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 naÃ¯ve 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:
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.