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Treasury on the minimum wage

Written By: - Date published: 9:16 am, November 11th, 2011 - 35 comments
Categories: class war, jobs, minimum wage, unemployment - Tags: ,

Labour is the party of the workers, and they’re promising to raise the minimum wage to $15 / hour. That’s a cost to business, and National is the party of the rich, so they oppose it. But because the current minimum wage is so obviously falling behind real world living expenses, the Nats need a plausible reason to oppose the increase. Their line is that raising the minimum wage will cost jobs.

It’s bollocks. Under the last Labour Government the adult minimum wage went from $7 an hour to $12 – an increase of 71%. Unemployment was at historic lows. The youth rate went from $4.20 to $12 – an increase of 186% (before being largely abolished in 2008). Yet when Labour left office the youth unemployment rate of 17.9% was still below the level when they were elected in 1999.  (Guest poster Bright Red did some excellent graphs that show the picture over Labour’s last term in more detail.)  Looking back even further in 1975 the Third Labour Government nearly doubled the minimum wage to $12.46 in today’s dollars – unemployment didn’t skyrocket, the sky didn’t fall.

Given this history it is disappointing that Key and the Nats still get away with their scare mongering over minimum wage increases.  Well, they’re going to find it a lot harder to do so now.  Treasury’s advice to the government has just been made public:

Raising minimum wage won’t cost jobs – Treasury

Currently minimum wage is $13 an hour. National would like to lower it – for some workers to as little as $10.90. It says putting the minimum wage up, as other parties would, would mean employers would simply shed jobs. But 3 News has obtained Treasury documents that dispute that. …

The Department of Labour says [Labour’s rise to $15] will cost 6000 jobs. But Treasury has a counter view; “This has not been true in the past. The balance of probabilities is that a higher minimum wage does not cost jobs.”

Not all employers are worried about a hike either. Andy Martin runs a pub, employing 26 people in Oamaru. He says put the wage up and people just spend more money – everyone wins. “$15 is fair,” he says.

There is an estimated 100,000 people on minimum wage and 300,000 close to it – so there are a lot of votes to takeaway. But only a Labour government would push it to $15 an hour next year – National would take years to get it there.

How long have Key and English had this treasury advice while they’ve been claiming a fair minimum wage would cause the sky to fall? How long have they been lying to us?

The choice for minimum wage workers on November 26th is pretty clear. National want to lower the minimum wage. Labour want to raise it. Labour has history, and Treasury, and basic common decency on their side…

35 comments on “Treasury on the minimum wage ”

  1. Lanthanide 1

    What’s surprised me is that National haven’t bit the bullet and taken the bite out of this policy. They can simply announce the minimum wage will go to $13.75 next year and $14.50 in 2013.

    Easy. I’ve also thought of another line that National can run about Labour being irresponsible with money, but I won’t be sharing that one.

  2. g says 2

    trickle up theory!! why dont we try that for a while?

  3. Tombstone 3

    It’s glaringly obvious that National are trying to effectively create a slave economy and that they will resort to scaremongering to achieve just that – when are Kiwis going to wake up to this bullshit? And for how long do you keep on swallowing the lies before you finally step up to the plate and say enough? Key is no honest John that’s for sure. Time to get real NZ. Once those assets are gone and wages are driven down even further as the cost of living continues to sky rocket it will be one hell of a tough ride for everyone – barring the rich of course.

  4. Draco T Bastard 4

    Key’s figures dodgy on minimum wage

    So let’s sum this up.

    – John Key says the minimum wage rise could cost 6000 jobs according to a Department of Labour report.

    – But the Treasury has advised the Government it doesn’t believe the assumption this was based on has any credence – we don’t hear Key saying that.

    – The Department of Labour report is actually a “forecast on forecast” of jobs-that-might-be-created-not-being-created. Confused? Exactly. (The crucial point is it’s not saying bosses will have to sack people.)

    – The Department of Labour report even contradicts itself and says minimum wage rises might make no difference.

    – The Department of Labour report doesn’t mention that Treasury has a counter view (Treasury sent the March 5, 2010 email to the Department of Labour as a submission on the youth minimum wage so they can’t say they didn’t have it).

    So it’s clear that the “cost 6000 jobs” line Key is using is a little bit dodgy.

    Nice summation by Patrick Gower

  5. TighyRighty 5

    Oh wait, treasury should be listened to when they produce documents that may support what your saying? If only they hadn’t been bagged so hard by so many posters and commentators on this site, then we might believe that you believe they should be listened too.

    • Draco T Bastard 5.1

      Generally speaking, I don’t think they should be listened to. They follow the neo-liberal faith that has proven itself both wrong and corrupt after all but even people who are usually wrong sometimes get things right and, as research over the last 20 odd years has shown, it looks like Treasury is right on this.

    • RedLogix 5.2

      So which it it this time tr? You believe Treasury on this or are you bagging them?

    • Lanthanide 5.3

      Treasury’s like a broken clock: wrong most of the time, but right twice a day.

    • toad 5.4

      Take a look at the Department of Labour report that Key bases his 6000 job loss number on (and in any case that number is an exaggeration of what is in the report). And at Metiria Turei’s blog post on it back in May.

      The report provides no methodology at all for how it arrived at the potential loss in job growth figure of 4,280 – 5,710 jobs. It may as well have been pulled out of someone’s arse.

  6. Uturn 6

    I saw John Key trying to out-think workers at McDonalds last night on TV3. The next amusing feature was the idiotic rapid out-of-context soundbite assemblage they used to cobble the remaining story together.

    At least they were trying to be impartial, but it reminded me of one of those parodies people on youtube once made, using George Bush interviews, to sing a pop song. God, news media is a parody of itself.

  7. Andrew Scobie 7

    Raising the minimum wage during periods of some of the lowest unemployment rates in a generation is a bit different to raising the minimum wage during a period of worldwide downturn.

    Eric Crampton says it better than i every could:


    • Blighty 7.1

      Interesting, but you’ve forgotten a crucial point: Eric Crampton is a fucken moron.

      • Andrew Scobie 7.1.1

        and who the fuck are you? Id take his work over an anonymous poster on a partisan political blog!

        • aerobubble

          German govt, led by a right of center party, now believes in
          a minimum wage.

          Idle hands makes for turbulent times, so its more essential
          to make sure people have enough food, etc, and raise
          the barrier to them taking to the streets… ….like in so
          many countries.

          So even before we talk about jobs losses we know its
          a good idea in turbulent global times to redistribute
          wealth more.

          second, treasury says that there’s no evidence for raising
          minimum wage costing jobs. why would there be, most poor
          people spend all their money immediately and so churn
          the economy higher.

          In fact under Key taxes cuts for the rich have seen jobs
          cuts, business go under, when its easy to make a buck
          moving the profits overseas and selling assets shifting
          business to China.

          So the idea that redistribution is bad is pure ideology,
          ideology of greed stupid speculators who have been
          using the same tired old arguments to build up debts

          The only people who don’t get, because the rich do,
          the poor do, are the political wedge class who make
          fees on distorting the media and the economy.
          The rich know they will be rich whatever – by their
          own effort and ability to adapt, the poor know that
          lying costs them their job, its only the gutter class
          that doesn’t want any change in face of reality.

    • Colonial Viper 7.2

      is a bit different to raising the minimum wage during a period of worldwide downturn.

      Well this is bullshit.

      Its not a down turn for investment banks, which have made record profits over the last 3 years, nor Australian owned NZ banks which made $2.778B profits over the last 12 months, nor for large corporations like Apple which sit on cash reserves bigger than most small countries.

      In other words, this world wide downturn is extremely selective, while the top 1% make out like bandits at everyone elses’ expense.

      • Andrew Scobie 7.2.1

        if the 1% have not been affected like you say, and the 99% have, then i would say that you have your “extremely selective” bit around the wrong way. surly it proves the opposite, in that the majority are worse off and a extreme minority that work in banking are doing ok thanks very much.

        so in short, raising the minimum wage by $2 an hour in times where the masses are affected by job losses, would in fact lead to more job losses as businesses that are just surviving cannot afford to pay any more.

        anyway, im sure we will never agree. we both can site examples that “prove our points of view”. but at the end of the day, once again, just like the abolition of youth rates, those most in need of a job will be the most affected by this policy. but Labour don’t care, they get the headlines that say they pulled a bunch of people out of poverty, but no-one seems to notice the other families they have just doomed to a life of poverty without a job.

        • McFlock

          “Labour don’t care, they get the headlines that say they pulled a bunch of people out of poverty, but no-one seems to notice the other families they have just doomed to a life of poverty without a job”.

          I would suggest that the party with a track record of reducing unemployment is the party that cares about reducing unemployment. Hint: it isn’t National. They keep putting unemployment into the stratosphere.

        • Colonial Viper

          so in short, raising the minimum wage by $2 an hour in times where the masses are affected by job losses, would in fact lead to more job losses as businesses that are just surviving cannot afford to pay any more.

          59% corporate tax rates on all annual profits over $25M.

          Those takings used to support incomes and reduce tax rates for small enterprises and ordinary workers.

  8. Interesting that y’all are happy to take an email from a single analyst on an only tangentially related issue as representing Treasury’s official view.

    You might recall that Treasury opposed a $0.25 increase in 2010; Gower paints them as supporting a $2 increase.

    I don’t much care whether you guys love minimum wages or not. But it’s strictly incorrect to paint Treasury as being gung ho for Labour’s $15/hr.

    • McFlock 8.1

      ” But it’s strictly incorrect to paint Treasury as being gung ho for Labour’s $15/hr.”

      Agreed. I’m not sure Treasury is known for being a bastion of Labour supporters. But if we are looking at present conditions, Treasury advice is that a rise in the minimum wage will not adversely affect unemployment.

      • No. read the post.

        • McFlock

          Couldn’t see where it said “Treasury is gung-ho for Labour policy”.

          Closest I found was “Labour has history, and Treasury, and basic common decency on their side…”. And it would appear that the current advice is in agreement, given that the only major objection to raising the minimum wage is its alleged relationship with unemployment (I believe that there are inflation objections, but those woun’t kick in at the still-pathetic levels Labour are talking about).

  9. More fully: The cited email is one analyst’s view, in 2010, that evidence from the early 2000s of a lack of effect of changes in youth minimum wages on youth employment suggests we oughtn’t jump too quickly to ascribe changes in current youth unemployment to the 2008 changes in the minimum wages. It would be fair to view this as critique of my work, though I’m not mentioned. It would not be fair to characterize this as a scrap between DoL and Treasury on the current effects of minimum wages. Especially since Treasury in 2010 recommended keeping the minimum wage at $12.75 and not increasing it to $13.

  10. More fully: The cited email is one analyst’s view, in 2010, that evidence from the early 2000s of a lack of effect of changes in youth minimum wages on youth employment suggests we oughtn’t jump too quickly to ascribe changes in current youth unemployment to the 2008 changes in the minimum wages. It would be fair to view this as critique of my work, though I’m not mentioned. It would not be fair to characterize this as a scrap between DoL and Treasury on the current effects of minimum wages. Especially since Treasury in 2010 recommended keeping the minimum wage at $12.75 and not increasing it to $13.

  11. Terry 11

    So what? Even if a rise in minimum wage does put up unemployment (which it wont) it is still the RIGHT and ETHICAL thing to do! Of course the poor soon dispose of all their money, the essentials of life cost them all of the little they possess.

    • Spam 11.1

      Can I just contract that to:

      “putting up unemployment… is the RIGHT and ETHICAL thing to do!”


      • McFlock 11.1.1

        Only if you want to pretend that neoliberal wank is anything other than wishful thinking.

        At best you can say that the evidence is inconclusive.
        What I would say is the the evidence of a shit wage on workers is far from inconclusive, and all negative.

        Therefore the question becomes “do we take a small but reversible chance to try to address a clear and significant wrong?”

        What is the problem with that.

  12. ianmac 12

    Earlier this year there was a report of a full study done somewhere in the USA re minimum wage raised and effect on employment. The study found no evidence of loss of jobs in spite of the popular belief that logically it would cost jobs. The study could also find no other studies that showed that raising the min wage did cost.
    Sorry I can’t ref it but some clever person might Google for me.

    • It’s Dube et al; I’m sure it googles with the title. But note that the real value of the minimum wage in the US is far lower than it is here; it would be foolhardy to expect that results that obtain when the minimum wage is a third the average would also hold true when the minimum wage is half the average.

      • McFlock 12.1.1

        Point taken about the 1/3 vs 1/2 effect, but my basic issue with the theory of unemployment increases is that it seems too simplistic.

        Most minimum wage earners are 100% spenders (or live on credit), not savers, investors or luxury importers. Any money they get goes straight into the supermarkets and petrol stations – many of whom are employers that pay on or approaching minimum wage. To me, the big effect to look for would be inflation if the rate of increase or wage itself passed a certain threshhold simply due the increase in circulation, but I would have thought that the increased labour costs would largely (albeit not completely) be matched by the increased demand. Even the ones living on credit would be able to forestall bankruptcy a bit longer.

      • Crashcart 12.1.2

        What I see is “Maybe we will see job losses”. Could happen. The problem is that people on minimum wage can’t effectively live on that wage. The increase in cost of living, largely contributed to by Nationals GST increase, has seen huge increases in the use of food banks by working Kiwi’s. We aren’t talking about beneficiaries here. These are people who are out there trying to support families. Aparently you don’t have to be unemployed these days to be demonised or marginalised, you just need to be poor.

  13. felix 13

    It’s bullshit anyway for National to suddenly pretend to care about job losses when one of the first things they did on taking the treasury benches was to sack thousands of workers.

    Unemployment up 60,000 on John Key’s watch and he hasn’t done a fucking thing about it.

    If he really cared about job losses he’d resign.

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