- Date published:
7:02 am, January 25th, 2017 - 53 comments
Categories: class war, cost of living, national, poverty, spin, wages - Tags: CPI, HLPI, housing, inflation, jobs, minimum wage, poverty, working poor
Any increase in the minimum wage is better than nothing:
Government to increase minimum wage to $15.75
On 1 April, the adult minimum wage will increase by 50 cents to $15.75 an hour.
Mr Woodhouse said the increase to $15.75 would benefit about 119,500 workers and would increase wages throughout the economy by $65 million per year. The increase was much higher than annual inflation, he said.
“At a time when annual inflation is 0.4 percent, a 3.3 percent increase to the minimum wage will give our lowest paid workers more money in their pockets, without hindering job growth or imposing undue pressure on businesses.” …
Sounds good?* Only because inflation (CPI) doesn’t include major real cost increases, notably in housing.
But Labour’s workplace relations spokesperson, Iain Lees-Galloway, said that was cold comfort to those low-income earners who were struggling to pay their rent.
“The government has sold it as being an increase which is well above the inflation rate but the truth is, when you include housing inflation, it simply doesn’t make up for the enormous additional costs that homeowners and renters are facing.”
Let’s dig in to this further.
The skyrocketing cost of buying an existing house is not included in the CPI (“Inflation is 0.4 percent, and Mr Eaqub calculates that if house price growth was included, inflation would have been 2.5 percent, or more, in each of the last three years”).
The cost of rent is factored into the CPI with a weighting of 10%, in fact for low income earners rent can be 40% to 50% of their income or more (“The report said the lowest 20 percent of earners spent 54 percent of their income on housing in 2015, compared with just 29 percent in the late 1980s”). So the CPI already massively underestimates the real inflation that low income earners face – and rents are rising fast in Auckland and elsewhere.
There are similar issues with other basics like electricity, which is how power prices have risen more quickly than the CPI.
Such problems were identified in a 2013 CPI review:
One-size CPI doesn’t fit all
The consumer price index (CPI) is letting superannuitants, Maori and the poor down.
Last week, it was reported how massive rises in the cost of house insurance were not reflected in the CPI. But it seems homeowners are not the only people who can feel hard done by.
The real experience of inflation for Maori, superannuitants, the poor and some regions is that the national CPI does not reflect their experiences because the it is skewed to reflect the experience of white, middle-income New Zealand.
That has been spelled out by a CPI Review Committee, headed by former retirement commissioner Diana Crossan, which said: “Lower-income households had the highest price change and higher-income households had the lowest price change.”
The current lack of sub- national indexes is not considered to be best practice internationally. The International Labour Organisation says: “Significant differences in the expenditure patterns and/or price movements between specific population groups or regions may exist.” …
In short, the CPI is broken, especially with respect to housing. (Over the last three years we have developed a better measure, why aren’t we using it?). Under National minimum wage increase have failed to keep up with the real cost increases experienced by low income earners. That is why we are seeing the rise of the working poor, and increases in homelessness and poverty. Shame.
* National’s pet blogger tried to spin the snakeoil on Twitter too – an interesting discussion followed.
Oh – and on that old lie that minimum wage increases are job killers:
Minimum wage increases do not appear to be choking the job market
Critics of raising the minimum wage have long claimed the real victims are the poor, because employers cannot afford to take on new workers. “The Government knows very well that hiking the minimum wage faster than inflation means those most vulnerable are priced out of the job market,” Taxpayers’ Union executive director Jordan Williams said, echoing similar warnings from last year.
But in the third quarter of 2016, unemployment fell below 5 per cent for the first time since 2008. The number of hand written signs on shops and restaurants across New Zealand seeking staff this summer is hardly scientific, but it suggests the constraint many companies face is finding workers, not paying them.
Below 5% is a fudged stat “achieved” by a change in the definition of job seeking, but even so steady increases in the minimum wage of the current magnitude have not caused a problem – we can afford bigger increases.