Written By: - Date published: 2:01 pm, December 20th, 2007 - 118 comments
Categories: same old national, workers' rights -
Tags: same old national, workers' rights
National’s comments on the minimum wage show a party that has no answers on how to close the wage gap with Australia.
Just a day after the Government announced plans to increase the minimum wage to $12 next year – an increase of more than 70% since 1999 – John Key’s industrial relations spokesperson Kate Wilkinson has made it clear increases to the minimum wage will not be a priority under National:
National Party labour and industrial relations spokeswoman Kate Wilkinson said National did not oppose the minimum wage but preferred tax cuts.
“Our policy will be on a broader scale and looking at the bigger picture rather than just relying on this artificial solution of having an arbitrary level of what some people think is a fair wage and some people think is not.”
So there you have it: National sees a fair wage not as a right but as an “artificial” restraint on the free market of labour. Their plan is to remove instruments the Government can use to lift pay and instead use the tax system to subsidise employers who pay low wages.
This is the same old line we heard in the 90s, and it led to a real decrease in wages for the New Zealanders who could least afford it:
National are right when they say wages are far too low in New Zealand, but they don’t have any answers on how to fix it – just the same market-driven ideology that put us here in the first place.
[Hat tip to Kiwiblogblog for the graph data]
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Kimble obviously one has to make assumptions in arguments like this. But let’s go through what we’ve got.
National said: “We’re going to have employment law that encourages individual bargaining, cut taxes, keep the minimum wage low and the market will create the best outcome”. It didn’t. Wages stagnated and unemployment grew.
Labour said: “We’re going to rebalance employment relationships to promote collective bargaining, increase the minimum wage and work to reduce unemployment, and we believe these policies will increase wages”. They did. Wages are higher and unemployment has fallen to record lows.
One of these policy settings worked and one of them didn’t. You can blame whatever outside factor you like, but in the absence of any better explanation I’d be inclined to accept Labour’s story for now. Why can’t you?
Kimble. Yes, you do have to show causation rather than just correlation. That is why I was saying earlier that I didn’t believe either side was expressing ‘facts’ (much like my blog doesn’t present any facts, just wild economic conjecture
). However, if people want to say that a certain government policy caused a certain outcome they need to prove it, by using some beautiful econometric models.
Leftie, a tax cut will definitely increase peoples disposable income, which means that our disposable income will be closer to Australia’s.
Tane, I believe tax is part of income policy, they are not separable. When looking at income people care about the distribution and the size. All arguments are about potential trade-offs between those two factors.
Also I think we should all remember that we care about the income people have because we care about the bundle of goods they can buy, that is why their disposable income and there allocation of public goods are the main two issues we should look at.
Your graph does not give me the full picture. What happened since labour came to power?
I don’t have that graph Simeon. I don’t expect it will be much better – for the improvements Labour has made it hasn’t gone far enough and we are still a low wage economy. I was merely pointing out that the issues are a lot more complex than your comment suggested.
[Tax cuts] wont do much to lessen the GROSS wage gap, but it will decrease the after tax wage gap.
So how do we increase wages?
Tane, you’ve hit on it – Labour refuses to see tax as a component of peoples income.
There exists a fabled creature: taxes that be inextricably linked to a being called in-come.
They be called IN-COME taxes.
“So how do we increase wages?”
Increase labour productivity. The question is, how do we increase labour productivity?
Tane, I believe tax is part of income policy, they are not separable.
Sorry, I should have been clearer. I meant to say that a tax policy is only part of an incomes policy, not a substitute for an incomes policy as National likes to think.
Tane, you’ve hit on it – Labour refuses to see tax as a component of peoples income.
Kimble, read my comment at 5:26. I should have been clearer – I meant to say tax is a part of incomes policy, not a substitute for an incomes policy.
Increase labour productivity. The question is, how do we increase labour productivity?
Matt, good question, but it’s not one I have time to discuss right now as I’m packing up and heading home. NRT’s piece over here – http://norightturn.blogspot.com/2007/12/productivity-and-wage-gap.html – is a good starting point, but it is a complex issue. What are your views?
captcha: paris will
yeah we know she will.
Ha, I just got “dispense Hilton”. I think I prefer that one.
“how do we increase labour productivity?”
If that was our only interest there are a number of ways to increase labour productivity:
1) Kill some our labour force
2) Sack some of our employees
3) Set wages at a high level, leading to a reduction in the number of employees, and as a result higher wages
4) Build lots of capital, as capital increases the marginal product of labour.
The question has to be though, will any of these options actually increase welfare?
Personally I’d like to see the price of the commodities we sell the rest of the world increase by a lot. This would definitely lead to higher incomes and higher welfare. In fact, that has been happening over the last few years, and I’m happy with it.
The goal is not to increase peoples wages, its to increase the size of the bundle of goods our citizens can buy. This is why we need productivity to rise with wages to avoid inflation.
But even then we have to ask, is that the sole purpose of life? Maybe some people will be willing to give up some goods in order to stay at home with the kids, or play some sport. If this is the case, income and wealth statistics will be even more misleading then they currently are.
“So how do we increase wages?”
Increase labour productivity.
Depends on what gets done with the increased profits. You could increase wages. Or not. Surely?
I agree that over the long term you can’t keep on raising wages without increasing productivity, but everyone else is being pedantic so I thought I’d play too.
Matt, what do you think about Kimbles stuff on higher unemployment putting downwards pressure on wages?
sorry, kimbles point was
“Reducing unemployment means there is an INCREASE in supply, which puts downward pressure on wages”
For some reason I got it round the other way
So Labour “work[ed] to reduce unemployment”, by hiring more people to work in government. Nice. Keynesian isnt it, Matt?
But wait, I heard somewhere once that “the government employs less than 10% of the workforce, and increase in the government workforce has only accounted for a fraction of the employment growth under the last 8 years”.
So what did Labour DO to decrease unemployment?
“in the absence of any better explanation I’d be inclined to accept Labour’s story for now.”
Look Tane, we thought you weren’t the best at critical thinking, thanks for admitting it. Saves a bit of time. It is obvious that you dont need proof of Labours competence at economic management, you assume they are by default.
Kimble
My understanding is that many people are leaving NZ for Australia because they will be able to earn a higher hourly rate. The starting rate there must be higher than the length of service pay they are getting here for the same type of work (otherwise why else would they go if it’s about money). A tax cut will not close this gap.
Productivity – higher pay will encourage employers to update their old equipment and invest in technology to make their processes more efficient.
Leftie, the length of service pay isn’t there simply to reward people for enduring the bad coffee in the break room. It is there because there is an assumption that the longer somebody works for you, the better they get at their job, therefore, the more valuable they are as employees.
People leaving NZ for work overseas will generally not be on the “starting” wage. They will be paid for their experience in their NZ job, as that experience is of value to their employer. You can make the argument that their experience is more valuable to people overseas than it is at home.
A reduction in tax will instantly decrease the after-tax income gap with Australia.
“higher pay will encourage employers to update their old equipment and invest in technology to make their processes more efficient.”
Yup, and then they will be able to save a few bob and get rid of their surplus workers. Bring on the Rise of the Machines.
“Reducing unemployment means there is an INCREASE in supply, which puts downward pressure on wages”
that has to be the biggest bullshit statement i ever heard. What is another term for unemployment in economic terms Kembly?
Also the gap between wages in australia and NZ will not be solved by tax cuts. Your take home pay may be greater but not as much as in Oz until you get to a certain threshold. Go do some sums Kimble and give the folks an example. Your good opening your mouth but you need to educate yourself in walking the walk
Tane, you SERIOUSLY need a reality check if you think limited liability leads to a born to rule attitude. Honestly, you’re better than that. Are you getting these off the back of a weet bix packet or something?
Daveo said:
“PC – It’s clear as day what National will do. Look at their past record then look at what they’re saying now:”
Oh, past history.
Let’s talk about Labour’s past history, where they slashed government spending and went the free market path.
Or is that just too inconvenient for your argument?
someone asked why we need a minimum wage, as people have said, it is a price control set by the Govt. of the day. The objective is to
“seek to protect workers whose wage rate determined in the market falls below that adequate to maintain a resonable standard of living. This is achieved through the establishment of minimum wage rates.”
Remember that in theory, wage and employment levels are determined in the labour market through the free interaction of the forces of demand and supply.
We have a skills shortage, not a labour shortage (bloody close) and that forces pressure on employers to a)retain staff by rewarding better and b)attract staff with competitive packages.
Found the word I’m looking for yet Kimbley? I mentioned it the other day. Are you a 1st year student? Remember that a little bit of knowledge can be a dangerous thing.
Now the Labour market, hmmmm what is it called again?, that economic theory? ummm that supply and demand one, starts with M Kimbley, can you name it?
How we increase productivity hmmm Factors that affect growth, work force more skilled, better use of technology, better technology, education, added value to assets instead of raw products (break down in trade barriers to foreign markets i.e. what we are doing now big time) offshore investments such as beacheads (help fund NZ compainies ventures overseas), good move there. Been more efficient (doesn’t necessary mean you will be more productive). Something like that hey Tane?
Can be very in depth.
Also forgot, tax incentives for R&D. (possibly done already??)
Just to clarify, more unemployed people means that there is greater competition between unemployed people for work. As such employers can offer lower wages and still attract employees, simply because workers cannot afford to be choosy/have less bargaining power.
Okay, now that’s normally quite obvious I would have thought.
But just to clarify, because I’m a bit confused, is Kimble saying something different?
Tane, you SERIOUSLY need a reality check if you think limited liability leads to a born to rule attitude. Honestly, you’re better than that. Are you getting these off the back of a weet bix packet or something?
I don’t think he ever said that. Read it again.
But just to clarify, because I’m a bit confused, is Kimble saying something different?
You’re right, high unemployment leads to lower wages. Kimble said the opposite: he said low unemployment leads to lower wages. “reducing unemployment would put downward pressure on wages.”
But just to clarify, because I’m a bit confused, is Kimble saying something different?
You’re right, high unemployment leads to lower wages. Kimble said the opposite: he said low unemployment leads to lower wages. “reducing unemployment would put downward pressure on wages.”
That’s why I asked him/her this question Peter
Now the Labour market, hmmmm what is it called again?, that economic theory? ummm that supply and demand one, starts with M Kimbley, can you name it?
Tane, you SERIOUSLY need a reality check if you think limited liability leads to a born to rule attitude. Honestly, you’re better than that. Are you getting these off the back of a weet bix packet or something?
Hi Dean, yes, that would be an absurd proposition, but it’s clearly not what I said. Have another read over my original comment.
I think we should have a maximum wage
“runs for cover”
Kimble, perhaps I can understand where you’re coming from, but I’m sure you realise what you are asking is thoroughly unachievable.
Given the complexity of the global economy, it is impossible to point to a single factor and say “that was it” in any singular economic system. The only exception I can think of is an event such as the ’89 sharemarket crash and the resultant economic downturn. By your reasoning, however, one could say that a government policy 10 years ago led to the econimic downturn that was generally accepted to be caused by the crash.
This isn’t court, and there’s no set standard of proof required, no threshold of reasonable doubt to be met.
There are countless examples of Labour employment and other policies that affect it employment in NZ, many have been mentioned here: retraction of the ECA and increased Union bargaining power, the Modern Apprenticeship programme, reduction of the business tax rate at an appropriate time are examples.
Now as these policies have been enacted, unemployment has decreased markedly.
The most likely explanation here is that this has been influenced by the Labour government. There are other factors involved, some positive and some negative, but unless you can specifically prove that every external influence has had a sum positive effect on New Zealand’s economy (and this is not possible) you can’t discount the influence of Labour.
And while I can’t prove to you, explicitly, that it was Labour (I can’t say it was this factor, because it is an impossibily to single out one factor because of the influence of many, many interdependant factors), it is clearly the probable factor in increasing New Zealand employment, given the strong relationship between Government and emplyment worldwide.
Lampie, I explained what I meant a few posts after the first. I had assumed that Tane meant that Labour had increased labour force participation.
(To argue that Labour has reduced unemployment in any direct way would imply that they had simply hired more people.)
So everything you posted on that topic was based on a misunderstanding that had already been clarified.
Besides I never said that it would reduce wages. I said it would put downward pressure on wages. Not the same thing at all. But you go ahead and continue to froth and foam.
Matthew, I am not asking for you to point to a single factor and say that was it. What I am wanting is for you lot to explain, following a path of logic, how what Labour has done has lead to the outcomes we have seen.
It may seem like I am vehemently against the possibility that Labours policies have worked (although Tane himself agrees they haven’t achieved the desired results.) But if you look back over my comments, they have simply been a consistent call for this explanation.
It is simply not good enough to list a few things labour has done, then refer to a graph showing a change in circumstances, and ASSUME it was because of Labours actions.
“unless you can specifically prove that every external influence has had a sum positive effect on New Zealand’s economy…”
Do you realise what you are asking? You are asking me to investigate EVERYTHING ELSE IN THE UNIVERSE before you will accept that Labours policies werent as effective as people assume.
You can see the fallacy of that argument. Instead of you having to prove one thing, you are demanding the right to believe in that one thing until I prove a number of other things!
Kimble – look at all the metrics that have been posted here and on kiwiblogblog – the pattern is clear, social indicators stalled or wrosened under National and have improved udner Labour.
Can every movemetn of an indicator to attributed to Governemtn policy? obviously now, but the contortions necessary to explain away all those trends without any influence from government policy fails the Ocram’s razor test.
Moreover, you can often see step changes that result from Governemtn policy. Neoliberal revolution – unemployment spikes: ‘jobs jolt’ in 2002 – unemployment, which was steady, slides to the practical minimum and stays there. For example.
Sam, you did it again. You have taken the end result and assumed that because it happened at the same time as something else, it must be attributable to that something else.
How hard is it to take a couple of Labour’s initiatives and explain their ramifications in logical steps through to the final result?
““unless you can specifically prove that every external influence has had a sum positive effect on New Zealand’s economy.”
Do you realise what you are asking? You are asking me to investigate EVERYTHING ELSE IN THE UNIVERSE before you will accept that Labours policies werent as effective as people assume.”
That’s why I said it was not possible straight after the request (why did you not quote that part, bit of a peculiar omission) – I was illustrating the absurdity of it.
I understand what you mean by causality and correlation, but what you are asking is as unreasonable as the comment you are referring to above.
“It is simply not good enough to list a few things labour has done, then refer to a graph showing a change in circumstances, and ASSUME it was because of Labours actions.”
I could say that cutting business tax rates has kept employers in NZ, thus increasing employment, but it is just as easy to say that employers have stayed here for any number of other factors. You are asking for a direct causal relation between two things (Employment and Labour) which is not possible in an interdependent situation.
What is possible is to investigate the planned and intended effects of certain events, and draw correlations based upon observed effects. Labour has implemented policies to increase employment, and employment has increased. In the absence of proof that the policies have not worked, or clear evidence that other factors were the cause, you are only left with one solution. It is not a huge leap to make.
“You can see the fallacy of that argument. Instead of you having to prove one thing, you are demanding the right to believe in that one thing until I prove a number of other things!”
Quite the contrary. – “All other things being equal, the simplest solution is the best”
You said earlier that “Unless you can show what Labour has DONE that has logically lead to improvement then all you have is a coincidence. YOU NEED TO PROVE OTHERWISE.”
So what is the simplest solution – that policies intended to increase employment have worked, or that New Zealand has, for no good reason, encountered the lowest unemployment rates seen for several decades?
Two non-”Labour” factors that have, most certainly, contributed the majority of New Zealands growth since 2000;
1) Rampant consumer spending
Driven not by increased wages, but by the wealth effect of residential housing price increases.
2) Exports
Despite the exchange rate at post-float highs, the export sector has done remarkably well. A lot of this is driven by the effect of China become a serious world player; they’ve injected huge demand in commodity markets, and our Dairy and Mining sectors espcially have reaped the rewards.
“Besides I never said that it would reduce wages. I said it would put downward pressure on wages.”
So that was your original point then Kimble? Not really very meaningful though was it? Of course increased LFPR places downward pressure on wages, yet it is undoubtable that the labour market has tightened in the last 6 years, and consequently we have more acute skills shortages in many industries.
Let’s put it real simple for you. Unemployment is, by definition, the percentage of the labour force out of work, and looking for work – so when it goes down (as it has done over the last 6 years) the increase in demand for labour (reflected in job growth) is by definition outstripping the increase in supply (growth in LFPR). Consequently its market clearing rate moves upward. So you want to be looking at unemployment as the key indicator here, not LFPR. Basic supply and demand really.
As to proving that labour has been responsible for the higher wage growth since 1999. Well you see kimble – 200,000 (about 15% of the paid work force) have had their wages lifted by statutory means 70% in 8 years. How you can think that this has had no effect on wage growth is inconceivable. Granted just how much of an effect it has had is very difficult to quantify, but that it has had contributed to wage growth is undeniable.
So everything you posted on that topic was based on a misunderstanding that had already been clarified.
Let me have go Roger nome, make room.
Reducing unemployment means there is an INCREASE in supply
Try this first part Kimbley, I’m sure Roger nome will agree, oh he did
So that was your original point then Kimble? Not really very meaningful though was it?
Again Kimbley, if you think your such an expert, another name for unemployment in economic terms is????
Give you a clue, it’s two words and begins with e. Name it and we may take you seriously. And this is what Roger in a very in-depth description has said.
“Let’s put it real simple for you. Unemployment is, by definition, the percentage of the labour force out of work, and looking for work – so when it goes down (as it has done over the last 6 years) the increase in demand for labour (reflected in job growth) is by definition outstripping the increase in supply (growth in LFPR). Consequently its market clearing rate moves upward. So you want to be looking at unemployment as the key indicator here, not LFPR. Basic supply and demand really”
Wanna take price ceiling and so forth as well?
My belief is that we may be jumping the gun a bit on the wage issue difference with Australia. If the labour market remains as tight and we still are unable to meet demand with supply in skill areas, this will hopefully drive us closer to remain competitive with our closest neighbour. Roger nome, any thoughts?
Lampie – Australia will have wages driven up by centralised collective bargaining, where as we’ll have to rely on labour resource scarcity. My pick is that we’ll catch up a bit in the industries where the skill shortages are worst, but in other industries wages will continue to lag behind (especially in low-skilled areas). At least this is the international evidence suggests (i.e. centralised collective bargaining mitigates extreme disparities in wages between high and low skilled workers, where as in free labour markets the disparities just keep on getting bigger and bigger.