives to save, and so on. Governments then overlay their beliefs to provide society with the incentives that they see fit.

    So in some cases, a higher minimum wage should provide an incentive to work, an incentive to increase productivity and an incentive to spend (or save). However, businesses may respond by employing fewer people, investing in technological change rather than labour, or by raising prices.

    It’s all about incentives …

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  47. Eric Crampton, you wrote:

    “But Chris has another study that Bill Rosenberg never cites. The one where he shows that unions do substantial harm to physical capital formation. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1014306

    I think I know why studies such as you quote are often ignored by those on the so called “left”.

    The main aim of trade unions is to improve the pay and conditions of their members. Despite what some will tell you, there is a power struggle between the workers and the owners of the capital. I know this intimately because I am a union delegate in my work place and have seen this first hand. When unions are successful, they achieve better pay and conditions, and this by and large results in smaller profits for the owners. At this point some people will argue that better pay and conditions lead to higher productivity. Well maybe this is sometimes the case, but on average I think studies such as you refer to have shown the effect of strong unions is to reduce the rate of profit.

    Why then do people on the left bury their heads in the sand about this observation that strong unions reduce the rate of profit? The answer is clear when one follows through what the consequences of reduced profits are. The capitalist/share holders/owners obviously want to maximise the return on their investment. If they can achieve a higher return elsewhere they’ll move their money to where the higher returns are. We are all familiar with the end result of this: out sourcing of production to countries with cheaper labour costs, closure of factories and so on.

    At this point those on the “right” argue that the solution is for more flexible work practises and so on, which is really just a bull-shit way of saying attack the power of unions and cut worker’s pay and conditions. To a certain extent they have a point, this will achieve the results they are looking for (maintaining the profitability of local industries and so on).

    What are some of the other solutions to the problem of reduced profitability? Well historically, many countries (such as New Zealand before the mid 1980s) tried protectionism and strong government regulation of the economy. This can work, provided you have a big enough economy that you can essentially isolate yourself from the rest of the world and industries can solely service the domestic economy. Unfortunately New Zealand has never been in this position, and has always needed to import and export a lot. All is fine when you have a country such as Britain which buys up all your exports, allowing you to import the things you need. The problem occurs when the countries you export to start protecting their own producers, and blocking your exports with tariffs and so on. The net effect is that countries such as New Zealand find themselves in an untenable position.

    So OK, the modern left have ruled out protectionism and strong regulation of the economy. So what is left? Rogernomics? Oh dear … I think it is now clear why many on the left choose to bury their heads in the sand.

    But there is another way. If one accepts that reduced profits in one country will lead to production moving to countries with lower costs (especially labour costs), what about doing something about the lower labour costs? That is, if workers globally unite against exploitation and poor pay and conditions, then capital will no longer have the option of fleeing to a more “hospitable” environment. But we can’t possibly consider this way can we … workers of the world uniting was something that was discredited last century, wasn’t it? Even Stalin in the Soviet Union didn’t believe in a global revolution, instead settling for “communism” in one nation.

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  48. RE: Incentives, they dont have to be purely money, upskilling, learning a trade or skill in order to get into higher paid employement is also an incentive.

    I lost count of the amount of free low paid IT work I did in the early days, but I was happy to learn new skills that got my foot into the door of the IT industry and have only gone upwards since.

    Back in the day (which wasnt long ago for me at 35) people knew these values, now its all about rorting the system and doing as little as possible with your life whilst expecting others on higher incomes to support you.

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  49. nzmr2guy,

    I’ve found views like yours seem to be quite common amongst IT workers. It almost amounts to “I had it tough when I was younger, therefore so should everyone else”.

    Now I fully support your views about having a good work ethic and so on, and agree with you that some people are severely lacking in this department. But a having a good work ethic does not mean accepting crap pay and conditions without putting up a fight.

    One important difference with IT workers is that they can see an end to the crap pay they put up with when younger. Many workers do not have that luxury; all they can look forward is continuing crap working conditions and pay into the foreseeable future.

    I also have another theory, probably incorrect, but maybe you can enlighten me. I think IT workers are often envious of the working conditions of other people. Many IT workers on short term contracts with poor job security. They feel hard done by; after all they often are quite highly qualified, yet have none of the job security of less qualified workers with permanent jobs. Therefore, rather than fighting for better job conditions for themselves, they take a negative approach of wanting other workers to be put in their place, which is lower than they are.

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  50. NZmr2guy is so selfish for wanting to spend own money on himself, his own family, and what he wants to. Such bitternes and selfishness and greed.

    He should know that can only be generous of heart and soul when he condones his money being taken under compusion so it can be spent on others, and advocates likewise for others. That is generousity, and so he should applaud and be grateful for being so genrous that he’ll surrender more and more and more in the face of growing insatiable demands of others.

    The State will look after his daughter, and the best way of ensuring that will happen is to prostrate yourself to the State.

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  51. Wrong on all fronts, IT covers a wide range of Jobs these days most of them permenant, long term jobs with excellent working conditions and contracts.

    But you have to start at the bottom and work your way up.

    IT these days just doesnt consist of system admins and programmers. Youve got job oppourtunites as

    – project manager
    – business analyst
    – team leader
    – software support
    – software development
    – administration
    – web design
    – graphic design
    – sales
    – servicedesk
    – database admin and development
    – information, knowledge and content management
    – training

    plus more.

    Often the gateway into these jobs is having knowledge of the business you work in, and that may involve 5 years of doing the low level work and learning how the business operates before moving up.

    Sometimes you have to accept crap pay to start off with, life is not free ride and you have to work to get what you want. If youre in a job with crap pay and no way up, then upskill and change jobs, if you cant change jobs, cant upskill, cant move up then tough, life is not a free ride and its not the fault of those that did work hard to get to where they are.

    People need to stop being victims and expecting a free and easy ride in life. Life is tough yes but it can also be what you make of it.

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  52. I think IT workers are often envious of the working conditions of other people. Many IT workers on short term contracts with poor job security.

    Nearly fell off my chair with that one.

    The idea of being a contractor is that you have zero job security, and the rate for the job makes up for that. No holiday or sick pay.

    Having said that, for my decade of contracting in the UK I was never out of work for more than a week. My first contracting job paid badly, £17 per hour back in the early 90s. I discovered the agency were charging me out to the client at £31 an hour!!! Still, they asked me what I wanted, and thats what they paid me, so I can’t really complain. But it got better, and I made contacts with other contractors that ensured that when I needed a new position there was usually someone already there that could put the word in for me.

    And, of course, contracting provides some ability to arrange your tax affairs more beneficially than normal pay-as-you-earn does.

    Contracting is work hard, play hard. Its not like a “proper” job. If you get envious looking at the permies then get out of contracting and get a proper job.

    Compared to other jobs carried out in an office environment, IT has always paid comparitively well, even in my first IT job as a junior I was paid more than admin staff and their team leaders.

    Being a permie in IT here in New Zealand doesn’t pay at all well compared to other countries, but you do get the benefit of being in paradise.

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  53. Dbuckley,

    Scrub the point about envy in my post … I was being a little provocative. What I can tell you is that in my work place IT staff on contracts get paid the same as permanent staff. By IT staff I am referring to programmers, systems administrators and so on, not the very broad definition given by nzmr2guy. Contract lengths range from a month or two to about three years.

    The number one concern of the IT staff I talk to as a union delegate is job security; or rather lack of it. The lack of a permanent job makes it harder to plan long term, borrow money for a house and so on. Those staff that do have commitments such as a mortgage are dead scared of gaps in between contracts, because it doesn’t take many weeks before one starts to get behind on the repayments.

    Maybe the work place I work in is not typical … these are just my observations.

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  54. What I can tell you is that in my work place IT staff on contracts get paid the same as permanent staff.

    I certainly wouldn’t accept a IT contract on those terms.

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  55. DB you may be lucky enough to have a choice. When you’re a 60 year old Software Engineer you don’t always get choices… you take what is offered because offers don’t happen. People make mistakes about your ability, your flexibility, and how much THEY know as often as not, but the end result is that you really aren’t the first choice.

    When I was younger I could “demand” better. Trust me, that is not likely to last as long as your need to work does.

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  56. DB,

    One thing I have noted (and this extends across all types of jobs) is that permanent jobs are gradually being replaced by temporary or contract jobs. Now this isn’t occurring everywhere; for some jobs an employer knows that they will need a person to do the job for the foreseeable future, so it is safe (and makes sense) to employ permanent staff. However there are a significant number of jobs which are becoming less secure (and this includes highly skilled jobs), and where temporary or contract work is becoming the norm.

    There is a downside to the employer of employing temporary staff; the staff show less loyalty and jump ship more often. On the other hand, the employer will find it much easier and cheaper to cut jobs; simply don’t extend contracts when they expire.

    In an environment where temporary jobs become the norm, they no longer are able to command the extra pay they might have in the past. This is the reality I have observed in my industry. Have you considered that at some time in the future it may become your reality too?

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  57. samiuela,

    For some, the self employed contract work regime is a major boost in allowing a lifestyle not tethered to a fixed job.

    It requires self dicipline and an ability to market yourself to customers so is not for everybody.

    The rewards though are freedom from the drudge of the daily grind working for a boss.

    Downside is the uncertainty of variable income levels depending upon the market (customer) demands.

    Sometimes I do long for the protection of a fixed salary, expense account and a company car.

    The rewards are lifestyle.

    If the whitebait are running we do what needs to be done working on a laptop while the net is in the water, a cold beer is at hand and the sun is in the face.

    If the F5000 cars are trundling around Hampton Downs we slip down during the week for a nosey while the crowds are still in their boss driven jobs.

    We holiday during the week while the workers are away from the beach. Surfing and fishing is less crowded then.

    You may find this interesting

    http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=10783485

    For many older workers this is the only way to maintain an income.

    What we find is that networking amongt ourselves we can actually be very productive and supportive.

    But we will work at times 24 (even done 48) hours at a stretch to get a job to the customer. Including weekends (no use asking for penal rates!).

    The contractor has the freedom that many traditional workers will envy.

    We dont pay PAYE but do spend time doing out books.

    Nothing makes a contractor more efficient then doing their own books.

    Cashflow management takes on a whole new meaning (every dollar earned requires at least 30 cents be put into a seperate account to enable taxes, ACC, GST, etc. to be paid).

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  58. The government is moving it to $13.50 and to $10.80 for the new worker/training wage (80%).

    My preference would be $15 and the new worker/training wage set at 66% this – $10. This increases the incentive to train workers.

    The PM is being a little specious in calling the annual CPI adjustments “increases” to the level people want ($15 an hour). It means holding down pay for around 200,000 people (those who earn less then $15 an hour)

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  59. The problem is, the minimum wage is already high. By keep increasing it above real wage growth, then youth unemployment are going to keep increasing.

    For me it doesn’t matter. I will earn way more than the minimum wage, so a low or high minimum wage will not affect me. It could be problematic, if a high minimum wage leads to less taxpayers, more people on welfare, and higher taxes, but I can leave to another country. The only reason I care is because I like New Zealand.

    Yes, it is higher in Australia, but so are the costs and the average wage. If you guys want higher minimum wage, then you will need to find ways to close the gap, not just increasing the minimum wage like we already have closed the gap.

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  60. Yet another one who has the delusion environmental sustainability is possible without social or economic sustainability.

    Do you think 98% should make sacrifices for environmental or economic sustainability while 2% get 17 to 27% rises in wealth. What makes you think that a society can carry on like that.

    Costs are not higher in Australia. Go look. Much less in relation to median wages.

    As has been shown in the USA, higher wages do not lead to more unemployment. In the USA high wage States are carrying the low wage ones.
    http://www.alternet.org/visions/154338/ayn_rand_worshippers_should_face_facts%3A_blue_states_are_the_providers,_red_states_are_the_parasites/

    Note. Red are Republican. Right wing in the USA.

    You forget that wage earners are also business customers. Reducing wages and benefits in the 90’s meant much less jobs and reduced tax take as small business customers did not have money to buy. The effect was very obvious in Northland during Ruthanasia.

    Minimum wage earners and WFF subsidising businesses Mcjobs so more money can go overseas is a dysfunctional model, even from a Capitalist POV. Note: Straight out of the capitalist bible. “Businesses that cannot cover the true cost of the resources they use should go under and release resources for more efficient business”.

    Wages are set way too low, encouraging business to compete on how little they can pay their employees instead of upping their management game, capital investment and service to grow the business.

    Australia is doing better, at least in part, because strong unions keep money within Australia. AND managers have to work at their jobs instead of just cost cutting.

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