The Dim-Post

September 2, 2013

Behind the curtain

Filed under: Politics — danylmc @ 9:44 am

We don’t get much of a glimpse into what John Key really thinks about anything, but boy did we get one today, when Key reacted to the idea promoted by Labour’s leadership candidates that the government should support a ‘living wage’ for its workers of $18.40 an hour.

Key today dismissed their ideas as unworkable and “unbelievable”.

“If you can legislate at $18.40 a hour and have no implications, why not make it $30 and hour – and show me one country in the world that has legislated for higher wages and it has been successful,” he said.

“We set the minimum wage but there is always a balance between jobs … most companies have to pay more, that means they have to put their prices up, that means you as a consumer pay more … inflation goes up so the Reserve Bank raises interest rates, that means your mortgage costs go up – by the way, a lot of people lose their job … it’s a fool’s paradise.”

Cunliffe has costed the living wage policy at about $25 million. Key flicked $30 million to Rio Tinto just a couple of weeks ago. The interest free loans for power company shares has been estimated to cost about $40 million, although no one knows how much the taxpayer is liable for that policy because the National government didn’t even bother to ask Treasury to cost it for them. The point is that Key’s government showers wealthy people with money on a routine basis, but the idea of increasing the incomes of low income workers is ‘unworkable and “unbelievable’. Key genuinely seems to believe it will destroy our economy if we stop giving taxpayer cash away to share market investors and corporations and pay it to poor people in exchange for their labour instead.

116 Comments »

  1. $25Mn sounds awfully low or was Cunners expecting that a minimum living wage wouldn’t cause wider wage and general inflation?

    Comment by TransportationDevice A7-98.1 — September 2, 2013 @ 10:00 am

  2. “Key genuinely seems to believe it will destroy our economy if we stop giving taxpayer cash away to share market investors and corporations and pay it to poor people in exchange for their labour instead.”

    If he believes that why does his government continue to support WFF?

    Anyway its not the point. When politicians start promising people they will increase their wages, and get elected on that promise, we are just abusing our democratic system and heading down a road that will see us end up like Greece.

    Comment by Redbaiter — September 2, 2013 @ 10:01 am

  3. exactly.

    how anything this government has done is considered prudent fiscal management is only due to the fact that most people given air on questions of prudent fiscal management are aboard the corporate gravy train we currently call a government.

    Where is Key’s aspiration for New Zealand now, if paying people enough to live is unreasonable? he’s had 5 years and everything is still aspirational…

    Comment by nommopilot — September 2, 2013 @ 10:04 am

  4. $25m was for state servants only and not even contractors. So, the cost to government.

    Comment by MeToo — September 2, 2013 @ 10:09 am

  5. Monorail!

    Comment by bart — September 2, 2013 @ 10:12 am

  6. If he believes that why does his government continue to support WFF?

    Because it’s a subsidy for employers and shareholders (National’s constituency) paid for by workers.

    Comment by Gregor W — September 2, 2013 @ 10:26 am

  7. …why does his government continue to support WFF?

    And because it would be too expensive, in terms of votes, to drop it.

    Comment by RJL — September 2, 2013 @ 10:46 am

  8. Please refer the facts –

    In 2004 the New Zealand Labour government introduced the Working for Families package as part of the 2004 budget. The package, which effectively commenced operating on 1 April 2005, had three primary aims: to make work pay; to ensure income adequacy; and to support people “into work”.

    Working for Families
    From Wikipedia, the free encyclopedia

    Comment by TransportationDevice A7-98.1 — September 2, 2013 @ 10:53 am

  9. “…Cunliffe has costed the living wage policy at about $25 million…”

    That is just for the state sector, where I imagine there is hardly anyone on less that $18.40 an hour. The real challenge is rolling it out to all New Zealanders – effectively it would be increasing the minimum wage by 33.6%. Given that fully one third of all New Zealanders earn less than %18.40 and hour I have heard estimates of the cost for that ranging from two-four billion, with the upper end coming from business scare mongers who assume you’ll will be forced to pay the kid who mows your lawn a living wage.

    To put that in context, foreign owned banks alone are scheduled to make around four billion dollars in profits this year.

    Comment by Sanctuary — September 2, 2013 @ 10:54 am

  10. The other thing to bear in mind is that if you did make a direct transfer of profits from business to the lowest paid third of workers of four billion dollars that money would be injected straight back into the economy at the supermarket, K-Mart, The Warehouse, the petrol station and even – gasp, where will the insanity end? – on an occassional cafe brunch. Rather an eggs benedict for Joe and Jane Sixpack than an extra 4c per share dividend for an Australian shareholder IMHO.

    BTW – isn’t it great to see Labour beginning to discuss issues of wealth transfer? I imagine the media will soon have a meltdown over it, communism!!!

    Comment by Sanctuary — September 2, 2013 @ 11:01 am

  11. #2 redbaiter
    ” When politicians start promising people they will increase their wages, and get elected on that promise, we are just abusing our democratic system and heading down a road that will see us end up like Greece.”

    Oh, like national being elected on tax cuts that would “improve the average wage north of $40 a week”

    Comment by Andy — September 2, 2013 @ 11:07 am

  12. “…you’ll will be forced to pay the kid who mows your lawn a living wage.”

    It would be nice if they paid newspaper delivery kids something approximating half of the minimum wage….

    Comment by MeToo — September 2, 2013 @ 11:16 am

  13. “$25m was for state servants only and not even contractors. ”

    I thought the figure was unusually low. Where is the detail on the costing and coverage?

    That makes a lot more sense. $18.40 an hour is around $38k a year, most core public servants – teachers, police, firefighters, MAF, DOC, border control, IRD employees, WINZ case workers etc will be getting more than that or very close to it. I would think the public servant roles that come in below that figure will be mostly call centre staff and back office data entry type roles. Even then, most of those roles will be paid above 30k so it’s not a big jump, especially if it is phased in over a few years. We’re probably talking wage inflation of a few percent a year for 2-3 years for the bottom 10% or so of the worst paid public servants, the inflation impact to the broader economy would be negligible.

    Excluding contractors from the figures is a huge exemption – I expect very few cleaners, cafeteria workers, mowing contractors etc will be getting paid anywhere near the $18.40 an hour. Including contractors would be an order of magnitude more expensive.

    Core public service on a living wage is all good as a start – the question is whether the next step should be to gradually introduce a mandate that contractors pay their employees the living wage (which would be complicated to do, it’d have to be introduced on each contract as they are rolled over/tendered) or whether you just move away from the whole lowest tender approach, insource all those contracts and add the employees to the public payroll on core public sector wages.

    Comment by Richard29 — September 2, 2013 @ 11:21 am

  14. “Oh, like national being elected on tax cuts that would “improve the average wage north of $40 a week” ”

    That is merely recognition of the mathematical fact that taxes have a dampening effect on the economy. Believers in high taxation willfully ignore the fact that there is an indisputable downside to very dollar of taxation.

    Comment by redbaiter — September 2, 2013 @ 11:30 am

  15. @ Richard29 – but isn’t it good to have the main centre left party talking about the living wage not in terms of if it is a good idea, but how we can roll it out in a way we can afford it? it’ll have them spluttering into their drinks at the Northern Club, and John Roughan will probably need to be revived with smelling salts when he hears of it.

    Comment by Sanctuary — September 2, 2013 @ 11:52 am

  16. “it’ll have them spluttering into their drinks at the Northern Club, and John Roughan will probably need to be revived with smelling salts when he hears of it.”

    This is not necessary. He is dispensable.

    Comment by kahikatea — September 2, 2013 @ 12:43 pm

  17. I am confused.
    Why is paying minimum wage workers a living wage a disaster, but giving Key a $1000 tax cut good for the economy!?????

    Comment by dv — September 2, 2013 @ 12:47 pm

  18. “…Cunliffe has costed the living wage policy at about $25 million…”

    …The real challenge is rolling it out to all New Zealanders – effectively it would be increasing the minimum wage by 33.6%. Given that fully one third of all New Zealanders earn less than %18.40 and hour I have heard estimates of the cost for that ranging from two-four billion

    That’s the ‘first round’ costs of direct policy implementation. What Key is getting at is the ‘second round’ effects that will come through wage arbitration for everyone else earning more. If Cunliffe’s proposing to roll the policy in over time, then you might mitigate the worst effects of the inflationary punch that would be coming. On the other hand, if it’s an all-at-once implementation then you’re just going to see prices go through the roof, mortgage rates north of 10% and the wealthy raking in their capital gains.

    Comment by Phil — September 2, 2013 @ 12:47 pm

  19. That is $1000 a week tax cut!!

    Comment by dv — September 2, 2013 @ 12:48 pm

  20. What Key is getting at is the ‘second round’ effects that will come through wage arbitration for everyone else earning more.

    Except he’d be wrong. It doesn’t necessarily follow that raising the minimum effects other wage bands.

    While it might be expected that someone earning $18.50 an hour now might ask for an extra $1.50 an hour following a minimum wage increase, there is nothing to suggest the person earning $40/hr would expect the same. Given the labour market liquidity, I suspect even potential near minimum increases would be pushing it, particularly given the current anti-union / collective bargaining settings of NZ employment law.

    The wage inflation bogeyman is constantly wheeled out but the evidence just isn’t there to support it.

    Comment by Gregor W — September 2, 2013 @ 1:06 pm

  21. …particularly given the current anti-union / collective bargaining settings of NZ employment law.

    But this would be happening under a Labour gov wheret, presumably, things would be different. Would Labour allow the consequent wage infation or somehow prevent it?

    Many people now on $18 will be wonderiong why they’re not getting such a huge increase.

    Comment by NeilM — September 2, 2013 @ 1:19 pm

  22. “4.$25m was for state servants only and not even contractors. So, the cost to government.”
    So good to see Cunliffe intends to outsource more of core govt functions to the private sector…

    Comment by Clunking Fist — September 2, 2013 @ 1:27 pm

  23. “…Many people now on $18 will be wonderiong why they’re not getting such a huge increase…”

    The idea that society is a dog-eat-dog zero sum game – if someone is winning, I must be losing – is the very essence of the right wing mindset, don’t you think?

    Comment by Sanctuary — September 2, 2013 @ 1:28 pm

  24. Would Labour allow the consequent wage infation or somehow prevent it?

    Please read above NeilM. The general wage inflation hypothesis is not borne out by empirical evidence.

    Many people now on $18 will be wondering why they’re not getting such a huge increase.

    Because $18/hr does not generally apply to skilled labour.
    Where it does, then those people are being underpayed and should be seeking a better employer and/or upskilling.

    Comment by Gregor W — September 2, 2013 @ 1:30 pm

  25. It looks like Key is considering a different policy – that of an $18 an hour minimum wage.

    He is probably concerned by the evidence from New Zealand of the dramatic affects on employment on raising the youth minimum wage.

    Comment by Swan — September 2, 2013 @ 2:09 pm

  26. OK so David Cunliffe from his online Q&A in the Herald today:

    “…On the LIving Wage, my committment is to bring this in for the core public service first (estimated cost $25m p.a.), then, as we can afford it extend it accross the broader state sector, including crown entities, and their contractors. This will be phased gradually as affordable within a sound fiscal framework….”

    Comment by Sanctuary — September 2, 2013 @ 3:07 pm

  27. Costing would be interesting, but I imagine that if 30% of the population really is below this figure, then it will be a very, very popular move. Most importantly, for Labour, it will be popular amongst that group of people. Slagging the idea off might not hurt National, but it could do Labour a lot of good.

    Comment by Ben Wilson — September 2, 2013 @ 3:50 pm

  28. Lordy, it’s worth Labour’s leadership sagas just to get the Tories spluttering over their lattes, frothing about the peasants eating cake!

    @ Swan – Correlation does NOT equal causation. Just because youth unemployment went up at roughly the time the youth minimum wage was (basically) made the same as the adult min wage, does not mean the min wage was the cause! It could have been the GFC that happened at the same time, y’know? Or perhaps something else. So you and Key can stop wetting your pants.

    @ NeilM:
    “Many people now on $18 will be wondering why they’re not getting such a huge increase.”
    Perhaps because 9 out of 10 private sector workers in NZ don’t belong to a union, and use that to sort out a campaign with their co-workers to raise their wages? There is a reason teachers and nurses are paid well here, and it’s not just their skills. They are highly unionised sectors, and their unions fought hard for big pay rises a decade ago. Maybe that’s what those on $18ph should do, y’think?

    Comment by bob — September 2, 2013 @ 4:11 pm

  29. It’s not as if the effects of raising the minimum wage are some kind of misty mystery that can only be guessed at by delving into economic theory. What happened the last time the minimum wage was raised? I seem to recall the economy chugged along just fine.

    Comment by Hugh — September 2, 2013 @ 4:16 pm

  30. Exactly Hugh.
    In the same way the didn’t explode with innovation when the top income and coy. taxes were reduced.

    When assessing the validity of frothers like Armstrong / Roughan / Key and their acolytes who phophesy Unparalleled Wealth Destruction and Unstoppable Hyperinflation as a result of handing over a little money to society’s lowest earners, one only need apply the principle of qui bono to understand why.

    Comment by Gregor W — September 2, 2013 @ 4:47 pm

  31. bob – Precautionary principle though eh? I mean given what happened the last time we had a large minimum wage increase (and given that the effect is consistent with standard theory), we might want to be wary of doing a similar thing.

    Comment by swan — September 2, 2013 @ 5:01 pm

  32. There is a reason teachers and nurses are paid well here

    @bob… What the fuck are you on?

    Comment by Phil — September 2, 2013 @ 5:02 pm

  33. “the mathematical fact”

    oh bedwetter you are hilarious

    Comment by Sacha — September 2, 2013 @ 7:12 pm

  34. “standard theory”

    you too, duckling

    Comment by Sacha — September 2, 2013 @ 7:24 pm

  35. Good typing Sacha. Now why don’t you see if you can say something about the topic being discussed.

    Comment by Swan — September 2, 2013 @ 7:46 pm

  36. “The idea that society is a dog-eat-dog zero sum game – if someone is winning, I must be losing – is the very essence of the right wing mindset, don’t you think? – Comment by Sanctuary”
    That priceless gem had me spraying boutique beer at my monitor.

    Comment by Clunking Fist — September 2, 2013 @ 7:56 pm

  37. “If you can legislate at $18.40 a hour and have no implications”

    Nobody said there weren’t any. And if there were none, Johnboy wouldn’t be sputtering so defensively.

    Comment by Sacha — September 2, 2013 @ 8:21 pm

  38. See, people can say stuff without invoking comical libertarianism.

    Comment by Sacha — September 2, 2013 @ 8:23 pm

  39. Yeah, of course considering that price floors in the labour market might have disemployment effects is nothing but value laden ideology. Whatever helps you sleep at night I guess Sacha.

    Comment by Swan — September 2, 2013 @ 8:30 pm

  40. It is an incontrovertible mathematical fact that the Key tax cuts depressed NZs economy as the recipients invested in real estate, went on overseas holidays, bought gold to hide under their mattresses etc. It is also an incontrovertible fact that every last cent paid to someone paid less than $18.40 will be paid out on essentials and will stimulate the economy, instead of collapsing demand a la the Nats.

    Comment by Aunt Zinnia — September 2, 2013 @ 8:35 pm

  41. CF, yes sancy is a tool.

    Comment by toby — September 2, 2013 @ 8:47 pm

  42. Waiting for DPF to make a reference to the USSR in 3… 2… 1…

    Comment by Hugh — September 3, 2013 @ 12:30 am

  43. I’ve often thought that the best way to limit the inflationary effects of raising the minimum wage might be to introduce a maximum wage. As Ryan Wood argues in the article below, there are sound economic reasons for considering it.

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10840939

    Comment by Higgs Boatswain — September 3, 2013 @ 1:09 am

  44. >the best way to limit the inflationary effects of raising the minimum wage might be to introduce a maximum wage

    Just putting up tax would do the same thing. If there really is actually an inflationary effect from raising minimum wages, something that’s not at all clear from evidence. Considering the numerous sources of inflation, it’s pretty hard to make any kind of conclusive observations.

    Comment by Ben Wilson — September 3, 2013 @ 1:31 am

  45. A maximum wage has been bruited about since at least the days of Huey Long, but I think it would be very difficult to enforce.

    Comment by Hugh — September 3, 2013 @ 1:38 am

  46. it is interesting that those who promote those old neoliberal mantras of ‘choice’ and ‘opportunity’ would rather the minimum wage se set so low that it disincentives people to want to get of benefits. What’s the point of doing so if a wage can’t really compete with what is available, for free? I would be greatly in favour of subsidising employers to the hilt if they were to employ people, and create a working environment in which people dare to aspire to a better future. But of course, some might shoot this idea down because they would object on ideological terms to any ‘taxpayer money’ going to ‘the rich’.

    So, young man, go to jail,do not pass Go, do not collect $200.00, I guess.

    Comment by Lee C — September 3, 2013 @ 6:17 am

  47. I would be greatly in favour of subsidising employers to the hilt if they were to employ people, and create a working environment in which people dare to aspire to a better future.

    We already do provide such subsidies for employers – they’re called Working for Families and the In-Work tax credit. No sign of it encouraging employment or a better work environment, though.

    I guess you could make a case that the living-wage concept is bullshit because there is no actual “need” for people without dependants to be paid enough to raise a family on. However, given that successive governments have acted successfully to de-unionise the NZ workforce, there’s no organisation other than the government available to put upward pressure on wages. And when that upward pressure doesn’t exist, we get what we’ve got – capital shallowness, an increasing pay gap with Australia, and skilled work slowly becoming the preserve of immigrants. At least Labour is actually proposing to do something about that, unlike the visionary CEO running things at the moment.

    Comment by Psycho Milt — September 3, 2013 @ 6:41 am

  48. “would rather the minimum wage se set so low that it disincentives people to want to get of benefits.”

    he he – its weird isnt it – according to doctrine were meant to all be rational economic actors – but when your so poor that the rational choice is “stay on the benefit due to abatement rates” somehow your not playing along

    Comment by framu — September 3, 2013 @ 9:48 am

  49. Just as a reminder, here’s Eric Crampton sumarising the unemployment data after the youth minimum wage was raised to the same level as the adult wage.

    http://www.nbr.co.nz/article/labours-good-intentions-led-bad-youth-unemployment-ck-115419

    Comment by Phil — September 3, 2013 @ 9:48 am

  50. Phil: I look at that chart and the youth unemployment rate didn’t budge (unless it went down slightly) until *after* the Global Financial Crash. The GFC is the moment when the consequences on aggregate incomes everywhere of sending all those millions of jobs to low-wage countries reached critical mass and the debt mountain fell over. Ok….we cleaned up the debt mess by printing money….but the jobs are still gone and more are going every day. Correlation isn’t causation. I’d like to see further study on this…and also look at the unemployment rate generally for under-25s. I suspect we will find that unemployment rates among the young are high and rising because we sent their entry-level jobs away to other countries.

    Comment by Steve — September 3, 2013 @ 10:14 am

  51. What’s your point, Phil?

    Crampton misses the obvious; as the economy contracts and employers assess the risk factors of taking on staff, the reduce their selection pool to exclude those with no work history when they are compelled to employ all comers at the same minimum rate. He fails to note that increased youth unemployment probably directly offset increased adult unemployment.

    If there was no minimum wage, the same logic would apply. Why take on an untested resource when the labour pool is a buyers market?

    Comment by Gregor W — September 3, 2013 @ 10:33 am

  52. Gregor W,

    Sure there are alternative hypotheses, but Crampton has tried to control for this by looking at what happened during previous recessions, and by normalising the youth unemployment rate against the adult unemployment rate. Are you sure you are not dismissing the potential disemployment effects too readily?

    Comment by swan — September 3, 2013 @ 10:53 am

  53. “There is a reason teachers and nurses are paid well here

    @bob… What the fuck are you on?”

    Phil, I’m on a mix of adrenalin, fear, and bed-wetting anxietyas I await your deft explanation for your implication that my suggestion teachers and nurses are relatively well paid in NZ. Please do enlighten. Sure, those professions may be able to get paid more overseas, but wages were raised a decade ago to the point where the loss of teachers and nurses stemmed, and at a level above our median wage. So….. your contra-indications are?

    Comment by bob — September 3, 2013 @ 1:14 pm

  54. Aaargh. Should read ….’that my suggestion is wrong that teachers and nurses are relatively well paid in NZ’. Sorry.

    Comment by bob — September 3, 2013 @ 1:16 pm

  55. @ bob,

    Wages/salaries for teachers and nurses are substantially lower than other sectors that also require multi-year tertiary qualifications (like engineering, commerce, law). They might be higher than unionised factory workers and/or the $18.40 “living wage”, but they’re still well below the wage/salary points where most other sectors pay their staff for the same level of skill or years of experience.

    Comment by Phil — September 3, 2013 @ 2:07 pm

  56. Are you sure you are not dismissing the potential disemployment effects too readily?

    Possibly. The counterpoint being I dont think Crampton has made an honest attempt to factor in other macro elements, to whit;

    (a) The GFC – the HLFS and NEI data (with correlating GDP fall) show sharp declines over the same period
    (b) As per Stats “The rise in the unemployment rate over this time (08-10) can be attributed to a combination of factors. In particular, rises in the number of unemployed people in Auckland, rises in the number of unemployed women, rises in the number of unemployed youth , and falls in the number of people working part-time.”

    I think the trap he has fallen into is to treat the labour pools as separate entities arbitrarily based on age as a single factor, which is reducing a complex problem to the meaningless.
    I just dont think ‘all things being equal’ cuts it in this case.

    Comment by Gregor W — September 3, 2013 @ 2:09 pm

  57. No one’s disputing the fact that the GFC had an impact on unemployment, but (as swan pointed out) Crampton shows there has historically been a high level of predictability for the youth unemployment rate by looking at the adult unemployment rate, regardless of the point in “the economic cycle” you choose.

    With respect to point (b) you’ve misinterpreted the StatsNZ commentary. They’re simply saying: The unemployment rate went up. Some of the people that used to be employed and are now unemployed were women, aucklanders, youth, and part-timers. That fits with most of what we already know about who are the most likely workers to be the first to go during a recession.

    Where Crampton goes (and StatsNZ does not) is to make a case that youth workers suffered disportionately because they were ‘benefactors’ of Labour’s policy change. There is a better explanation (i.e. more detailed) here:
    http://offsettingbehaviour.blogspot.co.nz/2011/09/hyslop-and-stillman.html

    Comment by Phil — September 3, 2013 @ 5:27 pm

  58. Phil – I get that Crampton is not saying “disregard the GFC” but what he is ommitting is a whole bunch of policy settings as well as youth wage changes that occured.
    To me he seems to be starting with an answer and fitting a hypothesis. He might be dead on the money, but the explanation seems pretty obvious to me as per my comments @ 51.

    Low quality, entry wage labour will always bear the brunt of a downturn. Doesn’t matter if it’s a 40 year old or a 16 year old. The impact on the over 18y/o workers was mitigated because they had age on their side (and presumably a work history) where school leavers didn’t. If there weren’;t a bunch of low skilled teenagers, then the adults would have felt the pain.
    I think it’s diengenuous to pin the blame on wage equality as opposed to the elephant in the room being a low wage, de-unionised economy.

    Wrt the NZStats commentary, I’m not sure that statement can be misconstrued.
    They say rises in the aggregate unemployment rate “can be attributed to factors” then list them, nothing that “rises in the number of unemployed youth” is a contributing factor.

    Comment by Gregor W — September 3, 2013 @ 5:46 pm

  59. Taken… so … long … to …post … another …comment… since …. can’t ….control…. fits…. of … laughter…. over ….suggestion …. of … maximum…. wage….

    “43.I’ve often thought that the best way to limit the inflationary effects of raising the minimum wage might be to introduce a maximum wage. ”
    Dear God, the stupid hurts. The wage inflation occurs just above and beyond where you set the minimum. So quite how cutting the salary at the top of the tree will have a discernible effect on inflation, I’d love to hear. The guys and gals who are coining it, are putting a lot of that money into the banks and investment vehicles, not spending it on tat at walmart. What would higgs suggest the maximum be? $200K? I should imagine that there are staff at Victoria University that currently earning close to, or over, that much. I just had a look at the accounts, but couldn’t find the disclosures. But BWOE, Fletcher Building Ltd in their 2012 accounts disclose 3374 employees earning over $100k (wow that’ll be a lot of PAYE collected!), 447 of whom earn over $200k. Still, I guess if govts banded together (a la Eurozone), they could impose a international maximum wage, they’d have no where to go, and would just stay put and work very hard for that maximum wage…

    “As Ryan Wood argues in the article below, there are sound economic reasons for considering it. ”
    Gee, I read that article and could see no “sound economic reasons” I couldn’t even see unsound economic reasons. There were no economic reasons. However, he did seem to confuse the skills required by start-up entrepreneurs and the skills required by the heads of large complex organisations. But I guess I am probably just as ill-informed over the difference between a liberal and a progressive…

    Comment by Clunking Fist — September 3, 2013 @ 6:45 pm

  60. (Apologies to anyone on at or above the minimum wage, I certainly didn’t mean to imply YOU guys buy tat at walmart. I must admit I’m still surprised that you guys haven’t risen up and slit the throats of the great brains who introduced GST…)

    Comment by Clunking Fist — September 3, 2013 @ 6:47 pm

  61. Don’t be mean the idiots can’t help it.

    Comment by toby — September 3, 2013 @ 8:07 pm

  62. think it’s diengenuous to pin the blame on wage equality as opposed to the elephant in the room being a low wage, de-unionised economy.

    Here is where you and I disagree. Look at Cramptons chart from the NBR article again. The data starts in 1986.
    Over the 22 years from ’86 to ’08 New Zealand has been through a raft of ups-and-downs. Governments, interest rates, inflation rates, and all the other ‘macro-economic’ variables you can think of have moved all over the place. We’ve become, apparently, less and less unionised. The GFC, in that longer term context, did not fundamentally alter the way the New Zealand economy and its labour market functions.

    But the predictability of the Youth unemployment rate, as a function of the adult rate, through that whole period remained largely stable. Importantly, the youth minimum wage as a proportion of the adult wage also didn’t change much. Then in 2008, we get the Labour policy change and suddenly, as would be predicted by basic economic price theory, the youth unemployment rate skyrockets.

    If that isn’t a smoking gun in the hands of the Labour Party, then you may as well stop trying to use data to explain anything.

    Comment by Phil — September 4, 2013 @ 1:32 pm

  63. “then you may as well stop trying to use data to explain anything.”
    Shhh: you’ll only encourage them to start using models…

    Comment by Clunking Fist — September 4, 2013 @ 2:05 pm

  64. Over the 22 years from ’86 to ’08 New Zealand has been through a raft of ups-and-downs.

    Sure, but the labour market has also fundamentally changed; increasing (and accellerating) casualisation of the workforce, worsening labour terms and conditions which combined abolishing the youth minimum wage, creates a much larger low skill job pool within which youth have to compete, 90-day termination clauses.

    I get where you (and Crampton) are coming from but to blame youth rates for youth unemployment is akin to the drunk driver blaming his car keys for an accident. The policy setting more than likely manisfested unitended consequences, but the issue is a disfunctional economy.

    The counterfactual would be, in the absence of any minimum wage and a perfect market clearing rate for labour, with all other policy settings the same, would the youth unemployment position vis-a-vis adult employment be any different?

    Comment by Gregor W — September 4, 2013 @ 2:30 pm

  65. “but the issue is a disfunctional economy”
    What would your functioning economy look like in comparison?

    Comment by Clunking Fist — September 4, 2013 @ 2:36 pm

  66. CF – probably one thats a bit better planned than the one we have now, involving State, industry and education in the process

    Phil – another quick point.

    While Crampton’s analysis talks about youth vs. all other labour, HLFS data from the same period shows that while the trend was bucked in ’08, high youth umemployment rates are not abnormal and more importantly, the variance between youth and the next most disadvantage band (20-24yo) vary considerably over the same time period – from a low of about 4% in 1999 to 9% in 2007 and about 11% in 2012.

    Post 2008, the 20-24yo unemployment rate proportionally outstripped the youth unemployment rate – 6% to 12%, vs. 15% to 25% – and is currently increasing while the youth rate is slightly dropping (as per 2012 numbers).

    Further, rates for Maori-Pacific unemployment have grown since an almost identical spike ’08-’10 (how strange!) while youth unemployment rates have dropped about 2% since peaking in ’10 which indicates to me that the problem is more complex.

    Comment by Gregor W — September 4, 2013 @ 3:24 pm

  67. If tat at Walmart were the only thing subject to inflation, then perhaps a maximum wage could have no effect. But actually it also applies to things like real estate, so the argument that capping the top wage couldn’t cap inflation is false.

    Comment by Ben Wilson — September 4, 2013 @ 3:28 pm

  68. Sweet, GW: what’s the plan that brings us sustainable full employment?

    ” so the argument that capping the top wage couldn’t cap inflation is false.” Leaving aside the fact that those on the minimum wage (wherever it may be set) and the wealthy don’t usually compete for the same property, we’d probably have bigger problems to deal with: folks subjected to the maximum wage would probably go Galt, so inflation would likely be the least of our worries…
    Do you propose implementing exit visas as part of your MaxWag plan? Restrictions on cash and assets that can be exported?

    Comment by Clunking Fist — September 4, 2013 @ 5:23 pm

  69. Who knows, CF.
    I’ll leave that to the big brains who should be creatively working that particular problem rather than employing their current startegy of assuming – on faith – that the magic market will fix everything.

    Worth nothing though that the antithesis of “disfunctional economy” is not “sustainable full employment”, so I’ll leave that particular strawman for you to play with on your own..

    Comment by Gregor W — September 4, 2013 @ 5:35 pm

  70. @ GW – LOL, LOL, LOL.

    Comment by toby — September 4, 2013 @ 5:40 pm

  71. I’m too lazy to draw any strong conclusions but a quick look at what happened to youth unemployment in a host of other countries in 2008 suggests at least that something happened to the GFC-era labour market that disproportionately affected youth in a way that Crampton’s time-constant model isn’t accounting for. (This doesn’t mean that eliminating the youth wage had no effect, just that it’s very hard to estimate what the effect is—certainly that would require more effort than reading a number off a graph.)

    Comment by bradluen — September 5, 2013 @ 5:09 am

  72. And while we are still feeling the effects of the,GFC a living wage will do what Brad???

    Comment by toby — September 5, 2013 @ 7:01 am

  73. “Then in 2008, we get the Labour policy change and suddenly, as would be predicted by basic economic price theory, the youth unemployment rate skyrockets.”

    You see, there’s your problem. You should never ever rely on basic economic price theory. As someone more famous than me once said:

    “Economics is the only field in which two people can share a Nobel Prize for saying opposing things.”

    Comment by Ross — September 5, 2013 @ 7:27 am

  74. “And while we are still feeling the effects of the, GFC a living wage will do what Brad???”

    I’m not Brad but I would have thought the answer was obvious. A living wage will improve the standard of living of hundreds of thousands of NZers. Surely that’s a good thing. It’s likely to increase aggregate demand, boost tax revenue and may increase employment (all other things being equal of course).

    http://theweek.com/article/index/240460/how-will-raising-the-minimum-wage-affect-the-economy

    Comment by Ross — September 5, 2013 @ 8:09 am

  75. “In short, the potential costs of raising the minimum wage are small”. I suspect that this comment probably applies to having a living wage.

    http://www.newyorker.com/online/blogs/comment/2013/02/the-case-for-a-higher-minimum-wage.html

    Comment by Ross — September 5, 2013 @ 8:13 am

  76. “….suggests at least that something happened to the GFC-era labour market that disproportionately affected youth in a way that Crampton’s time-constant model isn’t accounting for…”

    There is my favourite joke about economists. Two economists are walking along the street earnestly discussing rational economic theory when one suddenly exclaims and points down to the ground “Look!”, cried the first economist, “there is a $100 note on the footpath!” to which the second economist, refusing to follow the first’s gaze downwards, contemptuously replied, “what utter rubbish, if it were there someone would have picked it up by now”. So I wouldn’t take any model from any economist as anything other than a work of measured, rational fiction.

    It seems to me that looking to toggle the levers of wage rates and educational achievement is looking to toggle the wrong levers. To my mind, there are at least two other reasons that are the most likely cause for the rise in youth unemployment.

    1/ As Gregor W points out in his comment @58 increased competition with experienced adults for jobs previously regarded as exclusively youth, entry level roles in the service sector is going to affect young people adversely. Politicians (and economists) talk about “jobs” as if all jobs are equal, and as if the destruction of a manufacturing job to be replaced by a retail one is a outcome neutral event. However, we all know that in the real world not all jobs are equal. New Zealand, along with the rest of the Anglosphere, adopted economic policies in the 1980s that have led to a thirty year program of deindustrialisation. Our economy is probably now more dependent on agriculture that at any time since the 1940s. We’ve created a job market of a mass low paid service jobs under an elite highly paid managers, technocrats and farmers. Where once it was odd to encounter a middle aged checkout assistant it is now commonplace.

    2/ Qualification inflation in the educational arms race reached an end game in the late 00’s. When everyone has an “B+” average degree/diploma they are in the same job boat as everyone not having a degree, only with a big student debt. For example, talking to Indian work colleagues it now seems that such is the competition for jobs and such is the qualification inflation that to get a job in a call centre in Bangalore you need a masters in computer science. Much the same has occurred in NZ. The old idea that delaying entering the workforce in the hope of a higher paying, highly qualified job down the track is now wrong. There are plenty of tertiary qualified youth stacking shelves, and glad to have the money.

    3/ Finally, the descent from a modern, industrialsed economy to a low wage, service dependent one has cultural consequences for recruitment into the workforce across the Anglosphere. NZ’s parochial and provincial society means the job market here has always has always been characterised by significant nepotism, patronage and cronyism. With a scarcity of high paying jobs and a massively over-qualified workforce applying for them then woth all all things being (more or less) equal getting a job is increasingly dependent on who you went to school with and who your parents know. Youth unemployment is an important canary in the mine for declining social mobility. In other words, it may be a structural sign of a cultural shift towards the third world.

    Comment by Sanctuary — September 5, 2013 @ 8:15 am

  77. That should be “…To my mind, there are at least THREE other reasons…”

    Comment by Sanctuary — September 5, 2013 @ 8:20 am

  78. A few points, without wanting entirely to revisit the youth minimum wage issue:

    1) If you want to give money to the working poor, WFF is better than living wage mandates. Extend it to the working poor without kids, make it more generous if you want (but taking care not to overly screw things up by having too harsh a clawback rate) – I can argue with you about whether the tradeoff is worthwhile, but it isn’t a dumb way of achieving the sought objective. The living wage one – not so good.

    2) The abolition of the youth minimum wage in 2008 didn’t result in employers firing youths immediately. It took a few quarters to show up in youth unemployment rates. Youths just stopped getting hired for jobs as they came up. Sure, there was a recession. But the recession here was much milder than in some prior periods. Youth unemployment went through the roof while adult unemployment didn’t move nearly as much as it did here in the early 90s. So it can’t just have been the recession. Yes, in every country, everywhere, youths get hit harder in recessions. But the other countries with really high youth unemployment rates also have very high adult unemployment rates. Here, it mostly hit the kiddies. There weren’t other plausible policy changes that would have hit only kids. Plenty that hit across the board, but not really any that would have generated what we got – a huge hike in youth unemployment relative to adult unemployment.

    3) Please please PLEASE, if you’re going to cite US evidence on the minimum wage, give some thought to the relativities. The minimum wage in the US is currently a much smaller fraction of the median wage than is the NZ minimum wage. I’m happy to grant that, at commonly experienced US minimum wage levels, there really isn’t much noticeable effect on employment. But that doesn’t mean that a $20 minimum wage would have no effect. The best way of benchmarking these things is to compare the minimum wage to the median or to the average. I did it here, but you can check for yourself. http://offsettingbehaviour.blogspot.co.nz/2012/02/benchmarking-minimum-wage-increase.html . When I’d then run the numbers, the NZ minimum wage was about 2/3 the NZ median and the US minimum wage was about 1/3 the NZ median. THAT DIFFERENCE HAS HUGE EFFECTS. The dose makes the poison: at 1/3 the median, it doesn’t much hurt employment. At 2/3 the median, I’d be getting real nervous. At 88% of the median, which is where that $18/hr mandate starts pushing…you’re gonna start doing some real harm.

    Comment by Eric Crampton (@EricCrampton) — September 5, 2013 @ 9:06 am

  79. Ekh, typo. US min wage 1/3 the US median.

    Comment by Eric Crampton (@EricCrampton) — September 5, 2013 @ 9:15 am

  80. Eric – These are genuine questions, not a bait.

    If you want to give money to the working poor, WFF is better than living wage mandates.

    Can you please explain why an inefficient transfer via taxation – and all the loss that entails in collection and redistribution – is less “dumb” than direct wage increases?

    Youth unemployment went through the roof while adult unemployment didn’t move nearly as much as it did here in the early 90s.

    In aggregate sense absolutley correct, but in terms of discrete bands, this is not the case. See my comments @ 66.

    At 88% of the median, which is where that $18/hr mandate starts pushing…you’re gonna start doing some real harm

    There is no doubt that employers will reassess the risk of employing people, but isn’t real harm being done to the real economy by using taxation to subsidise wages – don’t even get me started on the myriad of other supplements that exist.

    Effectively, I’m being compelled to subsidise emloyers that I haven’t even formed a contract with to consume their goods or services. Is this the way an effective market works?

    Comment by Gregor W — September 5, 2013 @ 10:23 am

  81. >Leaving aside the fact that those on the minimum wage (wherever it may be set) and the wealthy don’t usually compete for the same property

    You probably should leave that aside permanently, the moment you grasp the concept of investment property.

    >Do you propose implementing exit visas as part of your MaxWag plan?

    It’s not my plan. But if we’re discussing it, then it’s worthwhile not to just talk bollocks about it.

    Comment by Ben Wilson — September 5, 2013 @ 12:38 pm

  82. GW @ 69 “Worth nothing though that the antithesis of “disfunctional economy” is not “sustainable full employment”,”
    Granted, I assumed by “dysfunctional” you meant, less than full youth (and adult) employment. But, I guess for you, “dysfunctional’ could mean any, all or some of the following;
    • Labour is not rightfully in power
    • The CEO of BigCorp earns an amount that you personally do not approve of
    • Less than 60% of the workforce is employed by the state
    • Wealthy people are still smiling. Bastards
    • Compulsory car pooling hasn’t been adopted
    • There is still a functioning derivatives market
    • Power prices aren’t set by the state

    An economy, or at least a market for a good or service within it, could be considered dysfunctional if there are artificial impediments to achieving an equilibrium price. Equilibrium being a price at which demand and supply are well-matched, i.e. full-ish employment for our youth.

    Q: “Can you please explain why an inefficient transfer via taxation – and all the loss that entails in collection and redistribution – is less “dumb” than direct wage increases?”
    A: By implementing a higher minimum wage, you almost overnight increase the costs of a number of employers, many of whom could be marginal at current prices. Many will shut down and so jobs will be destroyed. On the other hand, WFF is a taxpayer-funded scheme that transfers wealth form those who don’t deserve it (e.g. the CEO of BigCorp) to those more deserving. Since employers are operating a payroll system, looking up PAYE tables and paying WFF already, how does extending the numbers of folk earning WFF result in “loss”?

    GW@66 “CF – probably one thats a bit better planned than the one we have now, involving State, industry and EDUCATION in the process”
    You need to read Sanc’s post @ 76subection 2 about qualification inflation.
    (And why do you like corporate welfare/picking winners at times, but hate it when National does it..? Because state + industry (sounds a bit like fascism!) is corporate welfare: for those picked as the winners.)

    Ben @81 good point about investment property… but I think you’ll find that CEOs of BigCorps DON’T invest in residential property, particularly at the “bottom” end of the market, they tend to do Commercial Property. The prominent investors in residential rental property are… tradespeople.

    Comment by Clunking Fist — September 5, 2013 @ 1:51 pm

  83. “at 1/3 the median, it doesn’t much hurt employment. At 2/3 the median, I’d be getting real nervous. At 88% of the median, which is where that $18/hr mandate starts pushing…you’re gonna start doing some real harm.”

    Eric, would you mind explaining why this should be the case.

    Comment by Ross — September 5, 2013 @ 2:00 pm

  84. CF – you could shadow-box for England.

    Comment by Gregor W — September 5, 2013 @ 2:10 pm

  85. >Ben @81 good point about investment property… but I think you’ll find that CEOs of BigCorps DON’T invest in residential property, particularly at the “bottom” end of the market, they tend to do Commercial Property. The prominent investors in residential rental property are… tradespeople.

    Oh yes, commercial property is also part of inflation, a massive part. Ta for reminding me.

    Comment by Ben Wilson — September 5, 2013 @ 2:38 pm

  86. By implementing a higher minimum wage, you almost overnight increase the costs of a number of employers, many of whom could be marginal at current prices.

    If current wages/salaries are so low that we have to subsidise them using taxes paid by those earning high wages/salaries, it means either:

    1. We need to get low-paid workers into unions so they can start forcing wages high enough that they don’t need taxpayer subsidies; or

    2. We need to let those marginal businesses fail, until customers face up to either paying what that work actually costs or doing it themselves.

    What it doesn’t mean is that subsidising low wages via taxation is a great idea so we should do more of it.

    Comment by Psycho Milt — September 5, 2013 @ 3:39 pm

  87. What’s often forgotten is that wages are but one cost for business. The way some commentators discuss this subject, you’d think wages made up 100% of a firm’s cost. In fact, it is often about a third.

    Moreover, high wages are a discipline for firms to use labour productively. When employing cheap labour, there is little incentive for firms to be innovative or to invest in labour (or machinery).

    Comment by Ross — September 5, 2013 @ 4:44 pm

  88. Ben Wilson @ 85 are you being sarcastic? Because I don’t think commercial or retail property is in the “basket of goods” used for CPI…?
    You were attempting to pin some of the blame, for upwards pressure on low-paid worker residential property values, on the folks who will be impacted by a maximum salary. I think we can conclude, you have failed.

    “2. We need to let those marginal businesses fail, until customers face up to either paying what that work actually costs or doing it themselves.”
    Err, yeah, but in the meantime those workers in those businesses go without a job and get the unemployment benefit instead of a wage… But if that’s what you want…?

    How about we bring in a “Big Kahuna” type universal benefit (to counter the effects of GST on the low paid) and let the market decide (within reason, i.e. the current min wage) what wage rates should be?
    Remember (according to Sanc @ 23) “The idea that society is a dog-eat-dog zero sum game – if someone is winning, I must be losing – is the very essence of the right wing mindset, don’t you think?” Which is strange, because the left-wing folk commenting here want a maximum wage and seem to think that society is a dog-eat-dog zero sum game – if someone is winning, then someone must be losing, and a maximum wage will “fix” that…

    Comment by Clunking Fist — September 5, 2013 @ 5:42 pm

  89. Ross @87 “87.What’s often forgotten is that wages are but one cost for business. The way some commentators discuss this subject, you’d think wages made up 100% of a firm’s cost. In fact, it is often about a third.”
    Often? You mean: the meaningless mean.. is about 1/3?
    After discussing things with the guy that cleans our office, it is clear that 2/3’s what we pay the cleaning company, goes to him. He’s not earning much more than minimum…

    “Moreover, high wages are a discipline for firms to use labour productively.” yep, but in the meantime, jobs are shed.
    “When employing cheap labour, there is little incentive for firms to be innovative or to invest in labour (or machinery).”
    So remove cheap labour and what do you have…? a whole lot of unskilled folk on the dole.

    Sure, if I ran an airline, I could set-up a website to allow customers to book flights, that way I could get rid of call centre staff. But if I run a bakery, or a cleaning company, or a café…? Yep, I’m looking at a combination of: closing; or: putting up my prices and losing custome. “Duh” I hear you say “but all your competitors would likewise be putting up their prices, so you would be in the same position!”
    But the customers will not see their income increase much or at all (and it is usually middle class folks that sustain cafes) so their entertainment budget won’t stretch as far, so they will have to visit cafes less…
    Do you see where that is going…?
    You really CAN’T just regulate a better lifestyle or life outcomes for people, no matter how hard you wish/positively affirm.

    Comment by Clunking Fist — September 5, 2013 @ 5:54 pm

  90. Err, yeah, but in the meantime those workers in those businesses go without a job and get the unemployment benefit instead of a wage… But if that’s what you want…?

    What I want is governments that don’t aggressively pursue policies to drive wages down to the point where said governments then need policies to fuck with the tax system so that the low wages get subsidised, but obviously I’m not going to get that

    Comment by Psycho Milt — September 5, 2013 @ 6:48 pm

  91. Who introduced WFF?

    Comment by toby — September 5, 2013 @ 7:13 pm

  92. >Because I don’t think commercial or retail property is in the “basket of goods” used for CPI…?

    So much the worse for the CPI, considering what a large part of the cost of life property is.

    Comment by Ben Wilson — September 5, 2013 @ 7:59 pm

  93. > yep, but in the meantime, jobs are shed.

    Not according to the research they’re not.

    If we could have full employment by paying many workers $1 an hour, would you support it?

    Comment by Ross — September 5, 2013 @ 8:30 pm

  94. The Standard called and they want their feral acolytes back.

    Comment by toby — September 5, 2013 @ 8:46 pm

  95. Going by the amount of squealing little piggies on here the idea of paying people enough to live on really has the right worried.

    Also love how working for families has morphed from outrageous middle-class welfare into a smart and efficient safety-net for the lowest-paid workers.

    Comment by Rob — September 6, 2013 @ 12:25 am

  96. > Going by the amount of squealing little piggies on here the idea of paying people enough to live on really has the right worried.

    Yeah I can imagine the abolition of slavery didn’t meet with universal support. Indeed, there were those who fought strongly against its abolition. Rich pricks with no conscience.

    http://discoveringbristol.org.uk/slavery/against-slavery/campaign-against-slave-trade/debate/against-abolition/

    Comment by Ross — September 6, 2013 @ 6:58 am

  97. Yes best you don’t engage with the issues and prove your ignorance once more, Rob.

    Comment by Swan — September 6, 2013 @ 7:00 am

  98. Haha oh man. Don’t make me push you into a blathering mess of poor-fitting analogies again, it undoubtedly won’t be pretty.

    Comment by Rob — September 6, 2013 @ 7:08 am

  99. “it sounded good in my head I’ll have you know!”

    Comment by Rob — September 6, 2013 @ 7:11 am

  100. Yes best not to, Rob. I’m getting better though, been practicing explaining simple concepts to my toddler in the mean time.

    Comment by Swan — September 6, 2013 @ 7:58 am

  101. Because, Mr Key, $18.40 an hour is a much more reasonable increase than $30 an hour. You need to improve the balance of direct and indirect taxes, Mr Key. If you brought in a comprehensive Inheritance Tax and a Capital Gains Tax and reduced Goods and Services Tax, people wouldn’t be lobbying for an $18.40 per hour living wage and, who knows, if you did those things then, a) superannuation would be more sustainable at the age of 65 years, which is where you want to keep it; b) the amount of money you would have to borrow would be reduced; c) the revenue brought in from these new taxes would mean that your cronies could keep having a top Company Tax rate of 28%, or even slightly less, and it would be sustainable. Hey, just think about this proposal aye?

    Comment by Daniel Lang — September 6, 2013 @ 10:54 am

  102. Ross @ 93 “Not according to the research they’re not.”
    What research is that?

    “If we could have full employment by paying many workers $1 an hour, would you support it?”
    No, but I’m one of those funny right-wingers that believes we need a social welfare safety net.

    PM @ 90 Due to the effects of GST, in fact the poor are called upon to subsidise the wealthy.
    (And by wealthy, I don’t just mean pointless state servants & bureaucrats, but fibre internet, Americas Cup, RWC)
    On wages, the more an economy fizzes, the more scope there are for higher paying jobs. So let’s work to get the economy fizzing! Yay!

    Rob @ 95 “Going by the amount of squealing little piggies on here the idea of paying people enough to live on really has the right worried.”
    It’s unfortunate that us little piggies seem to have a better grasp of how markets work, so can see the folly in mandated pay rises. All we are doing is attempting to point out that there are consequences upon the continued employment security of the recipients of your regulatory meddling. That way, at some point in the future, as well as being somewhat insulated from the damage you’ve caused, we will get smug satisfaction from saying “told ya”.
    Have you been following what’s going on in the Eurozone? No doubt you have concluded that the damage of a fixed relative exchange rate has ABSOLUTELY NOTHING to do with the central planning aspect of said fixed relative exchange rate, but was caused by George Bush and/or Rupert Murdoch, or right-wing bloggers?

    “Yeah I can imagine the abolition of slavery didn’t meet with universal support.”
    Indeed not, the Democrat south did hold out a bit on abolition, didn’t they? Dirty fascists.

    Daniel L, I’m with you on getting rid of GST! How about bringing in a flat rate of tax at, say, 30%, but with a kinda rebate for the first $26,000 of your income? Said rebate paid as a universal benefit of $150 a week to every Nzer over the age of 18? (All Nzers under the age of 18 could apply to claw back the rebate on actual taxable income at year end?)
    All social welfare benefits (and national super) would be reduced by a gross amount approx equal to $150 after tax?
    And the abatement on the remaining amounts of social welfare benefits could be flatten a bit to help reduce the risk of trapping people on welfare?

    Comment by Clunking Fist — September 6, 2013 @ 1:53 pm

  103. > What research is that?

    I thought you might have read #75. I even provided a quote which gave it away: “In short, the potential costs of raising the minimum wage are small”.

    Comment by Ross — September 6, 2013 @ 1:59 pm

  104. I thought you might have read Eric Crampton @ 78. He even provided a quote which gave it away: “if you’re going to cite US evidence on the minimum wage, give some thought to the relativities.”

    Comment by Clunking Fist — September 6, 2013 @ 2:11 pm

  105. “the federal government mandates a nationwide minimum wage level of $7.25 per hour”

    So raising that in a country with a per capita GDP just shy of $us50,000 may have a small effect.

    But raising the min wage from $us14.55 ($nz18.40) when you per capita GDP is less than $us28,000? Not so sure

    Comment by Clunking Fist — September 6, 2013 @ 2:16 pm

  106. IIRC, the govts own estimates in 2011 put maximum job losses/deferred job creation between 2000- 3000 (though they didnt specify casual or FTE), and inflation up 0.2-0.3% if the min wage was set to $18.50/hr.

    Comment by Gregor W — September 7, 2013 @ 3:44 pm

  107. CF: “Since employers are operating a payroll system, looking up PAYE tables and paying WFF already, how does extending the numbers of folk earning WFF result in “loss”?”

    Are saying that WFF ought to be managed by employers, or that is done so presently. I’m thought that it was run through msd. Folks pay earn their money, their employer organises the PAYE to be paid, and depending on what they earn they may be eligible for WFF payments, which they have to apply for, and which may or may not be more than they paid in PAYE. I’m pretty sure that if employers were managing it all there would have been squeals about ‘OMG compliance costs’ and the like.

    We often get the argument that Key trotted out, that if the min wage shoudl be a bit higher, then why shouldn’t it be a lot higher then huh? But the same applies to this idea that the government should subsidise businesses by topping up wages that are just too low. Why should businesses pay wages at all up to a given amount/ If the living wage in NZ is so damn close to the median wage what’s the bloody point in all the silliness? Once you take WFF into account there are a hell of a lot of people getting roughly the same amount of money net in total. So why should employers who are paying above the living wage, and whose employees are not eligible for govt top ups, continue to pay that extra money? If the employees could end up with the same amount of money by getting govt top ups how does this make any sense as a market at all?

    Comment by Pascal's bookie — September 7, 2013 @ 6:55 pm

  108. PB, my bad, It thought it WAS administered by IRD through the PAYE system. I have a couple of friends who get it and one that used to and hadn’t ever discussed the mechanism with them, just assuming in our discussions that it was paid by IRD in their tax code as I believe the old GMFI was. But it is paid direct by IRD to families in work. I think MSD only pay it to families receiving benefits.

    Comment by Clunking Fist — September 8, 2013 @ 2:38 pm

  109. WFF is not available to beneficiaries. It is paid through IRD and is a tax rebate for parents in paid work. If your income does not change through the year you can ask for regular payments through the year otherwise apply at the end of each financial year.

    Comment by MeToo — September 8, 2013 @ 8:30 pm

  110. “I thought you might have read Eric Crampton @ 78. He even provided a quote which gave it away: ‘if you’re going to cite US evidence on the minimum wage, give some thought to the relativities.'”

    Except he didn’t respond to my question about why that should be the case.

    Let’s look at a previous review of the minimum wage. The working paper discussed the UK, which historically has had a higher minimum wage than the US:

    “Comprehensive research in the United Kingdom found little evidence to suggest that the increases in the minimum wage had led to reductions in employment or hours worked.”

    Comment by Ross — September 9, 2013 @ 12:44 pm

  111. MeeToo, snapped again: the IRD website mentions payment methods for “credits”, not just WFF, and I misread it.
    http://www.ird.govt.nz/wff-tax-credits/entitlement/what-is-wfftc/

    See: would life be simpler if we had a universal benefit and a flat tax…

    Comment by Clunking Fist — September 9, 2013 @ 1:53 pm

  112. The average full time wage in the UK is 26,500 pound, or 13.80 pound an hour (assuming 48 working weeks in a year, 40 hours per week).

    The adult minimum wage in the UK is just about to increase to 6.31 pound, making the minimum 45% of the average – closer to the US result than the NZ one.

    Sources:
    https://www.gov.uk/national-minimum-wage-rates
    http://www.bbc.co.uk/news/business-20442666

    Comment by Phil — September 9, 2013 @ 2:13 pm

  113. CF, it was with great relief I got a fulltime job that paid me too much for me to qualify for anything – childcare subsidies, accommodation support, WFF, etc. I told my case worker at WINZ that it was nothing personal but I was so so so happy to never have anything to do with WINZ again. It is so complex and a real nightmare having to navigate everything and sort out ‘mistakes’ (like getting a pay rise at my part time job – without my employer asking me if I wanted it – then having to explain this at WINZ and renegotiate everything and organise paying back things I was inadvertently overpaid)… such a relief to have nothing to do with any of that now. Happily employed on a salary with my employer organising my tax and qualifying for nothing except John Key’s tax cuts!

    I say this as an educated, resourceful woman who had a sympathetic case worker during the Clark government, when WINZ was generally more sympathetic and flexible than it is now. I hate to think how less-resourceful, less-confident, less-assertive people cope with the bureaucracy that is our welfare safety net/nightmare.

    A UBI and flat tax has the appeal of simplicity, but of course the complex maze we have now is partly a response to:
    (a) people’s circumstances varying greatly and
    (b) most taxpayers not wanting to provide money to others unless they absolutely need it.
    So a UBI would need to be high to ensure people are not left in poverty as a result of (a) but making it that high would go against (b)… and therein lies the challenge of a UBI.

    Comment by MeToo — September 9, 2013 @ 2:45 pm

  114. Hi MeToo. Indeed.
    The UBI won’t replace all benefits, just compensate for the flat tax/GST for the average person on an average wage. Genuine unemployment or illness, plus solo parenting would still be supplemented by dedicated benefits, but the abatement on those additional benefits would be a whole lot less severe, and could be built into one’s personal tax code.
    “most taxpayers not wanting to provide money to others unless they absolutely need it.”
    Most taxpayers seem reasonably comfortable with National Super, which is a sort of UBI for over 65 yr olds. With a broader UBI, it would replace the current low tax rates on taxable income (i.e 10.5c/$1 up to $14k) plus some of the impact of GST on the low paid. There would be a few people who would take the cash and go surfing (or back to university, have another child, etc). Good luck to them. But when they are ready to buy a car (for e.g.) they could look for a temporary or part time job and supplement their income, paying the flat rate of tax.
    I’ve got a bunch of calculations on the impact of a UBI on a beneficiary, on a different computer, so I’ll try and dig them out tonight.

    Comment by Clunking Fist — September 10, 2013 @ 11:01 am

  115. CF – I’m not sure any proposed UBI needs to be that complex. Replacing one byzantine system with another would be fruitless.
    If it can’t fully replace the unemployment benefit, accomodation suplemements, WFF and DPB (via a lower level UBI for dependants) then what’s the point?

    I tend to agree that the MeToo’s point (b) might be somewhat of a red herring as well.
    If the narrative can be successfully pitched that taxpayers are already footing the bill then I suspect it wont be a major issue.

    What might be a hard sell is a 30% flat tax on very dollar over the UBI rate. It comes down to how well the proposition is framed really.

    Comment by Gregor W — September 10, 2013 @ 11:39 am

  116. Yes, I suppose National Super is a UBI for older people – it is accepted because the elderly are the deserving poor (deserving of our support) in a way young people (lazy wasters) and solo parents (if you can’t feed em, don’t breed em) aren’t. (Also, it isn’t in pakeha NZ culture to financially support our parents so we welcome the Super for relieving us of that obligation….)

    A UBI across the whole population would require a culture change. I for one welcome the implications – that every adult citizen deserves a basic income for no reason other than being a member of our society – and the drop in bureaucracy and harassment and judgement that accompanies the current system. Unless of course it is set low enough that there needs to be add-ons, in which case you get complexity, bureaucracy, harassment and judgement all over again.

    You could only sell this if middle NZ accepted they weren’t any worse off – and those bludgers they support through their tax weren’t any better off either. i.e. relative positions are maintained. Oh, and businesses would have to like it or the MSM would be full of their screams.

    The devil is in the detail, and yes, the framing.

    Comment by MeToo — September 10, 2013 @ 12:35 pm


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