Facts refute critics of minimum wage increases
Many Employers and their paid servants in the so-called economics “profession” are already screaming about the proposed minimum wage hike in New Zealand to $20 an hour by April 2021.
Most of their objections amount to the repetition of dogma which they want us to believe is some sort of science. Usually, very few facts are ever advanced to support their views.
I want to look at what actually happened in New Zealand when we had a similar percentage minimum wage rise over a similar period, from 2004 to 2008.
As unwelcome as they are for right-wing dogmatists, let’s look at some facts.
Labour was elected in 1999 with the adult minimum wage at $7 per hour and a youth rate of $4.20 per hour applying to those under 20. There were some modest increases for the next few years and the youth rate age of eligibility reduced to apply only to those under 18.
In 2004, the adult rate was $9 per hour and the youth rate $7.20. This was increased to $12 and $9.60 over the next four years – an increase of 33 per cent. Inflation during that period was 12.5 per cent, so there was an increase in the real value of the minimum wage. There was also an increase in its relative value: rising from 45.4 per cent to 50.6 per cent of the average wage.
The agreement to lift the level to $20 by April 2021 will increase the adult rate from $15.75 to $20 an hour over four years. That is an increase of 27 per cent – a bit less than the 33 per cent increase from 2004 to 2008. The right-wing commentators at that time predicted doom and were proved wrong.
Here are some other economic statistics for the same period – April 2004 to April 2008.
- The unemployment rate declined from 4.7 per cent to 4.2 per cent.
- The Labour force participation rate increased from 66.7 per cent to 67.7 per cent
- Youth unemployment and participation rates were almost unchanged.
- Inflation averaged 3 per cent a year while the minimum wage increase averaged over 8 per cent a year.
Some of the biggest increases in the minimum wage have occurred for young workers. In 2001, 18- and 19-year-olds were put on the adult rate. By 2005 their rate had more than doubled from $4.55 an hour to $9.50 an hour.
Were young people priced out of the labour market as the dogmatists assured us would happen? No, in fact, the opposite happened. Employment for this group increased overall and unemployment dropped.
According to the Household Labour Force Survey, during that period from the March quarter 2001 to the March quarter 2005, employment of 15-19-year-olds increased from 120,600 to 140,600; unemployment declined from 26,300 to 23,800 and the unemployment rate declined from 18.7 per cent to 14.5 per cent. The overall labour force participation rate for 15-19-year-olds increased from 51.2 to 54.3 per cent. Right-wing commentators at the time simply changed course and argued that the minimum wage was too high for young people because it was encouraging them to go and get jobs!
These facts will not prevent dogmatists like those who write for the extreme right-wing economic think tanks and commentators from predicting more doom and gloom. The New Zealand Initiative is the most prominent think tank in New Zealand advocating these views.
The economic principles these groups espouse derive from a fundamentalist brand of economic thought that actually opposes any minimum wage as an interference with the free market. The free market, in their view of the world, has an extraordinary ability to only deliver positive outcomes at all times – so long as we don’t interfere. The Act Party is their ideological advocate in parliament.
This is a religion and not a science. Their views should be treated with the same respect that is given to Brian Tamaki’s views on sexuality – they are nothing but ignorant bigots. The economists only differ from Brian Tamaki because they have a degree conferred on them by other ignorant bigots who run the academic economics “profession” worldwide.
When the media report their comments it should come with a health warning: “The New Zealand Institute does not use facts to support their argument – they appeal a god called ‘the market’ to justify their views.”
“It is magical thinking to believe that we can make the poor better off by simply legislating substantial increases in the minimum wage.” Really? What about 2004-2008 in New Zealand? The writer does not need to point to a real-life example. His proof comes next: “Labour markets work like other markets. Put up the price and demand will decrease.” That is not proof. That is dogma!
Roger Partridge then quotes another dogmatist from his own institute for further proof in the form of the NZ Initiative’s Eric Crampton. He doesn’t actually quote any facts, either; he simply quotes the estimates done by the Ministry of Business, Innovation and Employment, the government ministry responsible for preparing reports over possible economic impacts of minimum wage rises. The problem with the MBIE estimates is that they are done by economists trained in the same religious dogma; consequently, they use a neo-classical model that predict automatic increases in unemployment for each additional increase in the minimum wage.
Instead of using a model for an economy that does not exist, we can use the actual changes that have occurred in New Zealand.
The problem is that the “neo-classical model” has blown up all over the world and not even major institutions that have defended it for decades even pretend to believe in it anymore.
New Zealand already has one of the highest minimum wages relative to the average wage in the OECD – the club of the most advanced capitalist countries. Yet we actually have one of the lowest official unemployment rates. We have pushed further in the past on the minimum wage; for example, in the early to mid-1970s under a previous Labour-led government, the minimum wage was 66 per cent of the average wage.
Reaching $20 an hour by April 1921 will actually take us much closer to our goal of a living wage equal to the living wage, which is around 66 per cent of the average wage.
The minimum wage has actually been increased every year for 18 years. The increases have taken it from 40 per cent of the average wage to 53 per cent today.
By 2021, I estimate that the minimum wage will have gone from 53 per cent of the average wage to 61.5 per cent of the average wage, after allowing for average wage movement over the next four years similar to what has occurred over the last four.
The living wage calculation today is approximately 66 per cent of the average wage. It is being implemented immediately by the new government for all directly-employed staff and then for contractors to the government in the future. This is also significant.
Such moves will create real problems for many industries and employers with differing rates applying depending who you work for rather than the industry you are in.
Some big private employers are biting the bullet and moving to a living wage for their staff immediately.
It makes sense for the government to declare the goal of progressively lifting the minimum wage to 66% of the average wage in the three years after 2021. This will remove uncertainty and show a commitment to tackling the ongoing legacy of inequality in New Zealand society.