CTU research on minimum wage

Written By: - Date published: 10:28 am, May 25th, 2011 - 24 comments
Categories: capitalism, class war, employment, jobs, Unions, wages - Tags:

The response to two recent posts here at The Standard (yesterday, and the day before) have shown what a contentious topic the minimum wage is. So it’s timely that yesterday also saw the release of the CTU’s summary of research on Minimum Wage and Jobs:

Minimum Wage and Jobs – CTU Releases Research Summary

The CTU has released a research summary showing the relationship between increases in the minimum wage and jobs.

Bill Rosenberg said “a major study by Dean Hyslop and Steve Stillman looking at the effect of increases of between 41 percent and 69 percent in the youth minimum wage in New Zealand was done in 2007. It found ‘no robust evidence of adverse effects on youth employment or hours worked’ and in fact, showed there was an increase in hours worked for 16 and 17 year old workers.”

“Before those increases came into effect Business NZ warned that for every 10 percent increase in the minimum wage, there could be up to 4 percent fall in employment. But this was shown to be completely wrong.”

Bill Rosenberg said “employment growth appears to be much more strongly related to overall economic conditions than to a particular issue such as the minimum wage. This is what the evidence shows and it would help this debate if the Government and business lobbyists acknowledged that.”

Alas, this government is not interested in evidence or facts. Nor is it interested in the welfare of workers, as the next topic addressed by the CTU press release reminds us:

“Similarly’ said Rosenberg, “when this Government first introduced the law allowing small businesses to sack workers with no right of appeal in the first 90 days of employment, the Minister of Labour said (11th December 2008) ‘the 90-day trial will provide real opportunities for people at the margins of the labour market’ and she said that included young people and the long term unemployed.”

“In fact youth unemployment has gone up since then from 17.9 percent to 27.4 percent and the number of long term unemployed has gone up from 19,200 to 40,200 people.”

See also the recent accounts of how desperate people are for work in National’s failed economy.

It’s well worth reading the full report itself (PDF). Note especially the American study by Dube, Lester and Reich, and the meta-regression analysis Hristos, Doucouliagos and Stanley. In the New Zealand context see Hyslop and Stillman, who “found that a 69 per cent increase in the minimum wage for 18 and 19-year-olds in 2001 and a 41 per cent increase in the minimum wage for 16 and 17-year-olds over a two year period had no adverse effects on youth employment or hours worked”.

The depressing part is that it doesn’t matter how often the political Left shows that the ideas of the Right are wrong or misguided. The political Right cling to their delusions with the blinkered conviction of religious zeal. Tax cuts grow the economy! Except that they don’t. The right response to a tough economy is to cut government spending! No it isn’t. Raising wages raises unemployment! Except that it doesn’t. Round and round and round we go…

24 comments on “CTU research on minimum wage ”

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  1. ianmac 1
    25 May 2011 at 10:44 am

    What a great report and post Rob. But can you hear Mr Key’s response.
    “Ah look. That’s just one man’s opinion and of course I don’t go along with all that wishy washy leftish nonsense. So lets back up a bit to 1987 when Phil Goff said…… And no it is not in the Public Interest to know where I get my information from but I can tell you that many astrologers are very accurate.”
    Interesting that Media demand scrupulous attention to detail from Labour whilst letting Key away with no requirements to produce proof.

  2. Colonial Viper 2
    25 May 2011 at 10:57 am

    The depressing part is that it doesn’t matter how often the political Left shows that the ideas of the Right are wrong or misguided. The depressing part is that it doesn’t matter how often the political Left shows that the ideas of the Right are wrong or misguided.

    Uh. The Left needs to stop convincing the Right of anything. It is not our job to “save them” or “show them the light”.

    It is our job to turn out our own support base by showing them we mean business, and it is to win over the centrist voters by showing them that the Left can create a better future and better community to live in.

    After all, the Right never bother to try and convert the Left. They know its a waste of energy and they focus on energising their base. Time we realise it to.

  3. Tangled up in blue 3
    25 May 2011 at 11:11 am

    Was this ‘research summary’ composed by an independent research company or by CTU staff?

    I’m not questioning the validity of the content of the report; I’m just pointing out that this is relevant in the debate as opponents will be quick to cry conflict of interest. (as would proponents of raising the MW if there was a summary to the contrary by the business roundtable for example)

    • queenstfarmer 3.1
      25 May 2011 at 11:27 am

      Well exactly. Statements like Rob’s “this government is not interested in evidence or facts” misses the point entirely. Economics aint pure mathematics and “facts”, it’s all about assumptions, interpretation, interpolation, selection, prediction, margins of error, statistical techniques, and so on. For example here’s a report into 17 OECD countries showing that minimum wages do impact employment: http://www.federalreserve.gov/pubs/feds/2003/200323/200323pap.pdf

      At the end of the day, these reports are like expert witnesses – each “side” can always find “evidence” to support their case. People need to make up their own minds.

      • Colonial Viper 3.1.1
        25 May 2011 at 11:36 am

        People need to make up their own minds.

        Hopefully in representative democracies like the US and NZ our political leaders aid in the process of people coming to good conclusions.

        Doesn’t seem to be happening so far. If anything they are road blocks.

      • Deadly_NZ 3.1.2
        25 May 2011 at 8:41 pm

        But if people are too make up their own minds, would it not be in the best interest of all to have all the information for making the decision, readily and easily available. the answer to this is obviously yes. So it is not about informed decision making, it is decision making skewed to what ever ends, the person/people releasing it want it to be.

      • Jum 3.1.3
        25 May 2011 at 11:12 pm

        Trouble is, Queenstfarmer, people can only make up their minds from an informed position if the media give them objective reports.

  4. ianmac 4
    25 May 2011 at 11:23 am

    Tangled Up: Interesting point. John Key pointed to the “guess that 6,000 more would be unemployed.” What research was he quoting from and if any what were the credentials of those he was quoting. Would not like there to be a conflict of interest between what he says and its politics.

    • Tangled up in blue 4.1
      25 May 2011 at 11:50 am

      JK’s 6000 is based on DOL’s 2010 projection that increasing the minimum wage to $15 an hour (then a 17.6% wage increase) could increase the number of people who are unemployed by up to 4.7%.

      Though they haven’t cited how they came to that projection. Even a 1% increase in unemployment is over 1000 so I guess it comes down to whether a few thousand jobs is statistically significant, and the degree of correlation that can be pinned on a MW increase amongst the other relevant influencing factors.

      • Colonial Viper 4.1.1
        25 May 2011 at 11:59 am

        Increasing the minimum wage would put tens of billions more directly into the economy, instead of having it siphoned out of the country as corporate profits and investments of the wealthy.

        People will have money to spend in the shops.

      • toad 4.1.2
        25 May 2011 at 12:00 pm

        Yep, that’s it. Metiria Turei pointed that out yesterday over at Frogblog, as well as the shonky nature of the research that Key based his (exaggerated) figure on and the fact that a potential reduction in jobs created is not the same as people being put out of work.

        And there was the same response from the righties over there – dogmatically sticking to their position in the face of all the evidence refuting it. It’s as if they just can’t get their heads past the “increased cost = reduced demand” meme and come to realise that the labour market is a lot more complex than that.

        • Tangled up in blue 4.1.2.1
          25 May 2011 at 1:39 pm

          Yeah so as Metiria points out the best National can take from the DOL review is that increasing the MW may lower ‘projected job growth’ by up to 5,890. Note that the projected job growth of increasing the MW is still 16,260 – 18,040, it’s just not as high as it would be with no change in the MW.

          So it’s evident that the success of wider economic policy to stimulate the economy is a relevant factor in any change in job growth levels. Economic policy such as Labours increasing private investment in R&D and increasing trade training is a good start and I’m sure we’ll see more from them closer to the election when they have a clearer picture of what they’re working with.

  5. onreturning 5
    25 May 2011 at 11:25 am

    Neither of the researchers are connected with the CTU – I believe Hyslop works at Victoria and Stillman at the nonpartisan Motu Institute. Both are very competent economists.

    • toad 5.1
      25 May 2011 at 11:44 am

      And their research Bill Rosenberg refers to was commissioned by Treasury and the Department of Labour.

  6. Robert Winter 6
    25 May 2011 at 12:14 pm

    The CTU is to be praised for this. Yet, there is a vast weight of neo-classical analysis of the labour market, taught as gospel across mainstream Economics, that takes as given that interventions into the price of labour (by “monopoly” trade unions, by minimum wage regulations and other “institutional” interventions) are price distorting and aggregate welfare-reducing. It is good and necessary to counterpose alternative analyses, but the academic debate is a bloody stalemate. Bill Rosenberg has given us some ammunition to lob across to the other trenches; it will be returned. The real issue is the politics of the argument, that is, adding to our take on the research the political wisdom of inclusion, social protection and a decent society. That’s the bit that those in the other trench can’t match.

  7. randal 7
    25 May 2011 at 12:15 pm

    well the tories are supposed to be the party of business so where is the business?

  8. MikeE 8
    25 May 2011 at 12:47 pm

    Hours worked is a misleading figure to compare, as it could mean less youths working more hours.

    I’d be interested to know what the figures were for youth unemployment before and after the higher wage and how it compares to over 18s before and after the youth minimum wage increase..

    • toad 8.1
      25 May 2011 at 1:24 pm

      The results in column (4) imply the unemployment rate for 16-17 year-olds increased a statistically significant 2 percent in 2001 and was marginally and insignificantly higher in the latter years, while there’s no systematic evidence of any effect on 18-19 year-olds’ unemployment.

      At page 15 of the Hyslop and Stillman paper.

  9. dave brown 9
    25 May 2011 at 1:25 pm

    NACTs objections to minimum wage at any level is that is puts a stop to the market depressing wages to historic low levels. Hence the counter-argument that youth wages should be re-introduced to allow the market to rule over youth. Its not religious, its economic stupid. They want to catch Australian profits by means of low NZ wages. Instead of spinning facts and figures (duly noted however) what the NACTs need is a dose of FEAR when they see how unemployed but educated youth are rising up in the European heartland against the rule of finance capital. These are real Europeans (near enough kith and kin and not bloody Arabs who need to be taught civilisation by dictators) so where will it stop once the dominos of OECD nations are knocked off by the ‘outrages’. We need a bit of kiwi ‘outrage’ leading up to the election. “We are not commodities to be bought and sold by the banks”. “The political class (parliamentary parties) is corrupt”. ” We will not pay for your crisis”.

  10. Tiger Mountain 10
    25 May 2011 at 6:55 pm

    One could ask how many of the pontificators here actually exist on anything approaching the minimum wage, not that that negates their theorising, possibly just their grasp on reality. As a freelancer I like to think I am not low waged, but with‘feast or famine’ workflows am probably closer to it than I would like to admit, various fortuitous circumstances of geography and skills getting me by.

    How dare lard ass blowhards (Phil O’Reilly) dictate what kiwis should be paid. Dave Brown is onto it-more outrage, organisation and push back is needed. All you good social democrats and sucky tory sycophants can tip toe around Dave here, but the “elephant” aka capitalism, will have to be dealt with sooner rather than later.

  11. randal 11
    26 May 2011 at 12:54 pm

    well according to business round table and Hooton and all them the tax cuts were supposed to trickle down into more investment and higher wages for all. pull the other one willya?