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How would Key make wages drop?

Written By: - Date published: 10:01 pm, February 28th, 2008 - 51 comments
Categories: john key, national, workers' rights - Tags: , ,

Having read our coverage of John Key’s ‘we would love to see wages drop‘ line my brother asked ‘but how can a government make wages drop?’ The answer is obvious to those of us who know about this kind of stuff but my brother’s question, along with Colin Espiner’s naïve statement that ‘[a PM] has no control over wages’, made me realise that how a government would make wages drop if it were so inclined is not clear to everyone. So, for my brother, Colin, and anyone else, an explanation of how a government can bring down wages:

The first thing to realise is that inflation will do most of the work for you. As a wage dropping government you don’t actually have to bring down wages in nominal terms. You just hold them still or have them increase at less than the rate of inflation. The number of dollars in people’s back pockets stays the same, it may even rise, but the purchasing power of those dollars will be gradually eroded.

How could Key make incomes increase below inflation? Well, he could follow the example of the last National government:

  • Cut benefits or don’t adjust them for inflation;
  • Hold the minimum wage steady, that will not only make the incomes of those earning the minimum wage decrease after inflation but will also help hold down the incomes of those on wages near the minimum wage;
  • Hold down public sector wages by cutting funding, this will also hold down wages in similar private sector jobs (National frequently complains about public sector pay increases);
  • Weaken labour law, say, by weakening employees’ ability to pool their power in unions to balance the inherent power the employer has in the work relationship (as National did in 1991 with the Employment Contracts Act) or by giving employers the ability to ‘fire at will’ (as National now wants to introduce with its 90 Day No-Rights policy);
  • And, through public spending cuts and the flow-on drop in consumer demand from the reduction in people’s wages, create higher unemployment, putting further downward pressure on wages through labour competition (this is exactly what happened in the 1990s)

For these changes, you need to manufacture the consent of the public, you need a threat that needs defeating.

A good one is ‘welfare dependency’: there are all those ‘bludgers’ (0.3% of adults have been on the unemployment benefit longer than a year, and falling) if we cut benefits dependency won’t be so ‘comfortable’ (apparently, $180 a week is comfortable).

Another is the bugbear of the unions: paint them as ‘third parties’ trying to interfere in otherwise harmonious employer-employee relationships, rather than the voluntary, democratic workers’ organisations they are.

But Key seems to be setting up inflation as the threat (listen to his interview with Havoc and look at that full “we would love to see wages drop’ quote again). Wage rises are inflationary is the line. The solution will be to not increase benefits and the minimum wage to match inflation, and to refuse public sector pay increases; which means less consumer demand across the economy. This does mean less inflation; it also means ordinary kiwis are poorer. Unions will naturally protest. Strike action will increase. The answer to this ‘union militancy’ will be to limit union power through legislation.

They did it in 1990 and nine years later most people’s incomes were lower after inflation. Key just needs to repeat the formula (in more moderate form, naturally) and ‘hey, presto!’ he’s delivered on his promise and dropped wages. Pretty simple, really.

51 comments on “How would Key make wages drop? ”

  1. Gooner 1

    Under Labour:

    Interest rates: up – highest in developed world
    Inflation: up – constantly above RB’s band
    House prices: up – most unaffordable in the world
    Petrol prices: up – highest ever, becoming unaffordable
    Food prices: up – dairy prices even more so, becoming unaffordable
    Mortgagee sales: up
    Collapsed finance companies: up – unprecedented, billions lost
    Number of public servants: up by 000’s

    Business confidence: down, to record levels.

    Nuff said.

  2. Murray 2

    These posts on John Key wanting wages to drop are becoming a little tiresome. I thought some of you would be smart enough to work out by now why he wants wages to drop. As you are not as smart as I have given you credit for I will spell it out for you. John Key wants wages to drop so more people will qualify for WFF. That should fit real well with you socialists.

  3. Daveo 3

    Thanks for spelling that out Steve. It’s bound to get the righties wound up but it’s important to have it on the record.

  4. James Kearney 4

    Key made the same statement as Espiner about having no power to drop wages when he was on Havoc’s show today.

    So Key says he can raise wages but he can’t drop them, and he won’t tell us how he will raise them – just that he’ll cut taxes. Isn’t it time the media started asking him to back up his rhetoric with some actual substance?

  5. Gooner 5

    Key can also leap a tall building in a single bound and stop a speeding bullet between his teeth.

  6. IrishBill 6

    As I understand it he can also help tank the economy of an entire nation by fucking with its dollar!

    Captcha: “nearby Privateer”, does this mean John is lurking?

  7. James Kearney 7

    Gooner- laugh all you like but this has all been done before. It’s basic economics for a party that represents the interests of employers.

    The difference between Pierson’s post and your comment is that National has never leapt a tall building in a single bound or stopped a speeding bullet between its teeth. It has dropped our wages.

  8. Dark Watcher 8

    Typical lefties you forgot to mention that John Key will give workers the ongoing tax cuts Klark has denied them for the last 9 years. After tax incomes will rise every year under National.

  9. Gooner 9

    James – well I happen to think that a government cannot drop wages.

    But it can put policies in place that affect the level of them I guess. So you’re saying that Labour’s policies will have the affect of raising wages, but that National’s will do the opposite.

    But if you look at my first comment (sarcasm of it put to one side) you might see what the policies of Labour have done that affect wages: that real wages – purchasing power – cannot have improved with those statistics.

    Now I do happen to believe, and will give Labour credit for this, that some of those statistics are outside the control of a New Zealand government, Labour included. But unfortunately for Labour that won’t wash with Joe Punter in the beltway.

  10. You forgot the biggie: monetary policy. Adjust the Reserve Bank’s PTA to target a narrower inflation range, and remove the clause saying that attempts to combat inflation should not adversely affect output, employment etc. Then sit back and watch them Brash the economy and throw people out of work.

    This is exactly what was done in the mid-90’s, when the Reserve Bank (under Brash) hit the brakes every time unemployment looked like it would go below 7%. Gotta keep a “reserve army of labour” around on the breadline, just so people can’t ask for more…

  11. naturalpartyofgovt 11

    OK points for banging on this for all its worth.

    Probably Key meant to say or did say he wanted the gap in wages to drop and either elided “gap” or was misquoted.

  12. Razorlight 12

    This John Key quote/misquote is, as many have now said, is becoming very tiresome.

    It was valid and appropriate to bring it up in the first place but now you are beginning to sound like a child throwing a tantrum in their bedroom when noone is listening. Besides myself and half a dozen others, noone is listening.

    For Labour to get back in this race, they through you have to answer why under Labour these 8 things have happened (thanks gooner)

    Interest rates: up – highest in developed world
    Inflation: up – constantly above RB’s band
    House prices: up – most unaffordable in the world
    Petrol prices: up – highest ever, becoming unaffordable
    Food prices: up – dairy prices even more so, becoming unaffordable
    Mortgagee sales: up
    Collapsed finance companies: up – unprecedented, billions lost
    Number of public servants: up by 000’s.

    These are the answers which must be answered because what John Key may or may not have said is gaining no traction.

    WAKE UP LABOUR OR THIS ELECTION CAN BE CONCEEDED NOW

  13. outofbed 13

    “House prices: up – most unaffordable in the world’
    bollocks

  14. Razorlight 14

    Rob

    Thank you for attempting to answer the issues raised by Gooner.

    Labour cannot attempt to highlight the positive statistics as evidence of their policies working, and in the same breath blame the negatives on volatile world conditions. It doesn’t wash after 3 terms in ofice. What is worst than that is Clark trying to blame things on a budget delivered 17 years ago. She has had 8 budgets to fix the problems Richardson raised.

    The point of this rare post by me is tell you to be realistic here. The electorate likes John Key and in my opinion they like him because he is an alternative to Clark and Labour. The electorate has turned off them for obvious reasons.

    To have any chance, Labour has to defend their record, the good and the bad. Admit their mistakes, say why things aren’t working and how they are going to improve them.

    This tactic of attacking a popular politician is not working. Time to change tact and start telling us why Labour deserves another 3 years.

  15. r0b 15

    Gooner had a list:

    Interest rates: up – highest in developed world

    Certainly among the highest – it’s pretty dynamic. But this has advantages as well as disadvantages. And it in terms of historical context, it was much worse in the 80’s and generally worse in the 90s.

    Inflation: up – constantly above RB’s band

    Slightly above, but the RB band is very conservative.

    House prices: up – most unaffordable in the world

    I agree that affordability is a serious problem. But note (1) that “unaffordable” is a measure that includes an assessment of income – NZr’s need higher wages!, and (2) Labour has moved to release new policy on this very recently.

    Petrol prices: up – highest ever, becoming unaffordable

    As they are world wide. Peak oil and “instability” in certain oil producing countries. You should have a word to GWB about this.

    Food prices: up – dairy prices even more so, becoming unaffordable

    Agreed also that this is an issue.

    Mortgagee sales: up

    Cyclic. There has been too much frothy speculation in the property market. Damn that capitalism eh! The Nanny State should regulate it all.

    Collapsed finance companies: up – unprecedented, billions lost

    Don’t exaggerate, NZ co.s don’t have “unprecedented billions”. Finance co.s are also linked to the world economy, and I don’t know if you’ve happened to notice, but there is a bit of a world wide crash going on, driven by the American sub-prime mortgage collapse (and all of the fanciful financial “innovations” that were insanely leveraged on that market).

    Number of public servants: up by 000’s

    Don’t be lazy, what are the figures, and in what areas?

    Business confidence: down, to record levels.

    Poor dears, they’d be silly not to be worried in the current world climate! However, this too is cyclic, and by no means at a record low (you big fibber).

    Nuff said.

    No, you forgot some stuff:

    Unemployment at a decades low.

    Crime rates significantly falling.

    GDP growth better than under National.

    Numbers on benefits at a low and falling.

    Minimum wage up every year for eight years.

    Long term savings and investment up (via Cullen Fund and KiwiSaver).

    International measures of:
    – the health system, ahead of Australia, Canada and the USA
    – educational levels high
    – ease of doing business, among best in the world
    – second best in the world (after Denmark) in terms of low corruption
    – and so on…

    There, now it’s ’nuff said.

  16. r0b 16

    Razorlight

    Thank you for attempting to answer the issues raised by Gooner.

    No problem. It’s interesting homework to look into these kinds of issues. A wee while back there was a very similar thread on KBB, which was also interesting (wish I’d remembered it sooner).

    http://kiwiblogblog.wordpress.com/2008/01/31/whales-questions/

    Labour cannot attempt to highlight the positive statistics as evidence of their policies working, and in the same breath blame the negatives on volatile world conditions.

    It certainly can! It certainly can when claimed negatives really are emergent from world conditions (I mean – petrol prices – puhlease!). It certainly can when positives really are emergent from domestic conditions (low unemployment, low crime).

    It doesn’t wash after 3 terms in ofice.

    No, you’re confusing different issues there. Personally I agree that the effect of the ’91 budget, although real, is a very difficult story to sell.

    The point of this rare post by me is tell you to be realistic here. The electorate likes John Key and in my opinion they like him because he is an alternative to Clark and Labour. The electorate has turned off them for obvious reasons.

    Agreed that the polls are currently with Key. I think we would strongly disagree about what the “obvious reasons” are however.

    To have any chance, Labour has to defend their record, the good and the bad. Admit their mistakes, say why things aren’t working and how they are going to improve them.

    I agree, they have to not be distracted, and get on with good, competent government. The occasional media commentator has even noticed that that is exactly what Labour are doing:

    http://www.stuff.co.nz/4405821a1861.html

    This tactic of attacking a popular politician is not working.

    I agree, but once again don’t confuse Labour and The Standard. Despite various energetic ranting by some, they are distinctly separate beasts! Labour does its thing, The Standard does its own, both have a place in the grand scheme of things.

    Time to change tact and start telling us why Labour deserves another 3 years.

    I think you can expect to hear a fair bit of exactly that in the months ahead.

    Goodnight.

  17. AncientGeek 17

    Dim Watcher:

    Typical lefties you forgot to mention that John Key will give workers the ongoing tax cuts Klark has denied them for the last 9 years. After tax incomes will rise every year under National.

    Oh yes – please point to the national party policy document detailing this?

    What you have at present is some vague waffling with no detail. This allows you to read whatever you want into it. There are also quite a lot of weasel words slowly coming out about how difficult it will be.

    It is a standard political tactic. What I’m also interested in is exactly how much debt is likely to be incurred, bearing in mind that at present it looks like Key seems to be promising to keep all of the big money items that have come in over the last 8 years.

    Question is – how credulous are you? I have a used bridge I could interest you in….

  18. Santi 18

    Steve Pierson, Professor of English: your article is lame, weak and misleading.

    An effective way of dropping wages is the method used by Michael Cullen. Keep taxation high and DO NOT adjust the brackets to cater for inflation. In this way the tax net will keep catching more and more hopeless people who cannot escape their greedy Labour rulers.

    That’s what happened over the past nine years. Cullen is the real bastard in this story.

  19. higherstandard 19

    Rob

    I agree people should not bandy figures around wantonly

    Regarding growth in the public service one figure I have close to hand is as below

    The “core public service” is expanding at four times the rate of the public health and education sectors, a Government survey shows.

    The annual survey, released by State Services Commissioner Mark Prebble, shows the number of core public servants grew from 42,047 last year to 44,335 in the year to June 30 – an increase of 5 per cent.

    Nice to know that we have this many people gorging at the public teats.

  20. Daveo 20

    I can understand the right’s frustration here. All this talk about the complexity of macroeconomics and the control governments have over wages… wouldn’t it be so much easier and infinitely more simplistic if we just whinged all day about when we’re going to get our tax cuts?

  21. Attemping to make a mountain out of a mole hill via misunderstanding is getting a little tiresome.
    Rising incomes of course is easy- cut taxes, especially for those on $20K or less. Neither Cullen nor English however will do that due to cost- its actually cheaper to give tax cuts to those in upper income brackets but then you end up spending more on welfare for those lower down.
    Anyway there are bigger issues right now than attempted frame ups of Key.
    The Kiwidollar tipping over 81 cents springs to mind. It can’t go on like this or those rosy emplyoment figures will start going backwards very soon.

  22. Monty 22

    You desperate socialists going on about this make me laugh – it is like there are 12 nutters all shouting at the establishment but in a sound proof room. No one is hearing you. There are bigger stories out there including where did the poodle get the $100k from – and why is he lying about it – yes – your poodle is a liar.

    And in this he will also drag Labour down further. And of course the other big story you are desperate to ignore – the Polls – usually there has been a post on the polls – but not this time – ignore the bad news because it is wrong? Well Parliament resumes next week – and things are going to get worse. The Owen Glenn issue is just not going to disappear.

    So carry on about John Key and his misquote – but do not forget – you are shouting is a sound proof room.

  23. Steve Pierson 23

    Savant. Yeah monetary policy tightening has a similar effect and you can use the inflation demon as your justification (like you say, it was part of the policy mix in the 1990s), should have mentioned it but my post was already 500 words and wanted to keep it in the less technical stuff.

  24. Steve Pierson 24

    Gooner etc. wages have risen in inflation-adjusted terms under Labour(that means their buying power has increased), and that’s despite inflationary pressures such as record high crude oil prices and dairy prices, which the governemtn obviously cannot influence.

    Under National, most people got poorer, under Labour most people have got richer. Simple as that.

    captcha: boys downwind – so we can’t smell them approaching?

  25. Steve Pierson 25

    Monty. For someone who is criticising us for not covering the NZF donation story, you’re not following it yourself very well.

    No-one has said NZF got a $100,000 donation, they got between $10,000 and $100,000 late last year.

    There is nothing illegal about that under the law then in place. Indeed, National received far far larger anonymous donations regularly.

    There is no evidence to say the money came from Glenn (not that it would matter if it had) apart from some comments from the then NZF President that actually don’t say the money came from Glenn for sure.

    The NZF Treasurer says the money was a transfer of several donations combined into one into NZF’s account.

    Where’s the scandal? So us the scandal and we’ll cover it.

  26. higherstandard 26

    Steve

    Where’s the scandal – suggest you delve into the HBDHB morass something appears extremely whiffy about the goings on behind the scenes – I’m not sure what the real story is but perhaps you should follow this rather than continuing to follow J Keys misquote.

  27. Tane 27

    The important thing here is to get the wage debate going. In case some of you have missed it, there’s a wage gap of 30% between New Zealand and Australia. Once we have a clearer idea of what the government can do to lift wages (or to drop them) then we can have an intelligent discussion.

    As Daveo points out, to date the debate has consisted solely of shrill cries for tax cuts from the right. It’s time politicians and the media realised that’s only one side of a very complex and important debate.

  28. HS – I’d suggest you may not like the result of a HBDHB investigation. I can tell you that it involves some serious conflict of interest if not straight out corruption and there are several senior National party members implicated. You might want to ask yourself why Tony Ryall, one of National’s premier muckrakers is playing the issue down.

    If it was up to me I’d release the report but it appears Labour is sticking with process over politics.

    Captcha: “Graveside sunset” – but the question is for whom…

  29. higherstandard 29

    Robin

    You once again make the mistake that I support any political party it was a genuine comment – I think there is something that stinks behind the scenes here.

    Unlike yourself I have a healthy suspicision of all politicians not just those outside of the labour party.

  30. higherstandard 31

    If I was TDS my reply would more likely have been.

    Cut benefits or don’t adjust them for inflation;

    You say it like it’s a bad thing

    Hold down public sector wages by cutting funding, this will also hold down wages in similar private sector jobs

    A government wouldn’t need to hold wages down just introduce pay increases related to performance and productivity – this would have the same effect however as the level of flatulence from the Public Servants in Wellington cannot really be counted as productivity….. unless they include meteorism as a performance measure.

    Bye Bye must go and do something productive

  31. Robinsod said “You might want to ask yourself why Tony Ryall, one of National’s premier muckrakers is playing the issue down.”

    You call this “playing the issue down”

    http://www.hawkesbay.co.nz/index.php/200802271136/News/Local-News/DHB-sacking-Appalling-political-manipulation.html

    Sheesh ‘Sod, I’d be interested to see what Ryall had to say if he was really going to town on something!

  32. Right, so within 48 hours you’ve gone from “I don’t know who this TDS chap you speak of is” to “if I was TDS” – you are so TDS, bro. For a pro you kinda suck…

    Oh and let me know how Francis is doing (we go back a long way).

  33. higherstandard 34

    Rob no personal abuse please when I was accused of being TDS I looked at some of the previous TDS posts to see what his/her/its views were some of which I agree with some of which I don’t.

    I am not TDS and the only Francis I know is a chap currently licing in Shanghai and one of my kids teachers.

    I like the capture Govs nontoxic ……. has there ever been such a thing ?

  34. I thought you were going to do something productive? It looks like you’re fibbing about that too…

  35. Scribe 36

    RazorLight,

    Labour cannot attempt to highlight the positive statistics as evidence of their policies working, and in the same breath blame the negatives on volatile world conditions.

    So true. A Catholic newspaper I read made the exact same point last week. I pilfer the last few paragraphs here.

    Labour is trumpeting its work to orchestrate the longest period of economic growth in New Zealand since World War II. That is a fact, but how much of that can be attributed to Labour’s policies and how much to world markets and trends?

    If Labour is going to take credit for that growth, should it also be taking the blame for rising interest rates, the huge increase in the cost of dairy products and a housing market that people are predicting will soon be in tatters?

    The Government can’t have it both ways.

    Oh, hang on. This is politics. Our mistake.

  36. r0b 37

    I have been pondering Gooner’s list of criticisms (upthread) some more. This is a long ramble of a post, probably not worth reading, I’m just getting my own thoughts in order. (I’m an economic ignoramus, so some of this will need refining). I think I have three points to make, and a conclusion.

    (1) We have a capitalist economy.

    The government has very little control over food prices, house prices, petrol prices and so on. It could assume more control, but then the Right would scream about the interfering Nanny State, and swear that things should be left to the Free Market. (The Right believes that things should always be left to the Free Market. Right up until the moment things go pear shaped. Then the captains of industry always go rushing to the Government for a handout – it’s happening again in America right now).

    So this covers some of the criticisms on Gooner’s list:
    House prices: up
    Food prices: up
    Mortgagee sales: up
    Inflation: up

    (2) Our economy exists in an international economy.

    The government has effectively no control over the international economy. Financial crashes in America, the price of crude oil, the damaging effects of currency speculation (hmmmm) and so on. This has effects on our economy that the government can’t control.

    This contributes hugely to some of the criticisms on Gooner’s list:
    Interest rates: up
    Petrol prices: up
    Collapsed finance companies: up
    Business confidence: down

    (3) There are domestic / internal things that the government can control (some quickly, some only very slowly). These include:

    – the basics of economy
    – aspects of employment / minimum wage / business environment
    – education system
    – health system
    – welfare system
    – via the above social indicators (such as crime rate)
    – defence and international relations

    It turns out that this scopes out my list of Labour government achievements:
    Unemployment at a decades low.
    Crime rates significantly falling.
    GDP growth better than under National.
    Numbers on benefits at a low and falling.
    Minimum wage up every year for eight years.
    Long term savings and investment up (via Cullen Fund and KiwiSaver).
    International measures of:
    – the health system, ahead of Australia, Canada and the USA
    – educational levels high
    – ease of doing business, among best in the world
    – second best in the world (after Denmark) in terms of low corruption
    – and so on…

    (4) Conclusion.

    Criticisms of this Labour led government are largely for things it can’t control. In areas that it can control it has significant achievements. Hence, this is a very good government.

  37. insider 38

    Just on fuel costs, the government can do something about that such as not impose a 10cpl “regional petrol tax” which will probably turn into a huge slush fund for self important local body politicians with bright ideas but few clues who want to remake their communities in their image.

    It could also stop the biofuels obligation which will add further costs to fuel because it makes selling the stuff a damn sight harder.

    It could also remove the automatic inflation adjustment on the excise rate – that;s the automatic adjustment denied to taxpayers in terms of relief from bracket creep.

    That’s about 15 cpl in one fell swoop.

  38. r0b 39

    The Government can’t have it both ways.

    Don’t be silly, the Government can have it both ways if that happens to be true.

    – Is the government responsible for rising crude oil prices? No.
    – Is the government responsible for rising minimum wage levels? Yes.

    See, both ways if it happens to be true. Now we’re simply arguing about how true it is for a range of issues. See my post above.

  39. r0b 40

    Just on fuel costs, the government can do something about that

    Yes it can (but note that my last post refers to crude prices not fuel costs).

    such as not impose a 10cpl “regional petrol tax’

    It could do that and more, though it would then have a hard job funding roads. But it’s bandaid stuff. Crude is not going to stop going up, the cost of petrol is not going to stop going up. My guess is that within a decade petrol will be ludicrously expensive, and we will all be thinking about adjusting to a post-petrol world. My advice – get a bike. I hardly drive at all these days.

    It could also stop the biofuels obligation which will add further costs to fuel because it makes selling the stuff a damn sight harder.

    As far as I can tell from my brief reading, biofuel is a busted flush. I think we should stay out of it altogether until the situation is clearer.

    That’s about 15 cpl in one fell swoop.

    In the context of what’s coming – that’s chicken feed.

  40. Gooner 41

    Ok, I tend to agree that providing a list and saying it’s all the gummints fault is not very sensible and as someone else said above it is unwise to “bandy figures around wantonly”.

    However, mostly the Joe Publics in the beltway won’t give a stuff when they are paying $100 per week more for their mortgage and will vote accordingly. It is human nature.

  41. r0b 42

    Ok, I tend to agree that providing a list and saying it’s all the gummints fault is not very sensible

    Bravo Gooner.

    However, mostly the Joe Publics in the beltway won’t give a stuff when they are paying $100 per week more for their mortgage and will vote accordingly. It is human nature.

    That’s as may be. Perhaps human nature, the desire to blame the gummint for all the ills of the world, will play itself out. Over time that’s the way it works, the electoral pendulum swings.

    However, if it swings against Labour in the next election, it will be swinging against a competent and successful government that has been very good for NZ. So it goes, so it goes.

  42. higherstandard 43

    bOBBO

    A competent and successful government that has been very good for NZ. You delusional twat.

  43. r0b 44

    bOBBO

    That’s very good HS – did you think it up all by yourself?

    A competent and successful government that has been very good for NZ.

    Yup, agreed.

    You delusional twat.

    What? We seemed to be in agreement there!

  44. higherstandard 45

    I was thinking of quoting Michael Cullen but “Rich Prick” didn’t seem appropriate.

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