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Will Labour back $15 minimum wage?

Written By: - Date published: 12:30 pm, October 7th, 2008 - 45 comments
Categories: election 2008, greens, labour, maori party, national, nz first, progressives, wages, workers' rights - Tags:

The unions want the minimum wage lifted to $15 an hour, two thirds of the average hourly rate, restoring the historic ratio. The Greens, New Zealand First, The Progressives (I think), the Maori Party* and, oddly, the Kiwi Party are also calling for $15 an hour. Will Labour join them?

Labour has an excellent record on the minimum wage. After 9 years in which National let inflation eat into the minimum wage, one of the Labour/Alliance Government’s first actions in 1999 was to lift the minimum wage. It continued to do so every year since (albeit with more prodding from the unions than should be necessary). The minimum wage is up from $7 an hour to $12 an hour since 1999. That’s an after-inflation increase of 40%. Along with the full employment policy, it is an important reason why incomes for low income families have increased under Labour after falling under National.

With tough economic times ahead, it is important we protect the wages of the lowest paid workers and ensure the fruits of production are shared with the most vulnerable, not hoarded by the owners of capital. There are about 100,000 workers earning the minumum wage and many more very close to it. About 450,000 workers would be directly affected if the minimum wage were lifted to $15 an hour today. Hundreds of thousands earning a little more than $15 an hour would also get knock-on pay rises. If the minimum wage is not lifted those workers will probably not get pay increases.  Lifting immediately to $15 would put $50 million more a week into New Zealand’s poorest communities but would have an inflationary impact of about 1.5%. The captialists’ argument that increasing the minimum wage leads to unemployment has not been borne out in the real world but a sudden lift of $3 an hour during an economic downturn could be too much too quickly. For these reasons, I would guess cautious Labour will back a $15 minimum wage but introduce it gradually, prehaps over the course of three years, rather than one. [figures from DoL]

Labour and the Left are committed to lifting the minimum wage and looking after the most vulnerable workers.  National is not. National MPs, including Labour Relations spokesperson Kate Wilkinson, have opposed the minimum wage’s existance, let alone lifting it. Key has made some soothing sounds but refused to make any commitments. 

If Labour has the courage to back $15 an hour and campaign on it hard they will place a stark choice in front of more than half a million workers and their families. Vote Left and get higher wages to help you through the tough times ahead or vote National and see the well-off protected while your standard of living falls.

45 comments on “Will Labour back $15 minimum wage?”

  1. John Stevens 1

    How do you propose employers pay for the increase when for the next year or 2 their profit margins will fall, credit is harder to come by and the recession will cause a lower demand?

    There will come a time when people will be laid off and they will get less on the benefit as employeers cash flows are severely squeezed.

    The min wage will not go to $15ph as LPG will not be in power.

  2. You’re right about one thing, John, the minimum wage won’t go to $15 an hour if the Left isn’t in power.

    Companies have done very well under Labour, experiencing record profit growth. In hard times, we need to ensure that the most vulnerable people aren’t made to suffer the most. If companies need to accept smaller profits to make that happen, so be it.

  3. Tim Ellis 3

    SP, this is a very interesting topic.

    I don’t think the government can increase the minimum wage when in a recession without destroying a lot of jobs. The big difference between the minimum wage rises of the last nine years was that they were made in a growing economy, with declining unemployment. There’s a good argument to be made that increasing the minimum wage didn’t significantly affect workers’ incomes any more than the market would have delivered in a scarce labour supply.

    If you increase the minimum wage when more people are going onto unemployment (as forecast), then you’re just going to worsen the problem.

    The climate of increasing unemployment seems to me to be a good reason to lower the minimum wage, to encourage more employers to take on and retain employees, rather than increase it.

  4. Greg 4

    Why would you want to increase the minimum wage when unemployment is forcast to increase? That would just make the situation worse AND make the worst off in our society even more worse off. Its not logical.

  5. Matthew Pilott 5

    Tim, as far as I know there is no evidence to show that workers in unskilled jobs are paid more in scarce markets. Look at fruitpickers in NZ – they’re still paid crap, employers seem to prefer having vacant roles to paying decent wages.

    Remember that it might make a nice clean theory but in practice, well, the invisible hand also seems to be very ineffectual.

    National have been saying for years that increasing the minimum wage will cause unemployment, and also that 6% was about as low as unemployment could really get. Wrong on both counts… Why should this be any different?

  6. Bill 6

    With a model of export orientated growth it’s necessary to keep wages low to get a ‘competitive edge’ in the market.

    This is the model Labour has followed and perhaps explains the amount of pushing that has been required to get them to raise the minimum wage level…even then, only to a point where wage gaps with Australia stopped widening. They didn’t decrease. Thereby that particular competitive advantage was maintained.

    And they are continuing to follow this idea of growth being generated through growing exports…FTA China, US as well as pressure being put on Pacific Nations to adopt the same free trade export orientated economic model that has immiserated country after country over the past 25 – 30 years.

    Another way to generate growth is to encourage wages to rise which means more money circulating which creates job opportunities. I hear people shouting inflation about now. But if my wage rises faster than inflation then it’s no bad thing, is it?

    And if I have to pay higher interest rates, there is still the fact that the principle is devaluing as time goes by.

    Somebody want to take the time to explain to an economic illiterate why wage driven growth would be a bad idea?

  7. rave 7

    But companies won’t accept smaller profits.
    That’s why they are demanding bailouts to save them.
    This is just a backdoor method of cutting the social wage.
    There is a growing demand that bailouts should be full nationalisations. We should work on that.
    Paying a living wage should be a condition employers to invest. Its obvious that they have no special powers that justifies their existence. There are plenty of cases of successful state owned companies run by their workers without bosses. If they can’t pay a living wage we should nationalise them and put them under workers control.
    And no need to pay compensation since since they have shown that their incompetence has forfeited any claim to ownership of value. Instead of bonuses they get minuses.

  8. Greg 8

    Wage drieven growth would be a bad idea because wage rises can only be sustained in the short term. You need an increase in productivity to sustain wage growth in the long term. When the wage growth stops, inflation stays and thats bad for everybody, it eats away at the rage rises and eventually you end up further back from where you started from.

  9. Productivity doesn’t automatically flow through into wages. The lowest paid jobs never get pay increases unless there are minimum wage increases.

  10. John Stevens 10

    Thats right, lets nationlise everything so there are no bosses and everyone will live happy ever after just like they did in the Soviet Union as they were all equal.

    In the next year or 3 some businesses will go to the wall, that is a fact. They won’t be bailed out as per the US/Eur/UK situation for the banks. Some commentators are saying this will be a 3-4 year recession, worse than 1990.

    If the banks all go under we are all rooted, and that includes the people without any savings.

    Also, we always have to think of the lowest paid. Well it is about time they stsrted thinking for themselves instead of relying on the govt. to increase their lifestyle. They will not get any credit from now on and will live a real fugal life, no 42″ LCD on credit etc. (A bit like peasants in the old days). They will have to start thinking on how they can improve their lot, not rely on wage top ups and WFF to keep them going. Sure, it is ok to be the bottom of the pile when you start out (I used to be there) but if you are still there at 30 years old it is generally your own fault, why should I bail you out?

    [after your racist comments in the previous thread, you’ve shot your crediblity John. No-one is talking about communism. We are talking about whether increasing the minimum wage is reasonable. Maybe you don’t think we hould have a minimum wage at all, but that puts you at odds with Key. SP]

  11. Dom 11

    Totally agree with Steve. Productivity improvements are typically cited as leading to…increased profits.

  12. ben 12

    Productivity doesn’t automatically flow through into wages.

    Actually it does, both within countries

    http://www.federalreserve.gov/newsevents/speech/krozner20060927chart1.gif

    http://economistsview.typepad.com/economistsview/images/prod2916.gif

    and across them, see Martin Wolf “Why Globalization Works,” (2004) figure 10.1 p. 176.

    The US wages data is almost certainly biased downwards in recent years because wage data does not generally include benefits, notably medical insurance.

  13. John Stevens 13

    Productivity improvements are also cited to leading to……….better job security. In the past few years where there have been productivity increases most employers have rewarded staff with better pay/conditions as the labour market was tight.

    However, there would have also been instances where productivity did not increase.

  14. Daveski 14

    Without a doubt, we want a high wage economy. However, this must come through productivity rather than legislative changes.

    Let me guess – I’d say at least 95% of those promoting the benefits here have never been in the position of actually running their own business and paying for it.

    Simply mandating an increase in the minimum wage will cost jobs at a time of increasing unemployment. [evidence? SP]

    [lprent: Yes I have, several times. They usually have good returns and virtually no staff turnover.]

  15. ben. if productivity increases did flow into wage increases automatically, then we wouldn’t see the portion of GDP going to wage drop when anti-worker policies are implemented and vice versa because wages would increase inline with GDP without the need for government assistance, yet that isn’t the case in reality.. see here http://www.thestandard.org.nz/lucky-aussies-they-kept-their-work-rights/

  16. randal 16

    woe woe woe…alfred marsahll said it is one of the wonders of the ages how quickly a country recovers from the destrction of war. all I see here is anarrow little bourgeoisie afraiid they might have to step out of their comfort zone and do some work fora change. Get a grip tuggers. and labour will win the election and it will consider the minimum wage in the light of new developments…hahahahahaha

  17. Phil 17

    Productivity improvements are typically cited as leading to… increased profits.

    And the problem with that is… ?

    If you look at productivity gains in any business over the last 25 or so years, it becomes fairly clear that the biggest contriubtion has come from capital investment and technology. ICT has been a comparatively ‘low hanging fruit’ in terms of productive gain (when businesses go about it sensibly…).

  18. Daveski 18

    SP – there’s no evidence in your post to counter my position.

    You also ignore in your post the impact that this would likely have on inflation.

    To me it’s the equivalent of the “life is life” clamour from the right – it looks good on paper until you analyse it in depth.

  19. Daveski – you’re the one asserting that A will lead to B, you have to provide some evidence that is the case.

    Have a look at the business nz and biz roundtable sites, they’ve got papers in which they oppose minimum wage rises , threatening increased unemployment, yet it has never happened.

    i specifically mention the inflationary impact

  20. Daveski 20

    SP – apologies re inflation you did so.

    The point I was making re unemployment is timing – unemployment is predicted to increase in any case.

  21. ben 21

    ben. if productivity increases did flow into wage increases automatically, then we wouldn’t see the portion of GDP going to wage drop when anti-worker policies are implemented and vice versa because wages would increase inline with GDP without the need for government assistance, yet that isn’t the case in reality

    Which is a different claim to the one you made earlier and to which I responded.

    And, actually, you will see changes in the share of wages in GDP for all kinds of reasons that have nothing to do with the relationship between productivity and wages – e.g. a relative increase in the capital stock, or a relative increase in the return on capital invested.

    All the evidence I’ve seen shows a near one-to-one relationship between productivity and wages.

  22. ben 22

    Have a look at the business nz and biz roundtable sites, they’ve got papers in which they oppose minimum wage rises , threatening increased unemployment, yet it has never happened.

    Again, almost certainly untrue Steve. If the effects of minimum wage are hard to see, it is because relatively few people in the economy are caught. But among those caught the effect is serious.

    A consensus estimate is that a 10% increase in the minimum wage reduces employment among low-skilled workers from 1% to 3%. A long list of papers is here:

    See: http://www.house.gov/jec/cost-gov/regs/minimum/50years.htm

    A series of papers by Card and Krueger in 1993 is the only serious empirical challenge to this assessment. Using a different methodology from previous research, they found little or no effect on employment and some evidence that an increase in the minimum wage might increase employment. This study remains controversial.

  23. You mention the Kiwi Party’s support for increasing the minimum wage, but not the Alliance? Which is also missing from your list of party logos on the right, I note. Though at least you acknowledge the Alliance’s role in the 1999 minimum wage increases. The Alliance policy is actually for a $17 minimum wage, which seems fair to me – how many of you opponents of a higher minimum wage would be happy to be paid less than $17 an hour yourself?

    [Tane: Probably an oversight. But you know what? As far as I’m concerned the Alliance can fuck right off after it publicly attacked the CTU over not being invited to the CTU election debate. There are constructive ways to handle these things, picketing your comrades and accusing them of a ‘lockout’ is not one of them.]

    [lprent: Had to cut off the parties somewhere (there are a lot of them). I don’t want to overburden the site with graphics that have to be downloaded. So I cut off at parties currently in parliament. I do have a request to add the alliance and a graphic might happen when I get through some of the outstanding work.]

  24. Greg 24

    “oppose minimum wage rises , threatening increased unemployment, yet it has never happened.”

    SP – Yes it did, post 1984 New Zealand is a good example of it. The unions’ wage rounds during the time of the fourth labour government forced wages up and everyone saw the resulting unemployment. Economics is based on real life observations, its not all theory like you seem to be suggesting – thats why its called a ‘social science’.

  25. ben 25

    Commie Traitor

    The Alliance policy is actually for a $17 minimum wage, which seems fair to me – how many of you opponents of a higher minimum wage would be happy to be paid less than $17 an hour yourself?

    I would certainly oppose it if I could not produce enough per hour for an employer to justify that wage, for the simple reason that I could anticipate either losing my job or, if unemployed, finding it increasingly difficult to get a new one.

  26. rave 26

    Ben:
    But why do you still trust any private owner to run any company profitably, despite cowering in the face of his/here self-serving neo-classical crap calculations about not earning your wage yet?
    Why don’t you demand to see the books, work out that your boss is not earning his bonus, that you could get the loan from kiwi bank and the technology from state funded R&D, and run the show with your workmates yourself?

    Phil was it:
    Capital and technology has a larger share of productivity increase than labour? That’s true of neo-classical assumptions about factors of production. It’s not true of Marxist economics in which the labour component is the only component that produces value. Capital is merely accumulated labour value and technology is the product of intellectual labour.

    Now that people are beginning to see capitalism as the emperor with no clothes, I’m not interested in a boring discussion with his tailors whether its for a new suit of armour or lycra tights.

  27. burt 27

    Life would be so much easier if we were all paid exactly the same irrespective of what value we added to our glorious state monopoly. Just imagine, when the PM gets a 9% pay rise every year we would all get the same 9% pay rise every year. But no we don’t do that do we. The PM gets a 9% pay rise every year and almost all other workers get 3% if they are lucky. What a nasty profit hungry self serving CEO the PM is.

  28. Tane 28

    Burt. I know this is an old gripe of yours, the PM’s salary is set independently of the PM. But yeah, I agree politicians shouldn’t get an increase above that of the average worker.

    Where we differ is on supporting policies that allow workers to bargain for higher wages.

  29. Phil 29

    labour component is the only component that produces value

    … and the labour/effort that funded the purchase of the capital came from where?

    The Entrepreneur!

  30. ben 30

    Rave, neo-classical economic theory has nothing to do with running a business. A business owner is concerned with bringing at least as much money in the door as goes out in wages and other costs. A business owner can not hire somebody for $17/hour when the value to the business is less than that. Now, there is nothing wrong with charity – but sooner or later businesses that cannot meet their payments go under.

    Rave, businesses take on workers when the business needs it and the value they add is at least as much as what they cost to the firm. Opening the books may prove the business is making money – but that is not the test businesses use on whether to hire the next worker. The decision is made at the margin.

  31. rave 31

    Ben, I know what motivates employers. They will not invest in more workers unless they calculate an increase in their profits.
    I am saying that ALL their profits come from labour.

    Phil, capital is dead labour value; i.e. labour already expended in producing it. The entrepreneur borrows some from a bank to exploit living labour. If s/he gets more labour value than s/he puts in then s/he deducts the cost of the money borrowed (and other costs) and then pockets the balance as profits.
    The risk taking which is the only ideological claim left to the entrepreneur has been shown to be fucked (for the nth time) by the credit crisis.

    Moral hazard? What is that? Rampant hypocrisy that takes workers wages by the backdoor via taxes to cover the losses of risk taking that goes bad. Especially if the rich keep getting tax cuts on top of their bonuses.

    Better to collectivise the risk and base it on the needs of the collective than the greed of the individual entrepreneur. At least if things go bust, the collective can bail itself out.

  32. Matt 32

    Ben, minimum wage increases have had no affect on unemployment in the past 7 years – the relationship between min wage increases and unemployment is complex – and a lot of it is to do with the fact that minimum wages are usually paid to vulnerable workers who are not getting paid what their work is worth – so the increase is absorbed into that margin. Strange, but the freer the market the less like a perfect market it works – free markets are full of distortions.

    Also, who said economics is based on observation and is a science not just some theories? You obviously have no understanding of economics – it is basically a set of theories based on some observations which rarely, if ever, actually tell us anything accurate about the economy.

  33. Spider_Pig 33

    “it is basically a set of theories based on some observations which rarely, if ever, actually tell us anything accurate about the economy.”

    So you’re saying the observations are inaccurate? Who’s observations? Are Steve’s comments above inaccurate? Or is it a case of the Left’s observations are accurate, but the Right’s are not?

    Like Labour’s tax cuts are affordable? But National’s are not?
    Like Labour’s tax cuts are non-inflationary? But National’s are not?

    The hypocrisy is staggering.

  34. randal 34

    national is going to give everybody a $1000 bucks for christmas and $150 a week for everyone else, woweeeeeeeeee…

  35. Greg 35

    Matt – Try studying it. You’ll find it applies quite well to the real world.

    “it is basically a set of theories based on some observations which rarely, if ever, actually tell us anything accurate about the economy.”

    That is one of the least accurate and insulting statement’s I’ve heard recently. Economists make future observations based on lessons learn’t in the past. Even the Labour government employees hundreds if not thousands of economists to run New zealand’s economy. If they’re always wrong, son’t ya think they’d have lost their jobs?

  36. Tane – the Alliance tried dealing with the issue constructively, and only went public when that didn’t get anywhere.

    [lprent: In case you didn’t realise, your psuedonym contains a word in the auto-moderation list. It is there because of its over-worked and out of context usage by some of our trolls (along with a number of other indicator words). Which is of course probably why you chose it – sounds like a buggerlugs style label. I found there was a pretty small list of words or phrases without which most wingnuts had problems expressing themselves. So if they use them they moderate themselves.

    You might want to consider modifying your psuedonym so it doesn’t send you into moderation all of the time. 😈 ]

  37. ben 37

    Ben, I know what motivates employers. They will not invest in more workers unless they calculate an increase in their profits.
    I am saying that ALL their profits come from labour.

    Ok. I guess you’re taking a broad view of what labour is. Fine. But wherever the profits come from, employers can only take on workers that produce at least as much to cover the wage bill. We can I presume agree that a minimum wage of $100/hour would force most workers (including me) out of a job for the simple reason that most workers do not produce enough to cover justify that wage. Either the workers must be let go or the business will go under and they lose their job.

    Similarly but to a lesser extent for $50. Similarly for $20. Is it really that difficult to accept that some workers will not be caught at $17?

  38. $100 is much more than the average wage, while $17 is significantly less. You can give people with the smallest slices of pie bigger slices, but you can’t give everyone a bigger slice.

    I’d be surprised if there are many companies that generate less than $17 an hour per worker in revenue.

  39. ben 39

    Matt

    Thanks for your reply, and the insults. I do know a bit about economics, thanks very much, and I can tell you a great deal of work goes into producing theories and then testing them empirically. Pick up a copy of the American Economic Review next time you’re in a university library, which, I take it, isn’t that often.

    Ben, minimum wage increases have had no affect on unemployment in the past 7 years

    And you can tell this, how? Because unemployment declined during the boom? That is not a test of, well, anything. Around 4% of the work force is at minimum wage in NZ, so you would not expect minimum wages increases to overwhelm economy-wide effects. Doesn’t mean they’re not real for the 4%.

    What you’re saying is demand for labour is not decreasing in its cost. Firms just – what – don’t care about money? What you’re saying also defies almost every empiricial study of one of the most researched questions in microeconomics. Yes, Matt, demand curves slope down.

    – the relationship between min wage increases and unemployment is complex – and a lot of it is to do with the fact that minimum wages are usually paid to vulnerable workers who are not getting paid what their work is worth

    I have just quoted evidence showing that is untrue. Productivity and wages move 1 to 1. Within countries, and across them.

    – so the increase is absorbed into that margin. Strange, but the freer the market the less like a perfect market it works – free markets are full of distortions.

    So we’re all walking past $100 bills on the footpath? Not that you’ll understand the point.

    Also, who said economics is based on observation and is a science not just some theories? You obviously have no understanding of economics – it is basically a set of theories based on some observations which rarely, if ever, actually tell us anything accurate about the economy.

    Please. If you pick up any journal in economics you’ll find the following format in about 2/3rds of all articles: introduction, overview of past literature, theory, empirical test of the theory, conclusion. I’ll bet good money you’ve never opened an economics journal if your idea of economics is that limited.

  40. ben 40

    .I’d be surprised if there are many companies that generate less than $17 an hour per worker in revenue.

    Commie, its not the average worker in a firm that is relevant here – it is at the margin that what matters. Is the least valuable task being undertaken by each firm worth more than the cost of hiring that last worker to do it? For some firms, the answer will be yes at current minimum wage and no at $17. And the evidence supports that.

  41. It depends how you measure that value of that “least valuable task”. Could the firm function if that task wasn’t carried out at all? Supermarket checkout operators are very low-paid, but supermarkets would be in a bit of trouble if they didn’t have any.

  42. ben 42

    It depends how you measure that value of that “least valuable task’.

    The firm could measure it three ways. Directly, by trying to calculate the additional revenue. Second, by benchmarking – is this task undertaken by competitors? Or third, indirectly – through the firm’s survival. I suspect all firms have more work for one more recruit to do – an important part of good business is knowing when to place the job advert and when to go without. For some firms, minimum wage rules will influence that decision.

  43. And for other firms, the increased sales thanks to workers spending their increased wages will lead to them taking on more staff.

  44. Why not address the costs of living and issues surrounding rising costs, instead of just putting another minimum wage increase band-aid on the situation?

  45. higherstandard 45

    Because the politicians are bereft of ideas beyond those of the band-aid variety Thinkbig and if they have been using their grey matter they certainly don’t want to scare the electorate a few weeks out from the election.

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