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Wage for minimum wage workers set to drop

Written By: - Date published: 6:22 am, January 26th, 2009 - 44 comments
Categories: national/act government, wages, workers' rights - Tags:

In the Bay Report in December 2007, John Key was quoted as saying “we would love to see wages drop“. Inexplicably, the media at the time refused to accept the report of their small town colleague. Instead, they accepted Key’s various, contradictory excuses – ‘I was misquoted’, ‘I was joking’, ‘I was talking about Australian wages (as if that’s somehow OK)’. One political editor went so far as to say that Key couldn’t have said that he wanted to see wages drop because “obviously he has no control over wages” .

Well, Colin, watch closely and you’ll see the control he has.

Usually, the Government recieves submissions on the minimum wage at the end of each year and announces its decision on any increase before Christmas, with the increase coming into force on April 1 the next year. (for those of you who enjoy feeling your stomach churn, you can read all of Business New Zealand’s submissions on minimum wage over the years here – rich men dancing on the head of a pin so they won’t have to pay their poorest workers more). Both in 1984 and 1999, the new Labour Governments brought in the increases immediately as one of their first acts in government to set about redressing National’s policy of letting the minimum wage be eroded by inflation.

National/ACT has just got around to looking at the minimum wage now. A source tells me that the Labour Department recommended an increase from the current $12 an hour to $12.50 – that would maintain the purchasing power of the minimum wage but not increase it – but National’s Labour Minister, Kate Wilinson, has decided to ignore that advice and, this week or next, will be submitting a paper to Cabinet with no increase in the minimum wage. Cabinet, doubtless, will endorse that proposal. No minimum wage rise, means lower standards of living for all those who earn it (and all those who earn slightly above it) and their families.

Now, come April1, I don’t expect to see headlines saying ‘Key makes wages drop for 500,000 lowest paid workers’. After all, news is about action – a minister striding in to break up a fight , a PM breaking his arm – not failure to act, even if the omission affects hundreds of thousands of families (let’s face it, they’re not the ones buying papers anyway). But, for those with eyes to see, we’ll have yet more proof that Key was completely serious when he said he would love to see wages drop.

And, no, he wasn’t talking about Australian wages. He was talking about yours.

44 comments on “Wage for minimum wage workers set to drop”

  1. vto 1

    So SP all business people are ‘rich men’ are they? Ha ha ha ha. I am sure you are probably a smart man (well, intelligent. smart is something else) but you let yourself down often with your shrill generalisations. [recommend you learn the difference between the Business Roundtable and business people. SP]

    Re the post – I hope you’re wrong and the minimum goes up.

  2. IrishBill 2

    Although Wilkinson’s paper recommends freezing the minimum wage I suspect particular cabinet will make the argument for a token increase of perhaps 10 or 20 cents. I doubt National will be keen to provide ammunition for the opposition and they realise they are vulnerable to the anti-worker meme. More so after the 90 day fire at will hoopla.

    Mind you the pragmatists lost out in the debate over that bill so perhaps they will lose out on this one too. It would be an interesting meeting to watch.

  3. ieuan 3

    Out of interest what percentage of workers are actually on the minimum wage? And how many of those jobs are full-time permanent?

  4. About 230,000 apparently… I’m not sure what that is as a percentage or how many are FT.

  5. Steve I doubt they will do a minimum wage freeze. I reckon this leak will be followed by a decision to go with the full amount. It feeds into my hunch that they are going to play the centre far harder than many of us thought.

    I hope I am right in the real impact it would have on families who need the money. I hope I’m wrong, though, in the political sense.

  6. tsmithfield 6

    Unfortunately, unlike employees, companies can’t demand higher earnings simply because they need more.

    The reality of the situation is that, given the current economic outlook, most companies will be facing lower earnings, meaning there will be less in the pot for wages. Given this scenario, it is logical that either wages will drop or more will be unemployed. Unfortunately it is a reality many employees will face. There was a recent article about a firm where employees faced this reality and decided to take a pay cut rather than have redundancies.

  7. Daveski 7

    If this was a KB post, you would rightly pull it to pieces.

    Freezing wages does not cut wages as you imply – obviously, in real terms someone is worse off but you don’t appear to make any reference to this. This would naturally lead to a discussion on inflation which is likely to be very low over the next 12 months compared to the past.

    In any case, retaining the current minimum wage rate (if it happen) does not mandate that employers can’t give increases.

    Given the accusations of articles lacking in analysis in the MSM, one could expect better analysis here.

    [come join us in the real world Daveski. The minimum wage needs to increase 50 cents an hour just to regain the purchasing power lost over the last year – not the year coming. And you and I both know that there are hundreds of thousands of jobs that are minimum wage jobs, they would be even lower paid were the minimum wage lower or non-existant – there aren’t going to be any pay rises in those jobs without increases to the minimum wage. SP]

  8. roger nome 8

    ieuan:

    Go to the 2007 labour market report (2008 isn’t out yet).

    http://www.stats.govt.nz/analytical-reports/Labour+Market+Statistics+2007.htm

    Average earnings in retail and hospitality industries are $14.40 and $15.50 PH, combined employment in those sectors is approx 400,000. So most of those workers will be affected by the minimum wage level (even is they aren’t right on the minimum wage, their wages will be pushed up). So in practice you’ve got a least 300,000 workers who are directly affected by the minimum wage, and indirectly, many thousands of children as well.

    Not sure why you ask for the percentage which are full time. Most part time workers work between 20 and 30 hours, meaning their income has a huge impact on their well-being and their dependant’s.

  9. IrishBill 9

    tsmithfield, it is shortsighted to freeze wages or make layoffs ahead of (or even in proportion to) lower returns to shareholders. During the last boom we saw a lot of constraints on potential growth but one of the biggest was a labour shortage, particularly of skilled labour. It is likely we will be heading out of the recession in a year or two. When we do, businesses that have hobbled themselves by dumping labour will find it much harder to expand.

    Daveski, employers can pay more if they want but they don’t. Wages that don’t keep up with inflation result in less buying power. That’s a real wage cut. Yes inflation is expected to be low over the next few quarters but that just means it’ll be a smaller real wage cut that it could have been.

  10. Daveski 10

    IB – at least you’ve touched on these issues which the post hasn’t. The point is that the post says wages will drop which will NOT happen – I’m trying to give SP the credit that he is not deliberately trying to confuse the issue.

  11. roger nome 11

    Daveski:

    Are you really a moron? The real value of wages will drop for many people if the minimum wage isn’t increased at least at the rate of inflation.

  12. Daveski 12

    Roger

    Please read my posts a little more clearer. I note you have highlighted the word real – which is the same point I am making.

    I’m not sure if SP has deliberated left this out or it is accidental. I’m still not certain whether SP has tried to imply that National’s plan was to reduce/cut wages which can be reasonably deduced from the post as it stands plus SP’s previous posts.

    In any case, it is the employer’s decision, not Nationals if you are splitting hairs.

    Your abuse doesn’t serve you much good when you are actually agreeing with me.

  13. vto 13

    IrishBill “employers can pay more if they want but they don’t.” Bold claim – how do you know this?

    Say you had an investment of $100,000 in a business – what sort of return per annum would you want before it got too low and it became easier to stick the 100k in the bank?

    Or similarly, say you had a business with a turnover of say $500,000 per annum – what sort of margin would you expect on that 500k?

    Interested because over the years it has seemed to me that many on the left live in a dreamworld when it comes to the returns available to business (usually thru lack of experience).

  14. tsmithfield:

    You really believe that companies can’t afford to pay their workers more? I find that hard to believe considering that business is all about profit and that by paying your workers less you’re increasing your takings. This is just a case of greed, nothing more, nothing less.

  15. IrishBill 15

    vto, the fact that the number of people on the minimum wage has stayed steady tends to indicate the majority of minimum wage employers will only pay more when forced.

    Your statement “Say you had an investment of $100,000 in a business – what sort of return per annum would you want before it got too low and it became easier to stick the 100k in the bank?” fails to recognise the basic fact that many businesses run on moderate returns in expectation of greater returns further down the track and/or are willing to sustain losses in bad time in order to remain viable and take advantage of future good times.

    It always amazes me how quickly the libertarian right is to claim it is the voice of business when so much of its philosophy makes for poor business practice.

  16. tsmithfield 16

    Irishbill: “it is shortsighted to freeze wages or make layoffs ahead of (or even in proportion to) lower returns to shareholders.”

    Irish, sometimes its all about survival in the short-term. Sometimes, the more lofty ambitions have to be sacrified in the short-term, unfortunately.

    illuminatedtiger “tsmithfield:

    You really believe that companies can’t afford to pay their workers more? I find that hard to believe considering that business is all about profit and that by paying your workers less you’re increasing your takings. This is just a case of greed, nothing more, nothing less.”

    Illuminated, have you ever tried running a business? If not, you should give it a go sometime. You might find it quite “illuminating” (pardon the pun).

    If the cost of wages is causing a business to run at a loss, then the business will eventually fail, costing all the jobs. There are a lot of things that earnings are used for in a business before it goes into the pocket of shareholders. In the business I own, I was taking far a far lower salary than my employees for many years to retain capital in the business so it could grow and prosper. Being in business seldom about greed, I can tell you that now.

  17. There is no way that Key will drop the minimum wage so your headline that “Wage for minimum wage workers set to drop” is false, welcome to the world of faux news.

  18. roger nome 18

    Daveski – obviously it’s the real value of wages that matters, not the nominal value. SP’s logic is sound. Your point is invalid.

  19. IrishBill 19

    “Irish, sometimes its all about survival in the short-term. Sometimes, the more lofty ambitions have to be sacrified in the short-term, unfortunately.”

    TS, In my long experience with New Zealand businesses I’ve notice a strong inclination to sacrifice the medium to long term for short term gain.

    You are wrong to think I am making the point about maintaining wages and workforce from a “lofty” moral position as I am merely advocating a business fundamental that is all too often ignored or simply not thought of by many NZ managers. Often to the detriment of their business.

    Your point about taking a lower salary than your staff is interesting. I assume you did so because you expected to make greater gains once your business grew? If so you might want to explain to vto the concept of assessing business viability over a period longer than a year and against more than the current bank interest rate.

  20. vto 20

    Irishbill, your statement here ” In my long experience with New Zealand businesses I’ve notice a strong inclination to sacrifice the medium to long term for short term gain.”

    does not accord with your statement here “many businesses run on moderate returns in expectation of greater returns further down the track ”

    Whatever your seemingly confused point is, over the long term (whether aimed for or not) a return on a, for example, 100k business with a 500k turnover is required. What rate would you require?

    I ask because I strongly suspect that what people who are not in business would expect would be far greater than what is achievable. My point being – give those in business a break. If you listen to most posters on here those in business are rich white men who are greedy and profit driven, morally bankrupt and don’t give a damn for their workers or their communities. All of which is the complete antithesis of my own experience.

    Tho I guess it is to be expected given this site’s position at one far end of the political spectrum.

  21. Brett Dale. Only real values have any meaning. It’s not the numbers on the the piece of paper, it’s what you can buy with the piece of paper that has meaning.

    If Key wanted, he could put an extra zero on the end of our currency tomorrow, it wouldn’t make us ten times richer.

  22. Steve:

    You dont get that from the headline, seriously, the FACT is the minimum wage is not going to drop under Key. The spending power of your money may, but that’s not what your headline suggests, Faix News does this all the time.

    [Brett. you don’t understand what money is. It is not numbers on a piece of paper, it is the right to purchase good and services. Get smarter or go to Kiwiblog and raise the level of debate on both sites. SP]

  23. It would be interesting to have someone do the statistics on this issue over the last 30 years. What proportion of the job-market is employed on, or within 120% of the value of the minimum wage?

    How has changes in socioeconomic policy affected real wages? How has the median expenditure as a percentage of salary been altered? Does NZ really have a higher standard of living, or are we simply too distracted to realise any different?

    The right frequently decry the fact that an increasing percentage of the domestic workforce is on the minimum wage. So therefore, their solution is not to encourage reinvestment in staff in terms of higher wages and training, but to lower the minimum wage in real terms by inflation.

    VTO – the bank example is short-sighted. It is very short-term cycle focused indeed not to take a significantly smaller profit in years of economic hardship, in favour of ditching experienced and effective staff, that will then be less valuable when times pick up again. Not to mention the fact interest rates collapse in eras of high unemployment.

  24. vto 24

    ha ha ha, good point Brett Dale..

    Following Mr Pierson’s logic, Clark and Cullen presided over even bigger cuts to minimum wage!

  25. Steve:

    Don’t tell me what money is or isn’t? your coming off as self righteous? Are you sure your related to Bill Oreilly, your headline suggest that the minimum wage is about drop and that isn’t true.

  26. George Darroch 26

    Brett, take a hint and learn about inflation. STFW if you have to.

    Consumer Price Inflation for 2007-2008 (December quarters) was 3.4%. This means that you’d have to have $12.40 to buy what $12.00 bought a year previous.

    By not increasing the minimum wage, you cut the buying power of the people on the minimum wage.

    And you cut the buying power of most of the workers, as their wages are sensitive to the minimum wage, as jobs above this (about $13-20 in my estimation) must increase wages accordingly to maintain their comparative attractiveness.

    Of course, during the 1990s National cut wages. They deliberately kept the minimum wage at $7 for most of the 1990s. Buying power decreased, and wages were cut. The only time they increased by anything more than a few cents was when NZFirst forced them to do so. It happened just once in an entire 9 years. The value of the minimum wage was cut.

    This is pretty simple stuff, Brett Dale.

  27. Yes I know its simple, but the headline was misleading.

  28. Pat 28

    So how much does John Key have to increase the minimum wage by, before it is NOT considered a “wage cut”?

  29. higherstandard 29

    And what will be the effect if this comes to pass.

    Deflation rears its ugly head here and around the world

  30. roger nome 30

    Brett:

    “your coming off as self righteous?”

    I believe it should read: “you’re coming off as self-important” (you’re is a contraction of “you” and “are” . “Self righteous” connotes an attitude of moral superiority – which has nothing to do with whether steve was misleading his readership or not, and finally, it should be presented as a statement, not a question. jesus man!) . The problem is, smart people get bored and frustrated with idiots, very easily. Rather than ignoring you, steve has chosen to express his frustration with your lack of ability to comprehend moderately simple ideas. Can’t say i blame him.

  31. roger nome 31

    “but the headline was misleading”

    Only for sub-normals Brett. For the rest of us, the meaning was clear after 2 seconds of thinking.

  32. higherstandard 32

    Best you get your hand off it Roger Nome lest you go blind.

  33. roger nome 33

    HS – i don’t believe that throttling retarded right wingers causes you to go blind. If that was the case I would have needed a guide dog a long time ago. Are you sure you’re a medical doctor? You do seem to be rather ignorant in the area of health 😉

  34. higherstandard 34

    He he that’s a rather odd nickname for it. 🙂

    I agree that most people reading this headline and the explanatory article by SP would completely understand what he’s getting at. If it was a headline and article in the daily rag I’d have far less faith.

  35. roger nome 35

    “He he that’s a rather odd nickname for it”

    Don’t get it twisted HS – far too much potency in its head for that nick name. (p.s – feel free to moderate that Steve, couldn’t help myself – been reading Freud all day).

  36. Matthew Pilott 36

    Pat – greater than the CPI for last year would be a good starting point.

  37. Roger:

    Subnormals huh?????

    Boy this site becomes more tabloid each day.

  38. George Darroch 38

    So how much does John Key have to increase the minimum wage by, before it is NOT considered a “wage cut’

    40c.

    Or 50c, if we’re going to make it a round figure.

  39. George Darroch 39

    Unfortunately, unlike employees, companies can’t demand higher earnings simply because they need more.

    I think that you will find companies DO, in fact, raise their prices to account for inflation – not necessarily every year, but consistently. They also raise their prices when their inputs increase in price.

  40. tsmithfield 40

    : “TS, In my long experience with New Zealand businesses I’ve notice a strong inclination to sacrifice the medium to long term for short term gain.

    You are wrong to think I am making the point about maintaining wages and workforce from a “lofty’ moral position as I am merely advocating a business fundamental that is all too often ignored or simply not thought of by many NZ managers. Often to the detriment of their business.”

    I would agree with you with respect to large corporates who often have substantial resources that allow them to ride through financial downturns. However, I am coming from the perspective of small business where the existence tends to be a lot more hand-to-mouth. I often feel a lot of the comments about business on this site tend to assume large corporates when there are a lot of people employed in small business.

    Irishbill: “Your point about taking a lower salary than your staff is interesting. I assume you did so because you expected to make greater gains once your business grew? If so you might want to explain to vto the concept of assessing business viability over a period longer than a year and against more than the current bank interest rate.”

    Well, I guess that is the long-term goal. It is often the case, though, that the profit in a small business can’t be realised back to the owner until it is sold. For instance, in our case, we have approx $500k in stock on the shelf that is paid for by a mortgages against the houses of co-owners. As the business grows, the need for base stock, and needs for other assets tends to grow with it, requiring further funding which is met by the owners. So, while we are building a substantial asset, I would scarcely call ourselves “greedy”.

  41. SPC 41

    Can anyone name one business which would lay off workers, if the minimum wage was increased from $12 to $12.50 an hour?

    These are not wages paid to those competing in the international market place but in the local economy.

    The workers perform necessary work as carers and cleaners or in basic retail/food outlets. The demand for the most of the workers labour is not going down – this is about a small decline in turnover (food outlets) or in clients (a few businesses might look for cheaper cleaning rates when there own revenues are under pressure) reducing bottom line profits and workers pay levels being the traditional Enzed way to constrain their own costs.

    But there are no jobs to be saved by holding down the minimum wage – but if National does this – while increasing benefits by the CPI they will be reducing the incentive to work (more so if they fail to increase WFF by the inflation adjustment as well) as unemployment rises – the de-motivation for those looking for work (when finding a job will be harder) is not a constructive move.

    Its ideological knee jerk – suppress wage levels and boost bottom line profits style of thinking that creates a low wage economy with low productivity despite long hours. And to consider such an approach during a major global recession after the lesson of the failed cost cutting policy of the Depression years – break a leg John.

    PS One hopes this is just politics – National resisting a campaign to restore the minimum wage back to the real level it was in 1991 (it would need to be $15 now), relenting on freezing the minimum wage and increasing it along with benefits by the CPI (keep an eye on whether the WFF payments increase by the CPI and or the other child support payments) to appear generous (as compared to freezing the wage level).

    Its a good test of whether this government is centrist or anti-worker and anti-family.

  42. toad 42

    SPC said: Its a good test of whether this government is centrist or anti-worker and anti-family.

    I think the government has already had that test with the fire-at-will Bill, and it failed.

  43. toad 43

    And right on cue, Business New Zealand chimes in this morning with a call for a freeze on the minimum wage.

    Despite John Key’s talk about reducing the wage gap between Australia and New Zealand, it seems the programme is emerging for yet another stumble towards a low wage economy. I’ve blogged about this here.

  44. Trevor Mallard 44

    Not only is it fair to low income families to increase the minimum wage it makes good economic sense. Quick flow to retail, improves incentive to work, minor tax revenue for government, small working for families savings but more importantly lifting real wages incentivises employers to upskill workers and make capital investments both of which are vital to the productivity lift NZ needs to compete internationally. $13 would be good.

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