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Facts refute critics of minimum wage increases – make the minimum wage a living wage

By   /  December 19, 2018  /  8 Comments

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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.

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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.”
Take a look at this rather typical article by the New Zealand Initiatives’ Roger Partridge in the National Business Review attacking the planned minimum wage hike headed ‘Magical thinking doesn’t lift wages‘. (https://www.nbr.co.nz/opinion/magical-thinking-doesnt-lift-wages)
“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.

 

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About the author

Mike Treen

National Director of Unite Union

8 Comments

  1. countryboy says:

    I’d just like to pop right in here and remind people that any rise in any wage of any amount will be vacuumed up by the banksters immediately.
    Here’s what you should do, I’m unashamedly arrogantly able to say.
    Speaking ridiculously broadly. People employed, and those who are not paid for their efforts but work their arses off anyway should find out who their political representation is and have a wee chit chat about this and that.
    Like? Why do we need electricity ‘retailers’? What, exactly, do they do?
    Why are we allowing two food-pimp supermarket chains rort us for our foods and general groceries? Butter? $6.00 +? WTF? Chicken flesh that’s not from tortured little souls @ up to $29.00 a kg. Again. WTF?
    Our rail system’s right there and yet massive trucks are ripping up our tax paid for roads? Is that not correct Mainfreight etc? ( Nice signature class Aston Martin coupe BTW mate. )
    Our forestry? I can see the trees but why is timber so absurdly expensive?
    LPG? Great stuff but again is mind bogglingly expensive.
    The list goes on and on and until we demand to be heard and we once again control our assets for us to use we can never trust one single word coming out of any of our well paid, well fed, well travelled, white toothed, Karen Walker dressed pudgy, farting, wine sculling, 1st class traveling, then retiring on huge allowances politicians who will fuck us around until kingdom come as they drop us into the debt pits of Hell to watch us being mauled by the ferocious foreign banksters for their shits, giggles and profits.
    Forget the fucking wages. Forget about it! Until you take back your stuff and things and muzzle the banksters and by muzzle, I mean cut their fucking heads off, you will always be anxious and confused which leads directly to societal dysfunction and a scant few measly extra dollars for an hours labour won’t change one single fucking thing.

    Read this. Fresh on The Guardian.
    Federal Reserve raising interest rates
    https://www.theguardian.com/business/live/2018/dec/19/markets-federal-reserve-interest-rate-decision-uk-inflation-business-live

    Now?
    Watch this. ( I know. Cartoon. But be patient. Many a true word spoken in silliness. )

    The collapse of the american dream
    https://youtu.be/mII9NZ8MMVM

    Now? Tell me? What do you think will happen to your wage increases?
    Our banks are owned by the Aussie banks who are owned by the yank banks and they all get fucked by the privately owned Fed Reserve. Meanwhile? The Fed issues IOU’s to anyone, then, when they run their course and private billions are made they demand bailouts from the workers of the United Sociopaths of America while the Feds bankster buddies foreclose on you and me and we go mad on the booze and kill the neighbour in a drunken, debt ridden fit of anxiety.
    You see where I’m going with this right?
    You’re an excellent fellow @ Mike Treen but forget about the wages thing and focus on the Bankster. That’s where our troubles ferment.

  2. Andrew says:

    A lot of work has been done in recent years on minimum wage issues and the evidence is that there are negative impacts, especially for the unskilled and unemployed: They can’t get on that first rung of the ladder.

    https://qz.com/1429986/a-new-study-of-seattles-minimum-wage-hike-shows-who-it-helps-and-who-it-hurts/

    So a higher minimum wage boosts the income of minimum wage employees but tends to entrench unemployment. France is a great example of this.

    But it gets even more messy: The assumptions in your article assume that were no other factors at work during the period you quote but clearly that’s not the case. The employment situation is a affected by countless factors not least of which are economic growth, the exchange rate and commodity prices.

    Another factor is slow response. Higher minimum wages encourage employers to seek a means of automating their processes. Whilst they might not act on it immediately, they will start working in the background on technological options. Take for example Port of Auckland. As a consequence of past industrial action, the limited and expensive labour they are in the process of automating the port. These radical actions of yours result in reactions 😉 Those dockside jobs are gone forever and once one port has cracked it, the others will follow.

    • simonm says:

      Yeah and there’s plenty of evidence that untrammelled low-skilled immigration is bad for workers too. Oddly enough we don’t hear that point of view from the Big 4 banks’ economists or the Business Roundtable, sorry “the New Zealand Initiative”:

      https://www.politico.com/magazine/story/2016/09/trump-clinton-immigration-economy-unemployment-jobs-214216

      “When the supply of workers goes up, the price that firms have to pay to hire workers goes down. Wage trends over the past half-century suggest that a 10 percent increase in the number of workers with a particular set of skills probably lowers the wage of that group by at least 3 percent. Even after the economy has fully adjusted, those skill groups that received the most immigrants will still offer lower pay relative to those that received fewer immigrants.”

    • SPC says:

      Comparing us to France, when we have significant employer demand for migrant labour and falling unemployment, is absurd.

      And in our situation there should be employer investment in labour sustitution, it would be better than the population increase through migration occurring and consequent upward pressure on housing and infrastructure.

  3. You are too kind to economists. Economics is a fundamentalist religion. They worship growth. They use faith in assumptions as an acceptance of something that is not true. They do not use much real data in their imaginary graphs which when reverse engineered show them up for nonsense. They attack any dispute like it was heresy. They do not observe that the failures of their theories is scientifically a failure of that theory.

  4. Andrea says:

    So Alice runs faster just to stay in the same place.

    The tsunami of price rises begins.

    The low end people stay mostly where they were. Running hard to stay in place, maybe abate debts for a while and then the next wave strikes.

    The people permanently on benefits and pensions look up at the bottom of the bottom and wonder how they’re supposed to live on less than 66% of the minimum wage which Everyone Knows is too little to live on with any dignity and without reserves against the unexpected.

    And Andrew’s people at the port? Where’s the affordable retraining and upskilling? Our polytechs are already thirty years behind current technology and turning out graduates who aren’t anywhere near work-ready. Lacking modern knowhow and skills because the polytechs lack the equipment and resources. No wonder our roads, buildings, manufacturing are cursed with low productivity. Someone forgot to feed the chook that lays the golden eggs.

    Pay increase = ‘King for a Day’ before the usual ticket clippers start circling.

    The systems are still well and truly broke, Mike.

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