No link

January 11th, 2011 at 7:00 am by David Farrar

The Press reports:

Labour youth affairs spokeswoman said yesterday there was no link between and joblessness.

No link? I’m sorry Jacinda, but that is a grossly illiterate comment to make, economically. Are you really saying the cost of labour has absolutely no impact on whether said labour is hired?

This is like saying there is no link between the cost of cars and the numbers of cars people buy.

“The current youth unemployment rate is at similar levels to those reached in the recession of the early 1990s when youth rates [existed].”

But they key difference is that overall unemployment is far less than in the early 90s. For most age groups, it is only half what the peak was in 1991. It is only the under 20s which have reached the same peak.

This graph show the total level of employment (in 000s) for the two youngest age groups. Now do you really want to say there is no link, considering when it was youth rates were abolished?

Labour and Jacinda could argue that they would rather have say 110,000 young people earning $12.75 an hour than say 130,000 young people in work where some only earn say $9 an hour. That sort of trade off is what setting minimum wages tends to be all about.

But to claim there is no link at all between the cost of hiring a young worker, and the number who are in work, is just not possible.

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54 Responses to “No link”

  1. Grant Michael McKenna (1,156 comments) says:

    DPF reports that Labour are economically illiterate as news? It is a slow news day!

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  2. Mark (1,403 comments) says:

    Jacinda is living in a fantasy world I am afraid.

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  3. Murray (8,838 comments) says:

    Facts have no place when ideology is being pushed.

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  4. Manolo (13,514 comments) says:

    A reminder that Labour-lite got the unions’ support on its stance on youth rates: http://union.org.nz/news/2010/ctu-welcomes-decision-on-youth-rates-18310

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  5. All_on_Red (1,464 comments) says:

    What a Jackass-hee haw, hee haw.

    Labour really are bereft of ideas. If I look at them , there is NO-ONE who inspires. They are just so ordinary and one dimensional.

    Their slogan should be ‘Labour , doing what the Union says and so should you!”

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  6. tvb (4,229 comments) says:

    There is a reason why they have not got jobs so what does Arden think it is??

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  7. KiwiGreg (3,211 comments) says:

    “There is a reason why they have not got jobs so what does Arden think it is??”

    I’m guessing its something like “the Chinese have stolen them, NZ needs to promote fair trade by restricting imports from low wage countries; employers should be able to create jobs that pay high wages and the government needs to create an environment which promotes high tech investment; we need to pay teachers and other unionised workers more…” Basically let’s just beggar the country and promote state ownership and control.

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  8. s.russell (1,578 comments) says:

    This morning on National Radio Grant Robertson insisted that state employers were being compelled to use the 90-day trial provisions, and decried the removal of choice.

    In fact the state sector has been ordered not to sign away the right to use the new law in negotiations with unions who want to deprive employers of this choice.

    Does this make Robertson a hypocritical liar or a lying hypocrite? (I would welcome expert advice on this.)

    I have ceased to be amazed but continue to be saddened by Labour’s willingness to completely ignore facts and logic and go for Orwellian doublethink in their campaigning.

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  9. Inventory2 (10,161 comments) says:

    @ s.russel – either/or. It does go to show that Robertson learned well from the time when he worked for the previous regime prior to entering Parliament.

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  10. Gooner (995 comments) says:

    The real story here is that the Nats should have voted for Sir Roger Douglas’ bill last year if they claim to care about youth unemployment.

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  11. Shazzadude (516 comments) says:

    “But they key difference is that overall unemployment is far less than in the early 90s.”

    No doubt youth rates at half the adult minimum wage or less didn’t help the overall unemployment figure at that time either. That’s the elephant in the room that supporters of youth rates seem to miss: that the youth rate puts unskilled adults at a disadvantage.

    [DPF: Yes it does, but I think it is important that young Kiwis get a chance to gain some initial work experience]

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  12. Murray (8,838 comments) says:

    You don’t think the adults disadvantage might be that they are UNSKILLED Shaz?

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  13. Right of way is Way of Right (1,129 comments) says:

    I have two teenagers at home. The older got a part time job at the local supermarket prior to the introduction of youth rates. This allowed him to fit in shifts around his schoolwork. His sister, two years younger, applied for jobs as soon as she was old enough, but this was after the abolition of youth rates. She still does not have a part time job!

    She’s been applying for jobs for two years!

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  14. mickysavage (786 comments) says:

    Correlation is not causation.

    Unless DPF you agree that the election of a National Government caused an increase in unemployment. Maybe I should review my first statement.

    [DPF: But can you come up with a better explanation of why the impact on under 20s has been so much worse than other age groups, including in previous recessions. Eric Crampton has done an analysis of the gap between the under 20 unemployment rate and the aduly unemployment rate, and the relationship between the two was pretty constant until 2008]

    [DPF: Also for the record, are you agreeing with Jacinda that there is no link between the cost of labour, and its uptake?]

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  15. Murray (8,838 comments) says:

    It never worries you that you’re such an utter communist crapweasle that no one even reads your drek does it mickey.

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  16. Pete George (23,149 comments) says:

    mickeyimposter – try applying some common sense….or maybe you just don’t have any experience in employment in relation to wage rates, age and experience.

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  17. Manolo (13,514 comments) says:

    In this area, as in many others, the current government and its supporters just talk the talk, but are not prepared to make the decisions to remedy the problem (i.e., changes to youth rates).

    Ardent socialist J. Arden is talking rubbish, as she knows full well. Unfortunately, Labour-lite appears paralised and unable to act any different to its lamentable predecessor.

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  18. smttc (710 comments) says:

    I understand National opposed the abolition of youth rates. But subsequently refused to support Roger Douglas’s bill reintroducing them. What the hell is that all about?

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  19. jaba (2,092 comments) says:

    what worries me is that both Ardern and Robertson are labours bright up and coming stars .. oh oh

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  20. tankyman (120 comments) says:

    It must be true – it came directly from the horses mouth.

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  21. georgebolwing (652 comments) says:

    Like all economic issues, this is a complex area to study properly.

    Dean Hyslop, now professor of econometrics at Victroia University of Wellington, did a study for the Treasury in 2004 on this issue: http://www.treasury.govt.nz/publications/research-policy/wp/2004/04-03. To quote the abstract in full:

    “This paper analyses the effects of a large reform in the minimum wages affecting youth workers in New Zealand since 2001. Prior to this reform, a youth minimum wage, applying to 16-19 year-olds, was set at 60% of the adult minimum. The reform had two components. First, it lowered the eligible age for the adult minimum wage from 20 to 18 years, and resulted in a 69 percent increase in the minimum wage for 18 and 19 year-olds. Second, the reform raised the youth minimum wage in two annual steps from 60% to 80% of the adult minimum, and resulted in a 41 percent increase in the minimum wage for 16 and 17 year-olds over a two-year period. We use data from the New Zealand Household Labour Force Survey (HLFS) to estimate the impact of these changes on a variety of labour market and related outcomes. We compare the average outcomes of these two groups of teenagers, before and after the policy reform, to those of 20-25 year-olds, who were unaffected by the reform. We find no robust evidence of adverse effects on youth employment or hours worked. In fact, we find stronger evidence of positive employment responses to the changes for both groups of teenagers, and that 16-17 year-olds increased their hours worked by 10-15 percent following the minimum wage changes. Given the absence of any adverse employment effects, we find significant increases in labour earnings and total income of teenagers relative to young adults. However, we do find some evidence of a decline in educational enrolment, and an increase in unemployment and inactivity, although these results depend on the specification adopted.”

    One key finding, which is rather distrubing, is that the increase in youth wage rates tended to encourage some young people out of the enducation system and into unemployment, because while they expected to earn more, they couldn’t find a job.

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  22. burt (7,948 comments) says:

    I’m thinking of putting an APP onto the Android market for Labour. A “special calculator” that works in apples and oranges. EG: Trevor Mallard has $10 and oranges cost $1.50. How many oranges can Trevor buy ???? Now if oranges cost $1.00 how many oranges can Trevor buy ????? It might just help them understand enough about money to stop them just making stuff up on the fly to match their ideology.

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  23. Crampton (215 comments) says:

    The Hyslop paper is very nice, but think about the time period it considers. Anybody who could fog a mirror could get a job. Moving from one non-binding constraint to another non-binding constraint doesn’t make much difference. It’s when the constraints start binding that we’ll find effects.

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  24. JC (929 comments) says:

    George, that treasury study was done in the best economic times in a generation (2004).. of course there was no problem with the minimum wage and youth employment then!

    A more up to date report (2010) is from the OECD:

    http://www.oecd.org/document/49/0,3746,en_21571361_44315115_45008113_1_1_1_1,00.html

    One of the recommendations is to introduce a lower rate for youths.

    JC

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  25. big bruv (13,452 comments) says:

    Once again Micky Savage highlights all that is wrong with Labour and Labour supporters.

    It seems that being a ‘good’ lefty means that one must blindly support anything that is said by a Labour MP irrespective of how stupid that comment might be.

    [DPF: You make a good point about MS's blind loyalty. Jacinda is in fact very smart, and I doubt she would even stand by her literal words as implying no link between what you pay people, and the level of joblessness.

    She made a mistake in taking a defensible (though highly arguable) position (that any impact is minor, and worth it to get higher wages) and over-stated her case by saying there was "no link". So I'm just having a whack at her for careless language - I don't think Jacinda meant to say it the way she did.

    But as you point out, that doesn't stop the sycophants rushing in to defend the indefensible]

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  26. Sonny Blount (1,847 comments) says:

    One key finding, which is rather distrubing, is that the increase in youth wage rates tended to encourage some young people out of the enducation system and into unemployment, because while they expected to earn more, they couldn’t find a job.

    That is their choice and they should be left to make it on their own.

    It is probably a good thing anyway, if the threshold for your education program is getting paid over $13ph then you are probably wasting your time at university.

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  27. Sonny Blount (1,847 comments) says:

    The minimum wage is one of the most racist laws commonly in place today.

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  28. Pongo (371 comments) says:

    Thanks to the earthquake my son has finally found a job, he is a hard worker but basically unskilled and is making around 700 a week after tax. Prior to the earthquake he was priced totally out of the market with no proven work history.
    If price is not a factor in labour then why have sin taxes and the ETS.

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  29. Shazzadude (516 comments) says:

    “You don’t think the adults disadvantage might be that they are UNSKILLED Shaz?”

    Of course that’s their general disadvantage against others competing in the workforce. Should they also be at a disadvantage against unskilled youths is what I’m asking.

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  30. Kimble (4,392 comments) says:

    “The minimum wage is one of the most racist laws commonly in place today.”

    Would that make death racist too? Life expectancy of Maori being what it is and all.

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  31. Origen (23 comments) says:

    That’s a rather selective use of data David.

    You forget that the unemployment rate doesn’t include those who, having failed to find work, have dropped out of the labour force entirely (which happens rather a lot in recessions – it’s a catalyst to retire, seek further education or whatever). This could mute any downturn in the red series line.

    Including those not in the labour force produces the following chart, which eliminates your ‘link’.

    http://i.imgur.com/9L08b.png

    [DPF: Look closer at the figures. It is total number of people in employment. I used that as it is unaffected by stuff such as people leaving the labour ofrce]

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  32. Kimble (4,392 comments) says:

    Origen, the red series is the total number of people employed. People leaving the workforce would cause it to fall.

    It is also of people 20-24 (near youth) so they arent likely to be retiring anyway.

    I would like someone to try and explain why a significant increase in price would NOT lead to an increase in demand for substitutes in this case.

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  33. Sonny Blount (1,847 comments) says:

    # Kimble (2,138) Says:
    January 11th, 2011 at 12:27 pm

    “The minimum wage is one of the most racist laws commonly in place today.”

    Would that make death racist too? Life expectancy of Maori being what it is and all.

    Did you listen to the link?

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  34. Kimble (4,392 comments) says:

    Sonny, my point is that something isnt “racist” simply because it affects one race more than another. There needs to be intent. The term “racist” is a strong one, and its use should be restricted to times when a decision or discrimination is made on the base of race, and not when the impact on those of a particular race is purely incendental.

    This is no different than when people call across the board tax cuts an attack on the poor. Its not, and they know it.

    Minimum wage laws are not racist, because the intent is not to cause harm to a particular race. It may well harm a particular race more than others, but that just makes it inequitable, not racist.

    Here is another good video on the minimum wage.

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  35. nickb (3,673 comments) says:

    Labour is economically illiterate and/or deceitful, what is new?

    The real question is why have National not reinstated youth rates?

    As they are the ones who (with ACT’s support) could reintroduce them today if it wanted, why is a silly comment by a nobody like Ardern worthy of conversation? In fact National have had the chance already back in April last year to vote for Sir Roger’s Bill, but didn’t. It makes their concern for youth unemployment rates ring as hollow as Labour’s. Truly sickening gutlessness.

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  36. Origen (23 comments) says:

    Kimble – you’re right. My mistake, should have been more observant.

    In which case, maybe we should try extending David’s time series backward to other recessions? http://i.imgur.com/xiBfX.png

    The recession in the early 1990s seems to illustrate exactly the same thing as we’re seeing now; a decrease in youth employment while employment in the 20-24 range stabilized.

    I think all this illustrates is that there are a number of effects at work, and isolating any one of them is difficult. More specifically, to attribute all of the decrease in youth employment to an increase in youth rates is a little simplistic.

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  37. Kimble (4,392 comments) says:

    Origen, can you also index those values? It is hard to see the relationship that far back. Maybe do a single line with one group as a proportion of the other?

    Isolating one effect IS difficult, which is why we use logic. The idea that increasing the price of something reduces its use is logical. The further idea that increasing the price of something will increase the demand for alternatives is also logical.

    What is logical about increasing the cost of low value workers and it NOT affecting demand?

    Also, we arent attributing ALL of the difference to the abolition of youth rates. Jacinda is attributing NONE of the difference to the abolition of youth rates.

    What explanation is MORE logical than the one DPF provides? What else could be affecting the different levels of unemployment that would push the abolition of youth rates to a secondary or lower effect?

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  38. Kimble (4,392 comments) says:

    I assume the reason Labour arent talking about demographic changes is because it doesnt not help their story.

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  39. Kimble (4,392 comments) says:

    I think the logical reason why National havent reinstated youth rates is that it would likely increase adult unemployment. Adult unemployment cannot be hidden like youth unemployment can be (as youth can go into education more easily).

    That doesnt mean it is right, but it does make a certain amount of political sense.

    This is why removing the youth rates was such a bad idea. It is hard to reverse. Just like the scraping of the strike wing of the airforce.

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  40. CJD (334 comments) says:

    Hilarious to see the Nats flocking around this issue. When Rger Douglas proposed a return to youth rates, nary a Nat had the cahones to support the bill. Come on Nats-grow some before the next election PLEASE! There is a lot of work to be done…no more time to waste.

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  41. Pete George (23,149 comments) says:

    Has any research been done on the likely effects of no youth rates and a $15 per hour minimum wage?

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  42. Inky_the_Red (741 comments) says:

    What link are you claiming DPF?

    I think your graph needs total unemployment and an indication on when youth rates were abolished.

    The graph is showing a decrease in 15-19 employed. Yes that is expected when unemployment rises. It is easier for 15-19 year old to access education. That education will make them more employable. By getting training and education rather than working for low wages young people become more productive. A very good reason to not have youth rates

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  43. Kimble (4,392 comments) says:

    So the reason not to have youth wages is to force young people to study? Why not just force them to study? I mean, if it is good for them, why wouldnt you?

    That would surely be easier than trying to monkey around with the pricing (which governments have shown that cant really do that well).

    I think that you are just turning what you consider to be a ‘silver lining’ of the abolition of youth rates into the justification for doing so.

    Also, by working young people can become more productive. There is a very important education component to work, even low skilled work. The most comparable group to 15-19 year olds is 20-24 year olds. That is why showing total unemployment is pointless.

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  44. Sonny Blount (1,847 comments) says:

    # Pete George (8,630) Says:
    January 11th, 2011 at 1:46 pm

    Has any research been done on the likely effects of no youth rates and a $15 per hour minimum wage?

    $6 coffees.

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  45. Sonny Blount (1,847 comments) says:

    # Kimble (2,144) Says:
    January 11th, 2011 at 5:38 pm

    So the reason not to have youth wages is to force young people to study? Why not just force them to study? I mean, if it is good for them, why wouldnt you?

    That would surely be easier than trying to monkey around with the pricing (which governments have shown that cant really do that well).

    I think that you are just turning what you consider to be a ‘silver lining’ of the abolition of youth rates into the justification for doing so.

    Also, by working young people can become more productive. There is a very important education component to work, even low skilled work. The most comparable group to 15-19 year olds is 20-24 year olds. That is why showing total unemployment is pointless.

    Exactly Kimble.

    At current levels of tertiary education, having more young people working and less wasting time and money could be a good thing.

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  46. Sonny Blount (1,847 comments) says:

    Kimble (2,144) Says:
    January 11th, 2011 at 12:45 pm

    Sonny, my point is that something isnt “racist” simply because it affects one race more than another. There needs to be intent. The term “racist” is a strong one, and its use should be restricted to times when a decision or discrimination is made on the base of race, and not when the impact on those of a particular race is purely incendental.

    You’re righy there Kimble

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  47. Kimble (4,392 comments) says:

    “At current levels of tertiary education, having more young people working and less wasting time and money could be a good thing.”

    It is true enough that young people must choose between working and education. Having the price of their labour set to infinity dollars makes them unemployable so of course education becomes a better option. The problem is, the value of education hasnt changed.

    It is like a person having a choice between a Holden or a Ford. The person wants a Ford at the current price. Then the price of Fords go to $1billion, so the person now chooses the Holden. Who would argue that they are now better off?

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  48. Hagues (711 comments) says:

    That Labour are economically inept is a given. However given that National voted against Sir Roger’s bill to have youth rates reintroduced is National…

    a. as equally inept and stupid as Labour
    b. uncaring about youth unemployment
    c. caring about youth unemployment but too scared to do the right thing

    Tough call between National being too stupid or too gutless. Can’t see any other realistic alternatives.

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  49. Kimble (4,392 comments) says:

    Of course you missed the most obvious,

    d. It not being politically feasible and in the great game of political compromise it was something that was sacrificed.

    You say that they might be too scared to do the right thing? Scared of what? Scared of being the government that “took bread from the mouths of our kids”? You think politics is easy, big man? That National should just grow some balls and do it? That they should throw away power to push through legislation on the issue of the day?

    At best you can get through a handful of major policies in each term that move the country away from the Left. Why? Because people dont understand them and the Left abuses that ignorance. If you had to choose, would this one thing be the one you would draw a line in the sand over? Would you let Labour back into power for the chance to get this one thing through?

    I wish commentors here would grow up and face reality. The Lefties should accept that government should not solve every problem, and the Righties should accept that government cannot solve every problem. Even problems of government involvement.

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  50. Hagues (711 comments) says:

    Well you say sacrifice something in the comprimise to keep labour out…. I say too gutless to do the right thing. Labour could bang away about “took bread from the mouths of our kids” and National can point to the unemployment stats and how Labour took jobs away from our kids. If the minor things aren’t worth fighting for how can the major things be? Look at their similar u-turn over ETS, their backdown on mining, raising gst etc. What have National actually fought for?

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  51. Kimble (4,392 comments) says:

    “Labour could bang away about “took bread from the mouths of our kids” and National can point to the unemployment stats and how Labour took jobs away from our kids.”

    And who would gain votes and who would lose votes?

    The Left have the benefit of being able to push through their policies because their policies always seem like easy solutions.

    Poor people dont have money? Give poor people money. Easy.
    Healthcare provision insufficient? Spend more money on healthcare. Easy.
    Locals cant compete with imports? Put tarrifs on imports. Easy.

    The Right does not have that luxury. Many Right policies are counter-intuitive.
    Remove the minimum wage to make poor people better off? Absurd.
    Reduce government provision of healthcare to improve healthcare provision? Absurd.
    Remove tarrifs to make locals better off? Absurd.

    “If the minor things aren’t worth fighting for how can the major things be?”

    This is stupid. Thats the only description I can think of right now. The major things are worth fighting for because they are major things. Major. Things.

    “What have National actually fought for?”

    A second term.

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  52. Hagues (711 comments) says:

    Ohh goodie a second term where they can continue do nothing in case the lefties complain and they don’t get re-elected!

    Also let me rephrase my point over fighting for minor things. If you National are too gutless to fight for minor things as they are too scared of the reaction of the left and the media, how can they be trusted to fight for the major things? Fighting for the minor things and showing how these “counter-intuitive” measures do actually help would get the public on side for the more important things. I don’t expect them to solve all the problems overnight, but when an opportunity presents itself to stand up for what they supposedly believe in I expect them to stand up for what they believe in.

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  53. Kimble (4,392 comments) says:

    What makes you think the second term will be the same as the first? Why do you think the first term should be the same as the third? This simplistic view of politics is almost childish.

    It is not the media and Labour that National fear, it is the fickle opinion of the voters. They are right to fear negative publicity, because if they didnt they wouldnt get re-elected.

    Do you really think that “showing” the public how counter-intuitive measures might be right would work? It hasnt for the past 200 years. If they havent got it by now, when will they ever? National could spend an entire term trying to explain why re-introducing youth rates is good for young people and it wouldnt make a tiny bit of difference.

    If the public understood today the economics some Scotsman wrote in a couple of books about two centuries ago, Labour as we know it would never attain power ever again.

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

    I’m a bit late into this, sorry, but a couple of abservations in case anyone bothers are:

    1. As Mickey says, correlation is not causation. However, I would not say there is no linkage between minimum wages and levels of employment, but I would say all is not as it seems. I think I have said here before that when I was employing young people, in the days when youth rates were in vogue, I would start them on that rate but if they were still with me after one month I put them on the adult award rate. After one month (much earlier, actually) they were performing the work of adults anyway. To continue paying them chickenshit would have been just plain exploitation.

    2. The graph takes no account of any other factors, (especially as the minimum wage has always increased at various times without noticeable adverse affects), such as, the big one I can think of, that more and more kids see the sense in staying at school rather than work for pitiful wages.

    As to whether Farrar or I am right, well, that calls for more research than I have time for and also more, I suspect, that David has the inclination for – much easier to jump to conclusions on flimsy data!

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