ODT on minimum wage

February 1st, 2010 at 1:00 pm by David Farrar

The ODT editorial:

The cry from unions and the Opposition parties, without the responsibility of Government, has been to raise the minimum to $15 an hour.

But why $15? Why not $20 or more?

Obviously, much, much higher minimum wages are totally unrealistic and would wreck the economy.

The same principles apply to $15 even if the impact is not as severe.

And what is depressing is the economic illiteracy where the left have convinced themselves that one can close the wage gap with Australia by legislating for higher wages. That’s like thinking one can legislate the Easter Bunny.

The way to raise wages, is through increased productivity. And the best way to earn more than $12.75 an our is to gain skills and experience. Very very few people spend their life earning the .

Struggling businesses, and many are still on the brink, would have to employ fewer people, more firms would go bankrupt, costs for goods and services would rise (including for beneficiaries and the poor) and, in the long run, the most vulnerable groups and those without jobs would be the worst affected.

With the abolition of the youth minimum wage, they would be most affected, as $15 an hour would price many of them off the market and deny them the opportunity to gain work experience.

About 100,000 people are directly affected by the minimum wage increase, and relativities flow from these.

Margins for responsibility, seniority and skills will be squeezed, hence one reason for the vociferousness of various unions.

They will, naturally, look for increases to preserve margins.

A move to $15 would have significant flow on effects, and would be inflationary. This means interest rates go up, and again fewer people in employment and lower economic growth.

From an economic point of view, the minimum wage has risen more than enough over the past decade, with detrimental impacts so far cushioned by growth and relatively low unemployment.

The Government, in the current climate, has taken a cautious, sensible and pragmatic approach by withstanding pressure to hike the rate, while tweaking it in line with inflation.

And again the minimum wage is a minimum. Workers should not rely on increases in the minimum wage to increases their wages. They should gain experience, upskill etc so they do not remain in a minimum wage job all their lives. Most workers on the minimum wage do not stay there, I understand.

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31 Responses to “ODT on minimum wage”

  1. Murray (8,844 comments) says:

    Who the hell goes to school with the intention of leaving to get the LOWEST paid job they possibly can?

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  2. jaba (2,120 comments) says:

    Helen Kelly was asked about the affordability of the requested min pay going to $15. She justified it by saying the big supermarket chains could afford to do so .. that’s great Helen but what about the smaller business’s??
    Someone must have e-mailed the show to say that if a business would fail but paying $15 p/h, they were doomed to fail anyway so there you go.

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  3. s.russell (1,592 comments) says:

    There are also people who believe that the best way to raise the standard of living in third world countries is to block their market access to us – this will apparently force the evil corporations who employ workers there to pay developed country wages.

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  4. Brian Smaller (4,037 comments) says:

    Murray – many Labour voters and unionists do it seems.

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  5. Bevan (3,965 comments) says:

    I find it funny that in Australia the KRudd led Labor government is calling for increased productivity as the key to Australia improving its lifestyle…..

    Can we please just hurry up and become another state of Australia – at least until the country gets its shit together!

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  6. MikeNZ (3,234 comments) says:

    “They should gain experience, upskill etc so they do not remain in a minimum wage job all their lives. Most workers on the minimum wage do not stay there”
    How do they do that on $15 p hr, it’s a dichotomy for some.

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  7. NoCash (257 comments) says:

    MikeNZ

    Unless one works 16 hrs a day, 7 days a week, one can find time to upskill.

    It isn’t easy, but it can be done if one is willing.

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  8. Pauleastbay (5,035 comments) says:

    MikeNZ…

    You turn up on time, do a good job,gain experience. ————–.Thats how!!!

    Problem today is every 18 year old with three weeks High School education wants to run the company after being there 2 1/2 weeks and gets resentful as hell when they find that with no experience nobody wants to listen to them-so-they leave and start somewhere else at the lowest wage.

    Thats not a dichotomy, thats people today wanting it all straightaway without putting in some hard yards– .

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  9. Bevan (3,965 comments) says:

    How do they do that on $15 p hr, it’s a dichotomy for some.

    By not wasting their money on iPods and takeaways. Shit I upskilled while getting getting $8/hr only five years ago! We need more people willing to better their own lives, and less of the people who just wait for someone to do it for them.

    Its called initiative, and those on the minimum wage have SFA.

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  10. Murray (8,844 comments) says:

    Yeah thats the message I’m getting Brian. The same people who would rather part with a kidney than let us know how well things are going in the classroom.

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  11. Grizz (589 comments) says:

    Here is an interesting take on raising the minimum wage in American Samoa.
    http://www.europac.net/externalframeset.asp?from=home&id=18062&type=schiff

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  12. Stuart Mackey (337 comments) says:

    Bevan (1763) Says:
    February 1st, 2010 at 3:58 pm

    By not wasting their money on iPods and takeaways. Shit I upskilled while getting getting $8/hr only five years ago! We need more people willing to better their own lives, and less of the people who just wait for someone to do it for them.

    Its called initiative, and those on the minimum wage have SFA.
    *************************

    So you don’t have any initiative? ;)

    For some their circumstances don’t allow for it, others are simply not smart enough to be able to upskill, to be honest, and others simply follow market dictates and move to Australia to get three times as much for the same job.
    Don’t assume that because someone is on minimum wage its because they are shiftless or idle, you obviously were not, but thinking that way is idle, you cannot get the best from people if you think or act in such a manner.

    Another issue I have found, talking to those from overseas with managerial experience or just others who have an enormous amount of experience in their fields from overseas, and thats that NZ business skills as well as managerial ability here is woefully lacking and people are not utilized nearly as well as they could be, but in my own industry a lot of that is big fish in small ponds don’t like bigger smarter fish making them look bad in front of their own employers or clients.

    Then there is the mind numbing insanity of the last government in wasting a heaven sent opportunity to reform our tax system and its effect on business, but thats been well covered here I think.

    In short I have found that on all fronts here, business, government and workers, there are far to many not looking at themselves in the mirror and blaming every one else.

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  13. Bevan (3,965 comments) says:

    So you don’t have any initiative?

    Plenty damn initgiative mate, I’m now on $75k with ceiling four times that – all that from failing school cert. It’s called working your arse off and making sure you are always worth the money someon is paying you and then some.

    Don’t assume that because someone is on minimum wage its because they are shiftless or idle, you obviously were not, but thinking that way is idle, you cannot get the best from people if you think or act in such a manner.

    So we should just eat the inflation and give them their legislated pay rise, then top that up with their WFF handout? Why the hell should I have to pay that all because they are too lazy to improve their lot themselves or as you suggest, their feelings are too hurt? Fuck them, they want to take the easy way, put in fuck all effort or risk then they are not worth more than $12.50/hr.

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  14. RossK (277 comments) says:

    Maybe higher wages will lead to productivity gains. We know that the ECA and lower wages didn’t lead to higher reinvestment – just a skewing of returns away from labour to capital.

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  15. Pita (373 comments) says:

    “Maybe higher wages will lead to productivity gains”…Maybe not… I did business with a processor who was a large employer in a rural community. Absenteeism was a problem… so, to encourage attendance, they increased the hourly rate. The result… a higher level of absenteeism…I’ll leave you to work out why.

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  16. Bevan (3,965 comments) says:

    Maybe higher wages will lead to productivity gains.

    I’m sure it will lead to a productivity gain from some employees. It may also lead to layoffs. Kinda kills any benefit from productivity when that happens. Imagine if a factory employed 20 staff doing menial tasks at $12.50/hr and that factory was breaking even financially each month. What do you think would happen if then all of a sudden they had to find an addtional $50/hr to pay their staff? They would either have to reduce costs, take on debt or lay off some staff. No small company I know would continuously take on debt to continue paying their staff, and many would have reduced costs at the start of the crisis anyway!

    We are only just coming out of the tough times, the government needs to be careful. Businesses will not take the risk of hiring new staff or expanding if the can help it until they are sure their income and profitablity are more secure. The last thing they need is to be forced to increase anyones pay!

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  17. Pauleastbay (5,035 comments) says:

    Pita.. Easy

    I live ,but not work in a small rural community. Alot of people here are happy to earn enough to just get by, pay basic bills and go fishing. therefore if wages were increased they have to work less to cover the basics, therefore more fishing time.

    I don’t call it living I call it existing, but there are alot of people out there who are happy to do just that. Growing a couple of pounds supplements to of course

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  18. MikeNZ (3,234 comments) says:

    Paula
    Same thing in Africa.
    Employers gave people a pay rise so absenteeism went up.
    They asked why they hadn’t come in Monday and were told the didn’t need to work 5 days now they got a pay rise.
    Same thing when their kids got a job, stopped working some afternoons or dayxs as the kid was bringing money and paying over some or all of it.
    Go Figure.

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  19. menace (407 comments) says:

    lmao, legalise the shit and that would be taken care of.

    At 32 i should not have to dodge the fookers that want to pay me that minimum shit.

    The two good emplyers i do have both pey well above the everage of their pairs and it sticks out like dogs balls with the integrity there staff take with there jobs.

    When i cant find something above minimum im quite happy to burden this country with my self! Please note though that i dont take the dole, the burden im refering to is use of inferstructure of the country with out putting in enough to cover my equal share comparitive to the wages/tax rates i do or would earn/pay.

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  20. Johnboy (15,903 comments) says:

    I have a problem at work where even though we are only paying some around $13/hr they get such a big top up from WFF and accommodation allowances etc they just take off for a day or two when the mood takes them. All a pay rise would do is increase absenteeism. I think the only ones who really bleat about a rise are the union tossers to justify their existence it seems the staff don’t care (and yes once they have been paid their sick leave entitlement they get docked). It makes no difference at all they still go walkabout.

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  21. RossK (277 comments) says:

    That is interesting that higher wage rates led to absenteeism because the employees didn’t have to work as hard to earn the same money. Does it follow from that that higher progressive tax rates will encourage greater levels of labour (and hence productivity) because people will have to work harder to make the same amount of money after tax? I think we’ve heard this one before – the poor need the spur of their own poverty while the rich need the incentive of greater prosperity.

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  22. Luc Hansen (4,573 comments) says:

    I would first like to address a couple of points raised by DPF that actually, I am sorry to say, indicate some pretty shoddy understanding of basic economic theory and practice.

    I like to peruse, from time to time, copies of speeches made by Don Brash, posted on his website http://www.donbrash.com

    As regards the inflationary impact of a relatively small numeric increase to the minimum wage, this would also be small, unlikely to project inflation outside the target band, and as a “one-off,” would not lead to any specific action by the RB, and would not dent inflationary expectations.

    And it is inflationary expectations that are most important to the reserve Bank in setting its monetary policy.

    Inflationary expectations would, in my opinion, be unchanged by this one off, in exactly the same way as if GST was increased, which would deliver a much higher inflationary effect.

    Now let’s look at the usual panic-stricken mantra of the sky will fall in for a minor improvement to the pay level of a small sector of the workforce. I seem to remember the same panic as we geared up for an extra week of paid holidays.

    In New Zealand, businesses all operate in the same market for their sector. They all make their own decisions as to how much to increase their prices and by and large, it’s the same for all and life just carries on. Our export industries are not labour intensive to the point of being in jeopardy of a minimum wage increase that would be pretty much irrelevant to them – but not to their night time office cleaning staff, no doubt.

    So all these reports of businesses falling over are mainly hot air, and in the odd case where through mismanagement some did fail, as occurs regularly, anyway, well, we are better of without them.

    And posters like Johnboy still wallow in the mucky concept of the deserving and undeserving poor, which rears its ugly head from time to time, and simply ignores all the deterministic factors which go towards many people being poor.

    I haven’t studied the arguments put forward in favour of an increase, so I can’t really comment on whether it is justified or not, but I suggest we would be better to study this aspect rather than the usual red-neck, knee-jerk reactions we see so often.

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  23. MikeNZ (3,234 comments) says:

    LUC
    your KBRM photos are out of date.

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  24. NoCash (257 comments) says:

    Luc

    Are you saying that increasing the min wage to $15/hr will not affect people who are more skilled and already on $15 currently, and they will be happy to remain on $15/hr?

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  25. Luc Hansen (4,573 comments) says:

    Mike, I know they are but they are still effective.

    NoCash, yes, I am saying that. The minimum wage increase could be instituted with the agreement of the unions, especially the big unions, not to seek relativity increases, as essentially happened with the extra week holiday.

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  26. Grizz (589 comments) says:

    Luc,

    Are you aware of the situation in American Samoa?
    The US governement is trying to increase the minimum wage to parity with the US in spite of the fact that the cost of living in American Samoa is considerably less. The end result has been the closure of factories, loss of exports and a massive rise in unemployment. Businesses like tuna canneries have built high capital, low labour factories elsewhere instead.

    Besides, I think large rises in the minimum wage will be inflationary. The relatively more skilled and experienced worker will demand more than the new guy. The end result is that the increased pay will only buy the same basket of goods. If you want to close the gaps, have better schools, hospitals, harder prisons etc the only way is to increase productivity.

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  27. Luc Hansen (4,573 comments) says:

    Grizz, I fail to see the relevance of America Samoa to New Zealand.

    Also, I have explained above in some detail, and with supporting information provided by Don Brash (and I’m not implying he supports or otherwise the campaign) the expected impact on inflationary expectations.

    Of course a large rise would be inflationary, as would, in fact, any rise. But although the usual suspects blow it up as a 20% shock, horror, increase, it’s actually 20% of not much.

    Perhaps this article will help to provide some context: http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=10623236

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  28. menace (407 comments) says:

    yes its sweet fuck all of nothing in the big picture

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  29. Brian Smaller (4,037 comments) says:

    The shearer was in doing the neighbours sheep on the weekend. He told my fourteen year old son that he could make $150 a day crutching and dagging in the holidays if he wanted a job. Something like .30 to .50c per sheep. Hard work but good money for a school kid. No end of work around where we are.

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  30. Falafulu Fisi (2,179 comments) says:

    Ms Luc Hansens is now an economic expert. The illiterate Hansen is everywhere trying to be an advocate for the so called disadvantage of the society but the reality is, it’s no ones fault but to blame themselves.

    Ms Hansen, you made comment on the other thread that rubbish collecting scientists at RealClimate confronted me with a criticism that I made there. They weren’t. I challenged them in a follow-up to explain in terms of physics but my question wasn’t posted. It is a highly moderated forum. I asked a question in the field of solid-state-physics (CO2 molecules are indistinguishable according to Quantum Statistics – Fermions & Boson statistics), where no one can tell which CO2 that came from land and which ones that originated from fossil fuels, etc,… The question that I posted over there comes from a different branch of physics altogether and not from climate rubbish collection (oops, climate science).

    RealClimate rubbish collectors didn’t address the physics that I posted over there, however they tried to answer my question by saying that the technology to detect CO2 levels in the atmosphere (including of where they originated) already exists. You can build technology based on false premises and no one would dare to answer. The good example of this, are machines that are available today commercially which are they supposed to re-align people’s DNA based on sending the body electronic frequencies that are supposed to be in-tune with the DNA molecules natural vibrations mode therefore it can help the body’s self-healing mechanism. Physics doesn’t say that such process is feasible. It doesn’t mean that the technology exists, and then therefore the physics that is based on is valid? Do you following what I am saying here? Besides, you didn’t understand by comment at RealClimate did you? Don’t worry Ms Hansen; I know you’re scientifically illiterate, so that is expected from the likes of you?

    Now, can you take my advice on say, educating yourself (eg, formally enrolled in some courses at Uni) so that you know what you’re debating about? I am self-taught in economics (well in computational numerical economics modelling), so I know that disaster of having minimum wage, dictated by legislation, so if I want to debate this issue, I have already read heaps of economic peer review publications on the topic. You should do the same if you want to be involved in the debate here and state facts rather than spewing out your socialist views.

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  31. menace (407 comments) says:

    Brian, where are you?

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