John Key says that he can’t increase the minimum wage by a decent amount. The excuse this time round is that a decent increase will destroy jobs. Well, let’s check that out a little bit. Is it really true that lifting the minimum wages destroys jobs? If it is, do the benefits outweigh the gains? And what about the cost of letting wages fall?
First off, lifting the minimum wage to offset inflation (which requires an increase to $13.25) cannot logically destroy jobs. The minimum wage workers’ labour hasn’t become any more expensive in real terms, it has stayed at the same level. So, there’s no added cost, which the righties (who are really just looking for an excuse) say forces employers to fire people. (the Department of Labour advice backs this up).
The Department of Labour produces advice each year on the options for the minimum wage and includes what it believes the employment impact would be of various changes. The 2007 one said the increase to $12 an hour would cost 300-1400 jobs. Did it? Who knows. That kind of change doesn’t appear in the statistics, it’s too small.
But let’s say it did destroy 1,400 jobs. That’s 0.05% of the workforce. In return, 4% of the workforce were getting a direct pay rise and another 16% or so on near to minimum wages were getting bumped up too. It seems like a reasonable trade-off and it’s one that Labour took.
Key says that the advice this time around is a lift in the minimum wage could cost 6,000 jobs. Again, there’s no real evidence and it could never be proven either way. But a lift to $15 an hour would affect 100,000 people on the minimum wage and a further 400,000 close to it. Half a million people, 25% of working Kiwis would get pay rises on the order of 17% (far more than they get from poxy tax cuts). If – big if – that were to cost 0.25% of jobs wouldn’t that be a price worth paying?
Even if job losses are caused, and there’s no direct evidence they are, they’re probably offset by all those workers with larger pay packets to spend, whose spending would create new jobs.
We know from Ruthansia that cutting the incomes of low-income Kiwis can have a devastating multiplier effect that causes more unemployment and poverty. We have nothing to prove and no reason to that that lifting low income Kiwis wages does the same.
Two last points to consider: we’ll never catch Australian wages if the government baulks at every wage increase and the route to being a wealthy country isn’t cheap labour, it’s more expensive labour that encourages employers to invest in capital and use their workforce more efficiently.
Come on John. Make the right call for hardworking Kiwis on low incomes, and for the rest of us.
Btw. The Minimum Wage Act 1983 requires that any minimum wage rates must be reviewed yearly by 31 December*. So why, for the third time running. Is National making this decision in the new year? Too lazy?
Update: Just found this old post from Tane about minimum wages and unemployment. Interesting graph: