Wages fail to keep up with productivity gains

The Government has announced that from April 1 2014 the minimum wage will be increased by 50 cents to $14.25 per hour.

This will give the over 100,000 or so people earning the current minimum wage of $13.75 per hour an extra $20 before tax for a 40 hour week. It’s still not enough to live on.

Around 125,000 children live in families where the adults earn less than the wage calculated as being enough to live on – the living wage.

The NZCTU says that wage rates have not kept up with productivity gains and a fairer system is needed to deliver better wages for New Zealand workers.

The response of the Labour Government under Helen Clark, Working for Families, while lifting many families out of poverty also allows many employers to keep their wages low.

Our policy is to increase the minimum wage eventually to 66% of the average wage – which would be close to the Living Wage of $18.80 per hour that is being advocated by the Living Wage Coalition.

This view is also shared by the by the NZCTU who outlined many cogent arguments for lifting the minimum wage in their submission on the minimum wage review.

Our solutions would mean that all workers, people such as the parliamentary cleaners who earn around $14.40 per hour, would be able to better meet their needs, and enjoy their lives.

About Denise Roche 161 Articles

Green Party MP

12 Comments Posted

  1. The “living wage” as defined by the trade union, churches and community campaign relied on some sophisicated measuring of what was need to live for a family of two adults and two children, with the parents working 40 and 20 hours a week eqach.
    The notion of people not a wage to live on is slightly different. i recall some folk saying they could live on the main benefit alone after ther 91 benefit cuts – because they had camps in the town belt of Wellington, thus had no rent or power costs and did not spend much on soap they nevertheless “lived” and were quite content.
    Oddballs aside, a wage, and its reasonableness is one way to spread the value of production (goods and services) among workers, the owners of capital including the supplies of credit and the rest of society via taxation and spending by the state. I and many others believe the division is out of balance, particularly for many tens of thousands on or near the minimum wage…. and it is getting more out of balance as time goes on due to the relative weakness of labour versus capital.

  2. Denise Roche pointed to an article by Metiria Turei in which she states, “A higher minimum wage puts more money in families’ pockets, giving them more money to spend, and that creates jobs.” Personally, I think she ought not have waited until the third to the last sentence to make that point.

    Conservatives do not believe that point is true. They seem to believe that the purchasing power of consumers is some sort of limitless resource. From this line of reasoning, employers ought to be able to cut salaries as low as they can- reaching the optimal point where they are getting the kind of labor they want at the lowest price the market will bear. In their minds, this will allow employers to gain the highest bang for their payroll bucks. The harder they squeeze, the better “productivity” they are getting for the same unit of capital.

    All of these things are quantifiable in their ledgers. What is impossible for them to directly see in their ledger is the reduced level of consumption due to the fact workers have less capital to devote to consumption. The effect will appear and they might even believe that it is theoretically true, but if they can’t prove it, so for all practical purposes in the corporate world, it does not exist. It doesn’t matter that computer models show that as minimum wage goes down, consumption goes down. If they can’t prove the cost, then they will lose the argument. The trouble is there is no ledgerable item that establishes the cost of cutting payroll. No one is able to stand up in a board room and say: “In the last 3 quarters we installed automated checkout stands and fired all workers who would not accept a 20% pay cut. In so doing we have increased productivity significantly. However- these same sorts of payroll cutting measures have been applied across most NZ businesses, and so demand for our product has gone down 20%. Because of the multiplier effect when our production is high, we are less efficient at our lower capacity and so the effect of the “productivity” innovations in the last 3 quarters was a reduction of our profits by 25%.

    Previously I have mentioned how we could use an auxiliary currency to make this externality an item that could be seen in a ledger.

    What is interesting is that we are not collecting the empirical data necessary to understand whether “productivity gains” are really coming from. Is it that Kiwi workers are being more highly educated and so work more efficiently? Or is it that Kiwi payrolls is being shed in favor of foreign construction of components at a fraction of the cost? The company is producing the same or more products with far less workers. Meaning, perversely, that the remaining workers are much more “productive”. Same thing if workers were made redundant because one worker using a $200K machine can do the work of 10 former workers. Same thing if the factory is more “productive” because aggressive de-unionization has meant workers do not get an even share of increased profitability.

    Increase in the first kind of productivity (worker training) increases company profitability even when it shares some of that added profitability with such workers. It is a win-win. The latter types in this century are generally lose lose. Displaced workers used to find work in industries created by new technology. Yet this is no longer happening and globally the OECD countries are seeing the slow cannibalization of their consumer economies as consumers are inexorably defunded by efficiency experts.

    What is so ironic about this is that even the CTU’s submission to the Minimum Wage Review applauds all productivity gains, failing to distinguish from those that are undesirable from those that are desirable.

  3. Another aspect is that, for some people, a wage does not need to be a “living wage” because they don’t need to fully support themselves. Again, I don’t think that justifies paying someone less than someone else, just because they don’t “need” as much.

  4. Perhaps I’m being a tad argumentative, but let me put it this way; the minimum wage is not a aspirational thing, its a level of disgrace below which employers must not drop. Very, very few people should be paid at or anything near the minimum wage, yet, according to our current (and next!) PM, over a hundred thousand people are. And the unions (bless them) estimate that another 300K are “close”.

    This is why according to the chart on [this page] our minimum wage is about 60% of our median wage. Its not we have an absurdly high minimum wage (as the smiling one keeps claiming), its that we have altogether too many people on or about that level of remuneration. And worse, many of these people are long term low wage earners, not just the archetypal teenager on his first couple of unskilled jobs.

  5. @dbuckley

    I don’t think it is fair to label all employers who pay the minimum wage “bad employers”. I’ve heard employers argue that they understand people can’t live on the minimum wage and would like to pay their lowest paid staff more than the minimum wage, but fear that they would not be competitive if they unilaterally agreed to pay increases for minimum wage workers when their competitors do not.

    I’m not sure that is a valid argument, because higher pay tends to result in productivity increases, but I think it is a genuinely held concern of some employers, and that acting on that concern doesn’t necessarily make them bad employers.

  6. The gap between a low market income (minimum wage) and what is needed to live on might be met by the state (WFF if there are children) and supplementary assistance via Work and Income…but my experience as a benefit rights advocate is that later organisation is more inclined to stop all income support including entitlement to supplementary assistance as soon as the person finds full-time work even though a cursory look would see assistance to something lime the accommodation supplement would continue.

  7. The higher the minimum wage is raised, the more that people in that wage bracket will be made unemployed and their jobs *automated*.

    Yes. Absolutely.

    But I am still of the opinion that the minimum wage needs to be raised regularly and aggressively.

    The problem with minimum wage is nothing to do with the fact people can’t live on it; it’s a business problem, as the reality is that where a business pays employees minimum wage, then taxpayers pay towards that individuals living costs, and thus there is direct benefit to the business owner of minimum wage employees. Its a wealth transfer from taxpayers to bad employers.

    Because of this wealth transfer, good employers are doubly disadvantaged compared to bad employers.

    I’d like to see those bad employers either be forced out of business (along with the attendant unemployment), or pay a living wage. The third way is that the bad business improves by automating, so losing employees anyway. But the reality is that despite the ongoing efforts of the tall foreheads, many activities undertaken by low wage employees are either resisting being automated, or are not cost effective (yet?) to automate.

    (And 18 bucks something, the living wage, is still insufficient)

    Why aggressively: The raising of the minimum wage needs to cause step changes in prices, not just a gradual small increase. With step changes the change is highly visible,and will lead to folks making yes or no decisions, rather than just accepting a small increase as the price that needs to be paid.

  8. @thor42

    Read pages 34-41 of the NZCTU submission that Denise linked to, and perhaps some of the studies referenced in it.

    They pretty much debunk the hoary old “raising the minimum wage causes unemployment” argument that neo-classical economists and their acolytes continue to trot out despite the mounting weight of evidence to the contrary.

  9. The higher the minimum wage is raised, the more that people in that wage bracket will be made unemployed and their jobs *automated*.

    Think bank tellers replaced by ATMs, checkout operators replaced by self-checkouts – even *wharf workers* are being replaced by fully-automated container terminals.
    That’s the cold hard reality. It is how things are going in the modern world and there is no stopping it.

    And for jobs that aren’t automated – raising the minimum wage will often result in layoffs anyway as (say) coffee bars decide to make do with fewer baristas.
    Many other businesses will do likewise.

    WhaleOil has a post on exactly this topic (raising the minimum wage) –

    So – Labour and the Greens are welcome to increase the minimum wage but no-one should then be surprised to see many layoffs resulting from it.

  10. Just wondering. If you raise the minimum wage to 66% of the average wage, won’t that raise the average wage, thus requiring an increase in the minimum wage, thus raising the average wage … ?

    I guess that if the number of workers on the minimum wage is very low, then raising it might not make a statistically significant difference to the average wage. Is that so?

    By the way, I support an increase to the minimum wage; I’m just wondering if the 66% policy is workable?

  11. NZCTU is dead right the wages are not keeping up. I’m a PSA member and the latest DHB wage round is offering members 0.7%, for me the equivalent of 1 cup of coffee a week. I’m an experienced administrator with a post graduate degree and getting less that $20 an hour.

  12. I found it ironic, if not a form of sadistic political behaviour that the announcement was made on International Day for Social Justice….but i suspect in all reality JK does not recognise the notion or need for such a day.

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