The Standard wager

Written By: - Date published: 5:41 am, February 2nd, 2009 - 33 comments
Categories: national/act government, wages, workers' rights - Tags:

dollar-questionToday, Labour Minister Kate Wilkinson will be presenting a paper to her Cabinet colleagues regarding the minimum wage. The Department of Labour recommended a fifty cent an hour increase. Word is, Kate Wilkinson will be recommending no change. But John Key was forced to commit to unspecified increases on the campaign trail, so most expect some kind of token increase will be announced. What do you think it will be?

For context, here are some relevant numbers:

  • $0 an hour, the minimum wage if National’s partner in government, ACT, has its way. Actually, there would be no minimum wage at all – ‘in ACT’s New Zealand employer gets paid by you!’
  • $12 an hour, the current minimum wage (you would be surprised the people who think it’s much higher). Phil ‘my only interest is the workers’ O’Reilly, head of Business New Zealand, backs keeping the minimum wage at this level.
  • $12.40 an hour, the increase needed just to restore the loss in purchasing power due to inflation over the past year (note, you look back at the inflation since the last increase, not forward to future inflation – it makes sense when you think about it)
  • $12.50 an hour, the increase recommended by the Department of Labour. The DoL takes into account the increase in wages over the previous year, the increase in the cost of living over the previous year (inflation) in making its decision.
  • $12.66 an hour, the minimum amount Labour would have increased the minimum wage to, fulfilling its campaign commitment to increase the minimum wage by at least the increase in the average wage or inflation, whichever is greater.
  • $15 an hour, the minimum wage that the Greens and Progressives promised. The Maori Party promised that too, but now they’re in government with a party committed to abolishing the minimum wage, so I think we know how much a promise from them is worth.
  • $17.88NZD an hour, $14.31 AUD an hour, the minimum wage in Australia. The Aussies put in a $0.57AUD an hour increase on October 1. Now, there’s a wage gap the Government could do something about closing.

Closest guess gets the most kudos.

[Update: Kevin Taylor has told media that consideration of the minimum wage was to be on Cabinet’s agenda today but has now been pushed back. When asked why, he said, “I’d rather not talk about cabinet business” and said the discussion would take place “soon”. So much for transparant government. Unite sees this as a bad sign. All I can say is it’s further evidence that incomes of workers aren’t a priority for this government. Too busy talking about crushing cars I guess.]

33 comments on “The Standard wager”

  1. Felix 1

    Well, the last one is out – Key wants to see Australian wages drop, remember?

    I’m guessing $12, spun thus: “We were going to cut the minimum wage by 50c (to stimulate the economy) but we’re so decent we’ve changed our minds and you can keep the $12. So that’s like getting an extra 50c, really.”

  2. toad 2

    I’ve always been pissed off that this is done by Order in Council. Personally, I think regular indexation of it should be provided for by legislation, so that if any Government wants to change that, they have to get legislation through Partliament.

    The Maori Party get off the hook this time around because of the Order in Council mechanism – they will be able to say “we still support $15 an hour” without having to actually cast a vote at all for the much lower increase (if any) that Government will implement.

  3. Peter Burns 3

    Most people I know on $12 an hour are saving their meager earnings so they can buy a plane ticket and remove themselves from this cess pit country. The us and them mentality is working well. How many houses do you own Miss Clark?

  4. i reckon 12 to 12.40.

    if it’s 12 they’ll say the tax cuts have effectively provided a wage increase anyway, and probably use Felix’s line above.

    if it’s 12.40 chewing-gum option, they’ll still be making no substantial change but will deflect the criticism that’d come from freezing the minimum.

    “buy a plane ticket and remove themselves from this cess pit country”

    if only you could get visas for other countries eh Dad.

  5. Kerry 5

    Peter BUrns – what are you talking about???

    Im sure Kate didnt turn down her pay increase in NOvember last year…..so if its good enough for her to get an increase for doing fuck all except showing us how awful we can look with ginger curly hair, then its good enough for hard working kiwis to get an increase!

  6. Matthew Pilott 6

    $10.28.

  7. Lew 7

    I seem to recall National campaigning on automatically adjusting certain things for inflation. Super? Some benefits? I take it the minimum wage wasn’t one of these things.

    L

  8. DeeDub 8

    Peter Burns, do you actually KNOW anyone on $12 an hour? Let alone any who can afford to SAVE?

    Jeez, what planet do you live on?

  9. Daveski 9

    I’ll go for $12.50 on the basis that Key has so far done exactly what the left has not expected him to do.

    (His crowning moment will come at Waitangi which will highlight the gulf between what Key has done and what Labour failed to do, given 9 years of opportunity.)

    I notice that Felix is referring to “cutting” the minimum wage – which was my inference from the various posts and comments here. This has been reconstructed to mean that by not increasing the minimum wage it is a “cut” in real terms. While agreeing with the economic argument, the point is that the scaremongering (at least in my view) has inferred that wages would be cut ie reduced.

    Back to the key point (pun intended) – it could well be argued that those on the minimum may benefit but those above will suffer the consequences as business look to tighten belts where they can.

    We wait with interest.

  10. Tane 10

    Not looking hopeful if Marie McNicholas from Newsroom is to be believed:

    An eleventh-hour plea from the union movement for a fresh increase to the minimum wage is unlikely to sway the Cabinet from refusing any significant rise today.

  11. Greg 11

    $17.88NZD an hour, $14.31 AUD an hour, the minimum wage in Australia. The Aussies put in a $0.57AUD an hour increase on October 1. Now, there’s a wage gap the Government could do something about closing.

    Yeah it would close the wage gap – and increase the ‘unemployment gap’.

  12. Felix 13

    Matthew,

    “$10.28.”

    Confident and precise. Do you know something you’re not telling us?

  13. Lew. There is a long-standing covention that benefits are increased by CPI – Key promised to continue that.. Super is legislated at 65% of the average wage, Labour went above the legisaltion to 66% and Nat’s have pledged to maintain that.

    Greg. There is no real-world evidence that higher minimum wages mean fewer jobs at the margin (obviously, a $100 an hour minimum wage would have an impact). The Department of Labour includes what is basically a guess of what impact on emploiyment it thinks increases in the minimum wage would have when it presents options to the Government. Take a look at them, they’re online. Basically, any job losses are so small that they can’t be proven to have been caused by minimum wage increases because there is noise from too many other variables. 

  14. Felix 15

    I wonder how much input Kate will have actually had in the paper she’ll present – remembering that she wasn’t responsible for / wasn’t allowed to know about policy for her portfolio before the election.

    I wonder if anything has changed?

  15. $15 an hour, the minimum wage that the Greens and Progressives promised. The Maori Party promised that too, but now they’re in government with a party committed to abolishing the minimum wage, so I think we know how much a promise from them is worth.

    The Labour Opposition should propose a private members bill, which along with calling for a $15 an hour minimum wage, provide for an annual CPI indexation – and then put it in the members ballot.

    This is how the Mapp bill came up in the last term of Parliament – would out the Maori Party in terms of its constituents (either pro or anti), and confirm what many of us already know – that National and ACT are anti-wage, pro-profit.

  16. Greg 17

    Steve,

    Greg. There is no real-world evidence that higher minimum wages mean fewer jobs at the margin (obviously, a $100 an hour minimum wage would have an impact). The Department of Labour includes what is basically a guess of what impact on emploiyment it thinks increases in the minimum wage would have when it presents options to the Government. Take a look at them, they’re online. Basically, any job losses are so small that they can’t be proven to have been caused by minimum wage increases because there is noise from too many other variables.

    Real world evidence: (From professor Larry Summers) “Another cause of long-term unemployment is unionization. High union wages that exceed the competitive market rate are likely to cause job losses in the unionized sector of the economy. Also, those who lose high-wage union jobs are often reluctant to accept alternative low-wage employment. Between 1970 and 1985, for example, a state with a 20 percent unionization rate, approximately the average for the fifty states and the District of Columbia, experienced an unemployment rate that was 1.2 percentage points higher than that of a hypothetical state that had no unions.”

    Now obviously this is about unions – not the minimum wage. But when you consider that the two have the same effect – both raise wages above the competitive market rate – the results must be the same.

    On your other point, can you provide the link? I can’t find it. But I suspect the Labour department are using the wrong data. Yes the rise in unemployment in the whole economy will be small – but the rise in low wage workers will be large and this is of course where it really matters.

  17. Daveski. If he did that, it would be a good thing. I don’t see it happening but if National were implementing good policies, I wouldn’t object jsut because it’s National in charge.

    I don’t like having National in charge because they don’t implement good policies,

  18. Greg. a) your quote doesn’t refer to minimum wages, and I’m not buying that unions and the minimum wage are the same thing

    b) ‘that was 1.2 percentage points higher than that of a hypothetical state that had no unions.’ – there’s your problem right there. It’s not real-world evidence, it’s some rightwing crank trying to justifiy his ideology behind a facade of academic study.

    POlicy Parrot. agreed.

  19. Tripod 20

    I think the answer to Larry Summers’ dilemma is full unionisation. If everyone were in a union, then the competitive market rate would be the union rate. Problem solved.

    I wonder if leprechauns have managed to stop the abominable snowman from distorting the market in Professor Summers’ hypothetical state.

  20. Pascal's bookie 21

    I wonder if leprechauns have managed to stop the abominable snowman from distorting the market in Professor Summers’ hypothetical state.

    How is Lithuania doing these days?

    In 1990, Lithuania, a restive Soviet republic seeking independence, hired Summers to advise on that country’s economic transformation. Poor Lithuania had no idea what it got itself into. This was Summers’s first opportunity to tackle a country in economic crisis and put his wunderkind theories into practice. The results were literally suicidal: in 1990, when Summers first arrived, Lithuania’s suicide rate was 26.1 per 100,000 and falling. Just five years after Summers got his hands on Lithuania’s economy, life became so unbearable under the economic transition that the suicide rate nearly doubled to 45.6 per 100,000, worse than any other ex-Soviet republic in transition. In fact, it was the highest suicide rate in the world, suggesting something particularly harsh and brutal about the economic transition in that country as opposed to the others, where suffering and pain were common. Things got so bad that in 1992, after just two years of Summers-nomics, the traumatized Lithuanians voted the communist party back into power, the first East European nation to do so–even though just a year earlier Lithuanians actually died on the streets fighting communism.

    http://www.thenation.com/doc/20081124/ames

    (‘sod’s banned, again, so someone needs to be a quotin’ mark ames.)

  21. BLiP 22

    Greg said:

    ” . . . Real world evidence: (From professor Larry Summers) “Another cause of long-term unemployment is unionization . . . of a hypothetical state that had no unions.’

    Yes. I’ve seen similar statistics in relation to Lilliput.

  22. James 23

    Sigh……..you lefty ninnys can’t grasp the simple fact that employers who can’t afford to pay your State forced minimum wages simply don’t hire people….and they are always the poorest and most needy.Nice one you hand wringers…

  23. Matthew Pilott 24

    Falix – maybe $12.28.

    PB – old ‘Nomics himself looks fairly saintly by comparison.

  24. Matthew Pilott 25

    Sigh ..you lefty ninnys can’t grasp the simple fact that employers who can’t afford to pay your State forced minimum wages simply don’t hire people

    You baby-eating capitalists don’t seem to realise that this doesn’t represent reality. Last nine years – very regular increases in minimum wage. Last 9 years – got fairly close to full employment, dinnit?

    nice one you…something-else wringer.

  25. higherstandard 26

    What is it about Australia that makes them have a higher relative minimum (and average) wage than NZ.

    If we accept that the employers and employees are much of a muchness on both sides of the Tasman, then Is it their governments that have been more proactive, do they have better and more effective unions, are they more productive or is it just that they can afford to pay more ?

  26. Greg 27

    Steve and Blip

    How are minimum wages and unions different? They both drive wages above the competitive rate. One just does so in a specific industry and one in the whole economy.

    This is pure statistics – not some lie. To lay it out for you – they compare it to a hypathetical state because there is not state that has nil unionisation. What they are saying, is a state with half as much unionisation as the district of columbia will have an unemployment rate roughly 0.6 % below that of the district of
    columbia.

    Some right wing crank? He hasn’t even provided any analysis – just the stats. What is there to argue with?

  27. Greg 28

    Matthew,

    “You baby-eating capitalists don’t seem to realise that this doesn’t represent reality. Last nine years – very regular increases in minimum wage. Last 9 years – got fairly close to full employment, dinnit?

    nice one you something-else wringer.”

    Matthew, when you think about it your analysis seems a bit silly. The last 9 years have been full of economic growth. So the competitive market rate has gone up in line (more or less) with the minimum wage. This is not the case when we are in a recession.

    Logically, how can james be wrong? Higher minimum wage means less money for employers. Less money for employers means less to pay staff. Make sense?

  28. gingercrush 29

    Greg but surely that can have the opposite effect as well. If minimum wage earners don’t get an increase, then there purchasing power has been lessened. Meaning either they purchase less or get into debt. Both of which have negative effects.

    On the other hand, by giving someone an increase in the minimum wage, it will reduce their debt and allow them to spend more money. More money goes to businesses and therefore profits.

  29. Greg. I wouldn’t bother trying to explain the difference between shares and a salary to someone (but they both give you money!) so I wont bother trying to explain the difference between a union and the minimum wage to you.

    Secondly, the analysis you provide has a crucial flaw – the hypothetical state with no unions. the writer has had to invent what employment would be like in that state based purely on theory, his theory, and, lo and behold, by using his theory to create a hypothetical he finds that the hypothetical matches his theory.

  30. daveski 31

    SP

    Much to your surprise (and I must admit, even a little surprise myself), I would appear to have been a lot closer than you orginally would have credited.

    Clearly, there will be some decent battles between the drys and wets in cabinet but you’ve at least got to credit Key with the ability to surprise those who want to pigeon hole him and National.

  31. Jared 32

    If anything at a time like this when employers are looking to cut their workforce a proposal to increase wage costs is suicidal for both those on minimum wage and the unemployed. If wages were to increase it would motivate employers to fast track redundancies and layoffs than retain minimum wage workers. Let alone perpetuating the unemployment rate with employers faced with less of an incentive to increase wages expenses by hiring minimum wage workers. Nice one, I can see you guys are thinking rationally in a recessionary period. And I thought you were batting for the little guys.

  32. Matthew Pilott 33

    Greg – spot on. There’s no room for simplistic analysis. Simplistic analysis is ‘if minimum wages go up, employment will go down, bacause employers won’t be able to pay employees’.

    That’s just too simple to give any credibility to, too many factors involved. I was more mocking James than making a serious contribution, though.

    I wonder why people think staff are so expendible. Mim wages go up by, say 50c. That’s an extra $20 a week gross, per FTE. So your S/M-E with 3-20 staff will fire someone over $20, right? Well if that was enough to get rid of someone, why did they hire them in the first place?

    What kind of useless, ineffective and unproductive work were they tasked with if the employer will happily turn them out over $20 instead of trying to cut a cost elsewhere or increasing some prices, or reducing their income during the lean times.

    It seems to me that the right want this simplified into a two-factor equation. Employer Revenue vs Employee Wages. Well that’s just bollocks, but a simplistic analysis is the only way they can spin it to try and argue against something they are ideologically opposed to. Why not cut to the chase? I suppose it’s an opportunity to attack something you don’t like, hard to pass up…

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