Economic illiteracy

December 24th, 2011 at 7:01 am by David Farrar

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When ministers sit around next year asking if they what policy they can tweak here and there to increase wages and reduce poverty, they should look at increasing the and increasing union membership so that wages rise as the economy recovers.

There – fixed, and they didn’t need to spend a dollar in the stretched budget. In fact, people who earn more pay more tax, so it helps the budget.

Pagani has made the same mistake the Greens have made. They seem to think that money prints on trees.

If an increase in the minimum wage pushes wages up for those on the minimum wage by say $800 million, then yes at 12.5% tax that will be an extra $100 million of PAYE tax collected.

However those businesses will have their profits reduced by $400 million (as money does not grow on trees as the left always assumes) and at 28% company tax, that is $224 million less tax. Hence the Government has $124m less tax revenue overall. So rather than help the budget, it actually does the opposite.

Also ironic that Pagani thinks increasing union membership will help the budget. The only budget most of them help is the Labour Party’s. And at least one of them don’t even pay PAYE tax on behalf of their employees – preferring to spend it on political campaigns instead.

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107 Responses to “Economic illiteracy”

  1. Bogusnews (474 comments) says:

    Hate to say it, but this is absolutely typical of the left. They are completely clueless when it comes to understanding how the productive sector works.

    His comments are so ridiculous that at first I thought he was speaking tongue in cheek. But no, he’s quite serious and a lefty.

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  2. eszett (2,408 comments) says:

    So you are saying that the government has actually got an incentive to actively reduce wages, increase corporate profits and thereby increase government income.

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  3. Other_Andy (2,676 comments) says:

    While I disagree on almost everything he writes, I have to agree on one thing.
    People in full-time employment should be able to earn a living wage.
    At the moment this is not the case.
    Lower taxes?

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  4. toad (3,674 comments) says:

    DPF, you make the mistake of assuming that reducing profits will be the most preferred response of companies to an increase in the minimum wage. In actual fact, it will be the least preferred response, as shareholders are likely to demand that companies take other courses of action in order to maintain their dividend returns.

    For the big players, and the majority of minimum wage workers are employed by large or very large employers, (think gas stations, supermarkets, fast food outlets) the most likely response will be a small increase in prices. As they are all impacted equally, such an action will not impact adversely on their individual competitiveness. And increasing prices will actually further increase the tax take through the greater amount of GST payable on the higher prices.

    Some businesses will be able to respond by increasing productivity, or by introducing efficiencies to cutting non-wage expenditure.

    The Green Party’s minimum wage packages acknowledges that some SMEs may have no option but reduced profitability in response to an increase in the minimum wage, and for that reason and to help safeguard the jobs those businesses employ, the Green package includes a transitional subsidy to assist such businesses through the transition to higher minimum wages and mitigate against their potential loss of profitability.

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  5. peterwn (3,272 comments) says:

    Andy – How do you define a ‘living wage’?

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  6. big bruv (13,895 comments) says:

    “The Green Party’s minimum wage packages acknowledges that some SMEs may have no option but reduced profitability in response to an increase in the minimum wage, and for that reason and to help safeguard the jobs those businesses employ, the Green package includes a transitional subsidy to assist such businesses through the transition to higher minimum wages and mitigate against their potential loss of profitability.”

    Is it costed?……nope.

    And where will the subsidy come from Toad? how about telling us the whole story for a change?

    And is it still Green party policy to give WFF to bludgers and DPB slappers?

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  7. Viking2 (11,471 comments) says:

    toad.
    Are you in a productive exporting business where you compete aginst the world. NO, I thought not. Go away and try it, then in 10 years come back and tell us how you got on.

    Economic lunacy.
    Raising wages and kiwi wealth doesn’t happen by decree,(socilism and communism are both failed experiments.), it comes from increasing efficiency and use of people potential. Decreed money doesn’t do that.

    Try something else next year.

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  8. Other_Andy (2,676 comments) says:

    @peterwn

    “Andy – How do you define a ‘living wage’?”

    I knew somebody was going to ask that and I dont blame you for doing so.
    Its a difficult one which is of course one of the reasons you are asking.

    Me saying that a ‘living wage’ is a wage you can live on reasonably comfortable as a family with two children of course doesn’t answer that question. All I can say is that some hard working people, without being extravagant and wastefull, are struggling to make ends meet these days.
    If anybody can come up with an answer, be my guest.

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  9. Viking2 (11,471 comments) says:

    Economic literacy needs a boost, not only in this country but in Europe as well. Europe is about to get that lesson from Germany. Europe, land of the Greens. hmm well have a read of this description of what is about to happen for those that can’t control their spending on waste and wasteful people.

    Very interesting examination of Germany’s game plan. And ouch it’s going to hurt some.

    The feckless war in Afghanistan comes to mirror ever more closely the potentially impending breakup of the euro zone. In Afghanistan, Western forces are busy organising the exit they are already completing in Iraq, another place where they weren’t popular, earned no gratitude, and squandered much blood and treasure for scant returns to show for the sacrifice.

    In the euro zone, Germany is also getting ready to “evacuate”, if necessary, euro currency union member states that are not up to operating under the hegemony of the Deutsche mark in drag. Like the Western forces in Iraq and Afghanistan, the Germans are sagely implementing the strategic plans required to exit unwanted member states out of the euro common currency bloc, even if those same countries remain on as part of the European Union (EU).

    http://www.interest.co.nz/opinion/57224/michael-coote-examines-some-likely-exit-strategies-manage-eurozone-break-and-draws-som

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  10. expat (4,050 comments) says:

    Pagani, surely, is taking the piss.

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  11. Gerrit (107 comments) says:

    For those interested in the perverse manner the Green party plans to pay for the transition for SME’s, look here

    http://www.greens.org.nz/greenjobs

    If you look a the fiscal summary report you will notice that the Green party will increase taxation by $7.9B per annum and redistribute $4.1B for so called green jobs.

    That is were the money will come from HIGHER TAXATION without redistribution.

    BAD BAD fiscal policy from the Greens.

    Why collect nearly 80% more in taxes then required for expenditure?

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  12. Viking2 (11,471 comments) says:

    Economic Literacy Green Style.

    Global trade war looms over carbon taxes
    http://www.australianclimatemadness.com … bon-taxes/
    by Simon

    This is what happens when we finally arrive at the pointy end of the ludicrous and dangerous policies implemented in the EU to theoretically reduce emissions [note: which don't work]. The Chinese are furious at the EU’s unilateral decree that it will start taxing international flights as part of its carbon pricing regime:

    China has warned the European Union to abandon its controversial carbon tax on airlines or risk provoking a global trade war.

    Adding weight to the warning, an industry insider told the Financial Times that the Chinese government was seriously considering measures to hit back at the EU if it insists on charging international airlines for their carbon emissions.

    In a case initiated by US airlines, the European Court of Justice ruled on Wednesday that the EU’s carbon emissions trading scheme did not infringe on the sovereignty of other nations, and that it was compatible with international law. The change is set to go into effect from January 1.

    Chinese airlines have also been preparing an legal challenge in Europe and they still plan to proceed with it, but Chai Haibo, deputy secretary general of the China Air Transport Association, conceded that the European ruling complicated matters as it means they will need to find an alternative reason to challenge the law.

    Even if court action fails, Mr Chai was optimistic that concerted global pressure could yet persuade the EU to repeal its law. In the short term, he called on Brussels to delay implementation in light of the intense international outcry that it has provoked.

    “Except for the EU, no countries support this,” he said.

    He added that several Chinese government departments in Beijing were in the midst of researching possible counter-measures. Chinese airline officials have said before that they might refuse to pay the carbon tax, raising the prospect of a drawn-out legal fight. (source)

    The realities of the imaginary green utopia begin to sink in.

    http://www.nzcpr.com/forum/viewtopic.php?f=3&t=702&sid=eb544f378319eb68db00c2881cb1219d&p=39006#p39006

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  13. Viking2 (11,471 comments) says:

    The Real Agenda

    The “climate change” agenda is to make the socialist one-worlders making up the UN self-funding.

    The UN is currently funded by the contributions of member-states, most of whom don’t pay what they have agreed to. The lion’s share of the UN’s running costs are shouldered by the USA, meaning if America jerks the rug, the whole rotten edifice collapses like a house of cards.

    The UN has proposed a number of wheezes to become self-funding: a tax on international movements of capital; a tax on the use of the ‘global commons’ i.e, ocean fishing, mining, oil extraction; a tax on international air miles etc.

    All of these have fallen over. ‘Climate change’ is a great hoax perpetuated by socialists whose agenda is to set up a global welfare state in which the so-called ‘rich’ countries are compulsorily soaked through a UN-administered carbon tax scheme, and their resources transferred to the so-called ‘poor’ countries, with massive sums of course sticking to the hands of the unelected socialist UN bureaucrats, thus getting them out from under the ever-present possibility of the USA opting out and killing to organisation off.

    My consistent observation is that countries, like people, are poor not because of something someone has done to them, but because of what they haven’t done for themselves.

    ‘Poor’ countries don’t need global socialism, they need to adopt western-style reforms such as replacing crony capitalism, religious theocracy, and tribal socialism with free market capitalism, the rule of law, secure private property rights and all the other things that make the western plural democracies so successful.

    Away with the great ‘climate change’ hoax. Let’s be having and accepting no more of this nonsense, or we will soon be slaves on the UN’s global plantation.

    Herein lies the road to serfdom …

    http://www.nzcpr.com/forum/viewtopic.php?f=3&t=18&p=39008#p39008

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  14. JeffW (326 comments) says:

    Wage and economic growth, if they are to be sustainable, must be driven by productivity gains. Unions actively work against productivity gains, hence tend to reduce economic growth and sustainable wage hikes. Temporary gains may be achieved through union action or regulatory fiat, but if unsupported by productivity, this only results in unemployment and lower economic growth. Such results can be seen by anyone with commonsense and without leftist ideology in our awful youth unemployment rates.

    Once again the left considers it is better to be in a union than in a job.

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  15. Other_Andy (2,676 comments) says:

    @Viking2 at 8:40 am

    Spot on!

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  16. whoisthisguy02 (29 comments) says:

    I spoke to a greeny on the campaign trail who said “at least the Christchurch earthquakes will boost their economy.” earthquakes for everyone!!!!

    http://wallet-and-watch.blogspot.com/

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  17. Other_Andy (2,676 comments) says:

    @whoisthisguy02

    Sounds like it fits the Green’s economic policy…
    Energy from unicorn farts and fairy dust.
    Money from the magic money tree.
    It’s the new post-modern religion.
    Hail to Gaia, she will provide.

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  18. Rat (383 comments) says:

    A Few Points

    1. Since when was the Marginal rate of Individual Tax 12.5% Farrar. The current marginal rate for those on minimum wage is 19.54% ( http://www.ird.govt.nz/how-to/taxrates-codes/itaxsalaryandwage-incometaxrates.html) ?

    2. Where did the $800 Million come from ?

    3. Most Company income ( SME’s represent 93.9% of NZ Business’s http://www.med.govt.nz/business/business-growth-internationalisation/pdf-docs-library/structure-and-dynamics-2011.pdf) is passed onto the Shareholders, up to $48,000 the marginal rate is still 19.54%

    I dont mind your message, but picking numbers out of thin air ?

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  19. ross (1,437 comments) says:

    It’s quite ironic that you have titled this piece “economic illiteracy” because you clearly don’t know a lot about economics.

    You say wages will increase by $800 million but then you seem to assume the $800 million will disappear into the ether. In fact, that represents $800 miilion of expenditure on goods and services which will add to firms’ profits. It will also improve the standard of living of those on the minimum wage and increase tax revenue.

    If you’re going to discuss econmic matters, at least try to be upfront and honest about it, otherwise your readers might think that you’re untrustworthy.

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  20. toad (3,674 comments) says:

    @Viking2 8:20 am

    There are very few jobs in export production that pay the minimum wage – a few seasonal jobs in horticulture and agriculture is all I can think of.

    @Gerrit 8:38 am

    Do you suggest we keep on running deficits forever? Essentially, we are running deficits now to pay for National’s tax cuts for the wealthy and the Christchurch rebuild.

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  21. Rat (383 comments) says:

    I’d even add that the propensity for those on minimum wage to invest or pay extra on a mortgage/rent is zero therefore …..extra $105 million to Government

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  22. Rat (383 comments) says:

    ross

    you beat me to it, however the inflationery effect works against that… but inflation is illegal

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  23. Manolo (13,774 comments) says:

    DPF, why the obsession with the Hack Pagani?
    He writes unadulterated drivel and should be ignored at all times.

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  24. ross (1,437 comments) says:

    DPF, you’ve also missed a glaringly obvious point: firms paying the minimum wage will be incentivised to find other ways to improve productivity. Where is the incentive to work harder (or smarter) if your firm’s philosphy is to reduce wages? Also, wages are but one cost incurred by firms. If wages increase, firms should be looking at their other costs. Furthermore, where is the incentive for skilled workers to move into work that merely pays the minimum wage?

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  25. Other_Andy (2,676 comments) says:

    @Ross

    And where did the $800 million on wage increases come from in the first place?
    Oh I see, you take it from the businesses that will than get it back (Minus the 12.5 GST the state will take, which you forgot to mention) as expenditure on goods and services.
    Doesn’t Keynesian economics make your head spin?

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  26. tas (625 comments) says:

    toad: Increasing the minimum wage is supposed to redistribute money from the rich to the poor. The rich pay a higher marginal tax rate than the poor. Ergo tax takes go down.

    So for your theory to work either
    (i) raising the minimum wage gives more money to the rich,
    (ii) poor people are taxed at a higher rate than rich people, or
    (iii) productivity will magically increase.

    Any other explanation is an accounting trick. And all of these three explanations are plainly false.

    If you believe the Greens’ fiscal policies you are either naive or retarded.

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  27. Elaycee (4,392 comments) says:

    …”The Green Party’s minimum wage packages acknowledges that some SMEs may have no option but reduced profitability in response to an increase in the minimum wage,…’

    Whaaaaaaaat? This can only be written by economic retards who have never been in business / never employed staff / never used their family home as security for lines of finance / never had to worry about recovering increased costs and balancing the books in a price sensitive market.

    If the owners of SMEs cannot realise a better rate of return on their investment over what they could get from low risk long term bank investments, then they may as well go risk averse / cash up / lay off staff / put the money into Mighty River shares soon to become available as part of the partial asset sales programme for Mum and Dad investors. And then go fishing.

    The left (in general) has this belief that the answer to everything its to increase the minimum wage to $15. If that’s correct, then why not raise it to $20? Or maybe $25? Because every input requires an equal (or better) output for the business to survive. So if labour costs increase but cannot be recovered in a tough economic market, then staff numbers or staff hours will have to be be reduced.

    It beggars belief that the Gweens want the electorate to think that they’re fit for the Treasury benches. On the basis of their ‘economic literacy skills’ on show to date, I wouldn’t put them in charge of the hot dog stand at Eden Park.

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  28. Rat (383 comments) says:

    The more I think about the Revenue logic the more DPF’s numbers are made up of complete fairytales.

    Anyone else pick up on my error of $105 million ?, should have been $91.3 million.

    The net tax revenue will be the difference between the propensity of those on the minimum wage to invest (zero) and those on higher incomes to invest (not minimum). Clearly the income benefit will be to those on the minimum wage leading to a decrease in investment spending ( loans, investments, other GST exempt expenditure etc etc).

    So it would lead to an increase in tax revenue.

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  29. ross (1,437 comments) says:

    “The advantages of a minimum wage system to the economy have been posited for at least
    a century (e.g. Webb and Webb, 1920). Wilkinson (1984) has argued that a realistic
    minimum wage alters the terms of trade between different productive systems, and
    making it more difficult for disadvantaged firms to rely on disadvantaged labour, thus
    forcing firms to become more efficient, by investing in better equipment, better methods
    and in the training of their workforces (Cahuc and Michel, 1996). At the international
    level, countries with higher minimum wages will have fewer inefficient firms and
    therefore be able to compete.

    The other benefit is that the higher minimum boosts consumption spending. Workers on
    the minimum wage are likely to spend all of their wage (Borooah and Sharpe, 1986), and
    spend more of it on domestically produced products (Borooah, 1988). Thus an increase
    in the minimum wage would add more to domestic demand than an increase in pay at
    other points in the income distribution.4 This strategy was followed by the Mexican
    government in the period before 1976 but, as we shall see below, the approach fell foul of
    other policy objectives (Grimshaw and Miozzo, 2002).

    See pages 46-60 http://www.nzjournal.org/NZJER%20ISSUE%2031%20(2).pdf

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  30. ross (1,437 comments) says:

    Employers tend to be divided over the issue according to their own position within the pay structure. Employers in labour-intensive workplaces that rely on cheap labour for their survival and profitability tend to oppose minimum wages in general, and resist any increase in existing minima. On the other hand, employers in more capital-intensive firms that pay better wages may welcome minimum wage systems and, furthermore, see them as protection from competition from less efficient firms that rely on cheap labour…..A prevailing unease on the part of governments is the relation between the minimum wage and unemployment. The argument, derived from simplistic economic theories, is that with higher minimum wage rates, fewer workers will be hired. (for discussion see Brosnan, 2002). A similar claim is made with respect to youth employment – imposing a minimum wage for youth (or a relatively higher one where one exists already) would lead to lower employment rates for youth to the benefit of non-youth workers. The story is told most strongly in the US, but has been critiqued even within the economics establishment (Card and Krueger, 1995). Although these propositions have been tested in various countries, the results are never conclusive. Regression coefficients are frequently not significant, or the predicted relationships are found not to exist. Where there does
    appear to be a relationship, other factors are frequently responsible (see Ghellab, 1998). Nonetheless, countries still hold wages down in fear of unemployment.”

    See pages 46-60 http://www.nzjournal.org/NZJER%20ISSUE%2031%20(2).pdf

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  31. flipper (4,065 comments) says:

    OF COURSE ITS CHRISTMAS AND WE HAVE A SEASON OF GIVING – well, for those who want others to give.

    Labour’s minimum wage level of $15 per hour ? Compare that to the United States!. That minimum of $15 increases to $18+ per hour when ACC (say, 3%), holiday pay (8%), Sick pay (2%) and Kiwisaver contributions (rising soon to 4%) and administration are added. No wonder business disconnected from Labour!

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  32. Other_Andy (2,676 comments) says:

    “So it would lead to an increase in tax revenue.”

    You can slice it, dice it, swirl it around but in the end the ‘tax money’ comes from the private sector, the producers.
    The money taken from the private sector by the state will result in:
    1. Reduced profit. Reducing profit (As Elaysee just pointed out) to a point where putting your money in the bank is a safer bet than re-investment means that you might as well shut op shop.
    2. Reduced investment. This means less growth, decreased competitiveness.
    All this will result in less tax, not more.

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  33. thedavincimode (6,759 comments) says:

    Good stuff Ross.

    Excuse me while a just pull some economic growth/productivity/increased wages out of my arse ….

    There ya go. Problem solved. :)

    Can you notice the difference already?

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  34. Camryn (543 comments) says:

    @toad

    So… raise the minimum wage so that poor folks can afford more and it’s OK because most businesses can raise prices to cover it?

    What happens next? That new minimum wage doesn’t buy as much because prices went up. It’ll need to be raised again.

    All you’d be doing is causing inflation. It’s the funny thing about markets… they don’t like being messed with.

    As others have said, the only solution that really works is to make people more productive so they’re worth paying more… and to face facts that those who choose to be unskilled and unwilling to do unpleasant tasks will always be poor, but that if you’ve given them the chance to be educated and productive then it’s their own fault.

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  35. Scott Chris (6,137 comments) says:

    Ross says:- “At the international level, countries with higher minimum wages will have fewer inefficient firms and therefore be able to compete.”

    Doesn’t change the fact that large efficient manufacturers will simply export their efficient business models to a place where compliance costs and labour costs are lower, and where they will train their well educated staff just as well as they would in the west. This is simply good business practice.

    In the end, if a person’s labour is only intrinsically worth $9 and hour, then it is an unfair burden on an employer to pay him $15.

    That’s the harsh reality of competing in a capitalist world. On the other hand, $9 per hour is better than the $4.50 an hour he would recieve on the unemployment benefit.

    The only economically viable answer is to ensure that a persons labour is worth more than $9 per hour through receiving a proper education.

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  36. Rat (383 comments) says:

    Chicken and Egg stuff Andy

    Tax money begins with Consumers.

    My point is that Farrar dreamt up incorrect data in isolation in order to give incorrect generalised information

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  37. Rat (383 comments) says:

    Camryn, by your own logic you missed out that the demand for that product will increase too

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  38. wat dabney (3,756 comments) says:

    toad,

    Your carefully worded response to this article studiously avoids the 800 pound gorilla – the fact that imposing a higher minimum wage will inevitably lead to higher unemployment amongst the low skilled and those with poor qualifications.

    Whilst the Greens might be happy to fuck these people over in pursuit of political power, the rest of us are not.

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  39. Scott Chris (6,137 comments) says:

    ross says:- “firms paying the minimum wage will be incentivised to find other ways to improve productivity.”

    So say we take two horses of equal racing ability. Your theory states that if we place a heavier rider on one of the horses, but with all other conditions the same, the horse with the heavier rider will somehow find a way to go just as fast as the horse with the lesser burden.

    After all, they are also competing with 100 other horses who are all trying to find ways to go faster than one another.

    Nope, the handicap doesn’t help.

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  40. peterwn (3,272 comments) says:

    Andy – Family with two children. Now I would be in favour of allowing limited ‘income splitting’ for tax purposes as long as one of the children is under 5 and is not getting a child care subsidy. Similarly income can be effectively split with the kids to a maximum amount, plus the amount of school fees (state, integrated, charter, independent, polytech or university). Such tertiary students would have student loan eligibility reduced by amount of split income. This would be quite fair but would upset ‘dinks’ (2 incomes no children) who tend to be politically powerful. There are problems here as a married couple with two kids is almost an antiquated concept.

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  41. Adolf Fiinkensein (2,903 comments) says:

    Other Andy 7:53

    Does your ‘living wage’ include provision for Sky TV, three packets of tobacco and a bottle of Jim Beam each week?

    Oh and not forgetting a couple of the best Cotomandel Green for the week-end?

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  42. Lee C (4,516 comments) says:

    It seem to me that the logical conclusoin to this argument is to abolish the minimum wage so it ‘incentivises’ workers and ‘maximises’ profits.

    Of course we might have to abolish the dole too, to ‘incentivise’ people to work, and think of the tax we will save.

    Are these ideas what we are seriously being invited to consider?

    My wider point is can we seriously put both the minimum wage and the benefits system genies back in the bottle?

    Of course not.

    So when we begin a conversation based on the idea that we live in a Neoliberal utopia in which ‘the devil takes the hindmost’ I have to ask where exactly is the true nature of the ‘economic illiteracy’ we are being invited to ridicule?

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  43. wat dabney (3,756 comments) says:

    firms paying the minimum wage will be incentivised to find other ways to improve productivity.

    When there’s work to be done companies choose the most cost effective balance of capital and workers. If the cost of workers rises if will be more profitable to deploy greater capital and fewer workers. This is great for those who keep their jobs. What the left refuses to acknowledge are all those – the ones with the lowest skills and qualifications – who will be rendered unemployable by this political quackery.

    The principle winners of minimum wage legislation are the ambitious politicians who spew the rhetoric. The losers are those they claim to be helping, those who really need a job in order to aquire some marketable skills. These people are left on the scrapheap.

    The Green Party slogan for the next election could be “Fuck them and fuck their families, it’s good politics.”

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  44. Gerrit (107 comments) says:

    Toad

    Do you suggest we keep on running deficits forever?

    No, but at least show in the fiscal report the $3B being allocated to debt reduction.

    Every business and state enterprise has to “balance income versus expenditure”.

    Are the Greens an excempt?

    The Greens might even get brownie points in the electorate for a costed debt reduction policy.

    Biggest problem with the Greens taxation policy is the huge reliance on CGT.

    To gardner $4.5B in CGT requires new capital injection of around $15B every year (taxed at 30% corporate rate)

    Where will this annual $15B come from? Volume turnover on non-owner occupier residential property is not AFAIK at $15B.

    Taxation on Kiwisaver contributions from employers when paid out to the recipient at the end of a fully productive life (unearned capital gain after all), plus tax on the capital gained in the difference beween the inflation rate and interest received from bank deposits.

    Not to mention double taxation on shares.

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  45. Elaycee (4,392 comments) says:

    “Tax money begins with Consumers.”

    Begins with consumers? You’re joking, right?

    When the consumer buys what item?
    How is that item produced?
    Was the item made by a manufacturer?
    Does it contain materials the manufacturer has to purchase?
    Are wages included in production of the item?
    Was GST paid on all purchases?
    If the item was imported, was duty paid?
    Did the manufacturer pay tax?

    How did the consumer get money in the first place?
    Was it via wages and salaries?
    Doing what?
    Did they pay PAYE?
    Did their employer pay Tax / ACC / Kiwisaver / Health / Insurances etc?
    Even if the consumer ‘money’ was provided courtesy of the taxpayer (a handout), how was this ‘money’ created?

    Now, if you still believe tax money begins with consumers, I’ve got a bridge to sell you.

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  46. wat dabney (3,756 comments) says:

    It seem to me that the logical conclusion to this argument is to abolish the minimum wage so it ‘incentivises’ workers and ‘maximises’ profits.

    How would abolishing the minimum wage level incentivise workers? That doesn’t make any sense at all. High wages incentivise workers more than low wages.

    And how would it maximise profits? You seem to believe that companies could just pocket the difference. But of course in a competitive market it just doesn’t work that way; profit levels get competed away, to the benefit of us the consumers (this is why cartels are illegal. Except labour cartels of course, i.e. unions. It’s not clear why they are legal whilst shareholder cartels are illegal. They are both a conspiracy against the consumer.)

    Most of us earn significantly more than the current minimum wage. How do you account for that?

    Of course we might have to abolish the dole too, to ‘incentivise’ people to work, and think of the tax we will save.

    The dole is supposed to be an insurance scheme, which most people would be happy to pay in to. It is not intended to create revenue for the state. So no, it wouldn’t “save any tax.”

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  47. ross (1,437 comments) says:

    The CTU has made a compelling case for raising the minimum wage. One of the points they make is that productivity growth has far outstripped wage growth. It’s not at all clear why that should be the case. One of the Right’s mantras is that workers can’t have wage increases without productivity increases. But the evidence suggests that even where there are increases in productivity, workers are not seeing the benefits.

    http://union.org.nz/sites/union.org.nz/files/Minimum%20Wage%20Review%202011_0.pdf

    Also, if you look at Australia, workers there are getting a much bigger slice of the pie than workers here. In the late 1980s, NZ and Australian workers were getting a similar share, but since then workers here have been getting relatively and absolutely less. It appears that many firms are increasing their share of the pie at workers’ expense.

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  48. Elaycee (4,392 comments) says:

    @ross: Using your thinking, why don’t we just raise the minimum wage to $25 per hour (or $30 per hour)?

    Can you explain how that’ll work?

    Nah – though not.

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  49. ross (1,437 comments) says:

    “The principle winners of minimum wage legislation are the ambitious politicians who spew the rhetoric.”

    No, those who benefit are the low paid. I suggest you do some research before making such nonsensical comments. You could start with the Barry and Brosnan paper which I’ve linked to above.

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  50. ross (1,437 comments) says:

    Elaycee, why don’t you join Wat and do some basic research before posting drivel.

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  51. wat dabney (3,756 comments) says:

    No, those who benefit are the low paid.

    And those rendered unemployable? You don’t mention those. Don’t they count? They don’t appear to, because people like you never address them.

    What do you say to all those unskilled people who are unable to get a job because of your minimum wage legislation? You may well be consigning them to the scrap-heap for their entire lives. Still, it makes for powerful politics so I guess that’s a price worth paying, eh?

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  52. toad (3,674 comments) says:

    @wat dabney 10:20 am

    Your carefully worded response to this article studiously avoids the 800 pound gorilla – the fact that imposing a higher minimum wage will inevitably lead to higher unemployment amongst the low skilled and those with poor qualifications.

    That is not a fact, wat. It is a hypothesis that is highly contestable, as several studies have shown that it simply does not happen with modest increases in the minimum wage.

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  53. Sonny Blount (1,782 comments) says:

    toad (3,213) Says:
    December 24th, 2011 at 11:52 am
    @wat dabney 10:20 am

    Your carefully worded response to this article studiously avoids the 800 pound gorilla – the fact that imposing a higher minimum wage will inevitably lead to higher unemployment amongst the low skilled and those with poor qualifications.

    That is not a fact, wat. It is a hypothesis that is highly contestable, as several studies have shown that it simply does not happen with modest increases in the minimum wage.

    ie if you conduct analysis on a small enough change over a small enough time period the effects will be hard to pick up.

    Hooray, you are a genius Toad.

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  54. Elaycee (4,392 comments) says:

    @ross: Perhaps you could defend your theories by answering the simple question – why don’t we just raise the minimum wage to $30 per hour?

    Still waiting…..

    But not holding my breath… :P

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  55. KevinH (1,227 comments) says:

    The most significant downside to Pagani’s suggestion of raising the minimum wage is the inflationary impact it has on the economy. It would set in motion an inflation spiral that would negate the rise.

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  56. Elaycee (4,392 comments) says:

    @KevinH: oF COURSE YOUR’RE RIGHT.

    but according to toad, “…if you conduct analysis on a small enough change over a small enough time period the effects will be hard to pick up.”

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  57. Sonny Blount (1,782 comments) says:

    On NZs minimum wage you can become wealthy quite easily.

    A couple work 50 hrs per week from the ages of 16-32 at $13ph.

    They share a room for $150 per week.
    They feed themselves for $250 per week.
    They have $200 per week of other expenses.
    Total weekly cost of living is $600.

    100hrs x $13 = $1300 pw less $600 costs = $700 saved

    $700 x 52 weeks = $36,400 plus $1300 for 1 weeks annual leave sold = $37,700 saved per annum

    16 years x $37,700 = $603,200 (plus interest) in the bank at 32. Time for Mum to take 10 years off work to raise the kids.

    In NA any unskilled couple that does not have half a million in the bank by 35 has made a lifestyle choice to be where they are at financially.

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  58. Elaycee (4,392 comments) says:

    Oops – keyboard was possessed at 2.09pm! Was supposed to read:

    @KevinH: Of course you’re right.

    But according to toad: “…if you conduct analysis on a small enough change over a small enough time period the effects will be hard to pick up.”

    Go figure.

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  59. Sonny Blount (1,782 comments) says:

    Was supposed to be in NZ not in NA

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  60. Lee C (4,516 comments) says:

    Wat I’m not saying those things, I’m suggesting that David’s arguments are flawed because they ignore reality.

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  61. wat dabney (3,756 comments) says:

    toad,

    Here’s the problem: on the one hand the left advocates higher taxes on cigarettes and alcohol because higher prices will reduce demand, and on the other hand it tries to tell us that a similar forced increase in the price of labour won’t reduce demand.

    I’m sure even you can see the problem here.

    as several studies have shown that it simply does not happen with modest increases in the minimum wage.

    This is like arguing that a “modest” increase in the tax on cigarettes will only have an commensurately modest impact on consumption. The mistake is you are just looking at the impact of the increase in taxation when you should be looking at the absolute impact. (Using your argument, you could increase a minumum wage from $100 per hour to $101 and then claim that your “modest” $1 increase had no discernible effect, when what you should be doing is looking at the impact of the $101 and not the additional $1.)

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  62. Kimble (4,440 comments) says:

    “The principle winners of minimum wage legislation are the ambitious politicians who spew the rhetoric.”

    No, those who benefit are the low paid.

    Except for those that go from low paid to no paid, or those who stay no paid.

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  63. dion (95 comments) says:

    > the most likely response will be a small increase in prices

    So all of the Green Party’s talk about the increasing cost of living was just empty rhetoric, was it Toad?

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  64. toad (3,674 comments) says:

    @Elaycee 12:05 pm

    Straw man. Neither the Greens or Labour are suggesting that, and I suspect it would result in a significant reduction in job growth and corporate profitability. The studies I was referring to relate to modest increases in the minimum wage – note more than doubling it. Check out this one.

    @KevinH 12:06 pm

    It would not be an inflationary “spiral” – it would be a small one-off increase in the cost of living similar to, but if the increase is to only $15 an hour, less than the one we had last year consequent upon the increase in the rate of GST. Funny how those on the right seem to think that was okay, but any increase in the cost of living due to increasing the minimum wage is not.

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  65. Sonny Blount (1,782 comments) says:

    Kimble (2,808) Says:
    December 24th, 2011 at 12:24 pm
    “The principle winners of minimum wage legislation are the ambitious politicians who spew the rhetoric.”

    No, those who benefit are the low paid.

    Except for those that go from low paid to no paid, or those who stay no paid.

    Also those who go from low paid to staying low paid.

    Much of the money for minimum wages comes from their colleagues, if a business was free to conduct its operations fairly. They might wish to pay those staff that they have had longer $16ph and the new ones $10, but because they have to pay them $13, in order for the business to work they keep those staff on $13 rather than raising them to $16 later on.

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  66. Sonny Blount (1,782 comments) says:

    Most of the cost of minimum wage laws falls on low skilled workers. They are made to work harder to maintain productivity, and have their potential for increases in their wages repressed by their less able and newer colleagues being overpaid.

    The Greens don’t seem to realise that if you have a dozen people doing a job the work does not distribute itself evenly. The few leaders will end up carrying more of the load, and under minimum wage laws they are unable to be commensurably renumerated.

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  67. ross (1,437 comments) says:

    “Except for those that go from low paid to no paid, or those who stay no paid.”

    You don’t appear to have read the research on the minmium wage.

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  68. ross (1,437 comments) says:

    “under minimum wage laws they are unable to be commensurably renumerated.”

    So employers cannot increase workers’ pay?

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  69. wat dabney (3,756 comments) says:

    But don’t worry. Hope remains for all the young and unskilled people that the Green Party makes unemployable through their self-serving minimum wage campaign. They can be sent out into the country to plant trees. This scheme formed part of their “Green jobs” election campaign. And yes, it does sound like an idea stolen from Pol Pot.

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  70. wat dabney (3,756 comments) says:

    Ross,

    So employers cannot increase workers’ pay?

    Perhaps you should look up the word “commensurable”?

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  71. Sonny Blount (1,782 comments) says:

    ross (1,263) Says:
    December 24th, 2011 at 12:55 pm
    “under minimum wage laws they are unable to be commensurably renumerated.”

    So employers cannot increase workers’ pay?

    Once you learn that money does not grow on trees, you will find this to be true.

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  72. Kimble (4,440 comments) says:

    Toad chimes in with the sort of economic ignorance that has made the Greens the joke of a party they are today.

    In actual fact, it will be the least preferred response, as shareholders are likely to demand that companies take other courses of action in order to maintain their dividend returns.

    And why wouldnt the shareholders have already made those demands?
    And why wouldnt those changes be a reduction in pay for others in the business?
    And why wouldnt those changes be a reduction in future employment?

    I have asked this before, but dont recall getting a response. Why are businesses waiting for the Greens intervention in the economy to find extra profit?

    What is it about the minimum wage legislation that reminds businesses that they want to make money?

    For the big players, and the majority of minimum wage workers are employed by large or very large employers, (think gas stations, supermarkets, fast food outlets) the most likely response will be a small increase in prices.

    Many of those are franchises, the owners of which would be the ones getting squeezed, with little control over other parts of the business.

    As they are all impacted equally, such an action will not impact adversely on their individual competitiveness.

    Except when they are competing with different businesses who have higher salary costs.

    And increasing prices will actually further increase the tax take through the greater amount of GST payable on the higher prices.

    On the one hand you want us to believe the change in prices would be small, and on the other you want us to believe that the additional GST would be significant.

    Some businesses will be able to respond by increasing productivity, or by introducing efficiencies to cutting non-wage expenditure.

    Again you assume that businesses leave money on the table. That they wouldnt already be trying to improve productivity. You have presented absolutely no reason to assume this isnt the case.

    And cutting non-wage expenditure means what exactly? WHO are you taking the money from to fund the increase in the minimum wage? It wouldnt be the very productive employees that firms must compete with one another for. No, it would be the people slightly above the minimum wage.

    The Green Party’s minimum wage packages …

    … is just more of the tax and subsidise madness that we should have abandoned decades ago.

    The Greens economic policies almost invariabley rely on wishful thinking and an assumption of perfect information. They dont often stop in their zeal to think maybe the fact their equitable solutions rely on a level of knowledge not posessed by anyone other than a deity might mean that their feel-good attempts at righting the world wont have the impact they assume it would.

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  73. Sonny Blount (1,782 comments) says:

    ross (1,263) Says:
    December 24th, 2011 at 12:54 pm
    “Except for those that go from low paid to no paid, or those who stay no paid.”

    You don’t appear to have read the research on the minmium wage.

    Yes I have. And I have been employing people at or near the minimum wage for nearly 10 years, and earning at or below the minimum hourly rate for good parts of it.

    In light of the numbers I ran above that showed that a person on the minimum wage in NZ can be wealthy, why are you still concerned about it?

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  74. Kimble (4,440 comments) says:

    You don’t appear to have read the research on the minmium wage.

    Wrong. You dont appear to appreciate the limitations of research on the minimum wage. Or on all economic research.

    While we can explain why an increase in the minimum wage would lead to unemployment, can you explain why an increase in the price of labour wouldnt have any impact?

    Start with that. Explain why the price of labour doesnt affect the demand.

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  75. Sonny Blount (1,782 comments) says:

    Kimble,

    The research on minimum wages concludes it is a negative.

    I have a link to a study at home that looks at the results of hundreds of minimum wage studies, and overall, more often than not the results show minimum wage laws to be a bad thing.

    Of course the Greens only look at stuff like The Spirit Level

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  76. Kimble (4,440 comments) says:

    The research on minimum wages concludes it is a negative.

    I am aware of the fucktonne of data which shows the negative impact of minimum wage laws, but I think the reasoning behind the idea is its strongest defense. It is very difficult to prove anything conclusively in economics, it is too easy for people like ross to just say, “I read a study which showed…” and leave it at that, without ever bothering to think things through.

    They should be forced to think about the topic, not just scan the abstract of a study they dont actually understand and consider their job done.

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  77. F E Smith (3,305 comments) says:

    has anybody else noticed that ross’ 9.38am comment includes Sidney and Beatrice Webb as references?  Two hard-line socialists who thought that the Soviet Union was a wonderful workers paradise and that the West should become socialist. 

    Using their writings to support an economic argument is like citing Osama bin Laden as an example of tolerance.

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  78. Kimble (4,440 comments) says:

    toad, three quick things about that study you linked to:

    1. the authors admitted that the increase in the minimum wage was legislated 2 years before it came into effect. The data they looked at was from the start to the end of 1992. Surprise surprise they found little change. This is what you would expect as employers would have foreseen the price rise and included that in their labour demand for 2 years.

    2. the authors only looked at the numbers of people employed, not the people themselves. It is possible that the people employed previously were replaced by more productive people. People who would have been employed anyway.

    3. the authors claim that over the period there was an increase in minimum wage employment. Again, this is to be expected, the period in question was a recession. Employers looking to reduce costs would hire more minimum wage workers.

    I am sure I could find more if I decided to spend some more time on it.

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  79. toad (3,674 comments) says:

    @Kimble 1:05 pm

    While we can explain why an increase in the minimum wage would lead to unemployment, can you explain why an increase in the price of labour wouldnt have any impact?

    Actually, you can’t explain it Kimble, because the evidence indicates it does not happen – even though, intuitively, classical economics would indicate it should. Labour market theory is obviously considerably more complex that the simplistic “if something costs more people will use less” economics that you adhere to.

    There have now been sufficient studies into the effect of increasing the minimum wage on low-income employment that the Card-Krueger research I linked to above cannot simply be dismissed as an aberration or methodologically flawed.

    One theory is that higher wages attract more workers to the firm and fewer quit, which may even increase the profit-maximising level of employment, and that a minimum wage increase may reduce labor market flows rather than employment levels. Even though some firms may stop hiring or even go out of business, increased competition among those that remain in the market compensates for that employment loss.

    This study, which is the most recent I can immediately locate and largely supports the earlier Card-Krueger findings, is worth a read.

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  80. Kimble (4,440 comments) says:

    I dont like studies that rely on surveys (especially phone surveys) and do no publish the questions asked.

    It seems they asked 1 question regarding minimum wage employment. And that question was ambiguous, leaving it up to the respondent to assume the details. This is usually enough to have a study labelled “fatally flawed”. They just asked about the number of full time and part time employees, excluding managers, nothing about the hours worked (which is what really matters.)

    A later study, using actual payroll data for the same group surveyed, came to the opposite conclusion. The payroll data is much more likely to be correct than a phone survey. Its the same difference in quality as between a street survey of taxable income, and tax returns. Your guys lose the data quality pissing contest.

    Why has this particular study resonated with the left? Probably for the same reasons The Spirit Level hasnt been mulched yet. Economic ignorance stuffed full of confirmation bias.

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  81. ross (1,437 comments) says:

    “Economic ignorance stuffed full of confirmation bias.”

    That’s what happens when you subscribe to a particular ideology, as DPF does. If he just looked at the research and used a bit of logic, his beliefs would probably be vastly different.

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  82. ross (1,437 comments) says:

    “the effect of increasing the minimum wage on low-income employment that the Card-Krueger research I linked to above cannot simply be dismissed as an aberration or methodologically flawed.”

    That’s correct….the benefits of raising the minimum wage are quite clear but those with an ideology to push will simply ignore all the benefits. Why? As Bill English said, low wages gives NZ a competitive advantage over Australia. That was a naive response from him, because we are losing tens of thousands of workers to Australia. We can’t afford to keep losing skilled workers. We can’t afford not to raise the minimum wage.

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  83. Kimble (4,440 comments) says:

    Actually, you can’t explain it Kimble, because the evidence indicates it does not happen…

    Actually it does. But even so, I can explain why the actors, with common, recognisable motivations would make decisions that end up reducing the available employment at the minimum wage price level.

    Labour market theory is obviously considerably more complex that the simplistic “if something costs more people will use less” economics that you adhere to.

    Fuck you. Its a starting point. Which is why I keep asking the question, WHY would this not be the case for minimum wage workers.

    There have now been sufficient studies into the effect of increasing the minimum wage on low-income employment that the Card-Krueger research I linked to above cannot simply be dismissed as an aberration or methodologically flawed.

    It doesnt change the fact that it IS methodologically flawed.

    And define “sufficient”. Obviously sufficient to convince you, but how critical are you? You have shown yourself more than willing to overlook the flaws of this study, even thought they are well documented and have been for more than a decade.

    and largely supports the earlier Card-Krueger findings

    It doesnt support the Card-Krueger findings. CK didnt have legitimate findings. These new guys have looked at different data.

    One theory is that higher wages attract more workers to the firm and fewer quit

    Attracts them from where?

    Even though some firms may stop hiring or even go out of business, increased competition among those that remain in the market compensates for that employment loss.

    Compensates who?

    Maybe it is our individualist bias showing through. But we tend to think that increasing the wages of some, by forcing others out of the market, is unfair.

    This is also a finding of that second study, btw. Our policy simulations show that moving the minimum wage up from $5.15 to $7.25 generates a 3.4 percent increase in the average teen wage, while reducing employment by less than 0.4 percent and reducing separations by around 2 percent.

    So in their simulations, increasing the minimum wage reduces employment? And not only that, the number of people leaving minimum wage jobs is reduced. Hehe, though you claim this is a good thing.

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  84. Kimble (4,440 comments) says:

    That’s correct….the benefits of raising the minimum wage are quite clear but those with an ideology to push will simply ignore all the benefits.

    Ross, without referring to any study, survey, or census, explain why raising the minimum wage increases employment.

    As Bill English said, low wages gives NZ a competitive advantage over Australia.

    And now explain why it doesnt.

    We can’t afford to keep losing skilled workers. We can’t afford not to raise the minimum wage.

    And now explain why the minimum wage matters to skilled workers. Especially those moving to Australia.

    Clown.

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  85. toad (3,674 comments) says:

    @Kimble 4:22 pm

    I dont like studies that rely on surveys (especially phone surveys) and do no publish the questions asked.

    Huh? The Dube-Lester-Reich research I linked to largely relies on Quarterly Workforce Indicators data collected and analysed through a partnership between the U.S. Census Bureau and various state Labor Market Information offices – not on surveys that do not publish the questions asked.

    Anyway, just realised it is after 4.30pm on Christmas Eve and here I am still debating economics with neo-libs and Tories.

    Must be wine o’clock! Have a Merry Christmas everyone (and if I happen to comment here later this evening don’t take anything I write too seriously).

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  86. ross (1,437 comments) says:

    “has anybody else noticed that ross’ 9.38am comment includes Sidney and Beatrice Webb as references? Two hard-line socialists who thought that the Soviet Union was a wonderful workers paradise and that the West should become socialist.”

    F E Smith,

    You’re straining credibility. Do you moonlight as an economist when you’re not appearing for the Defence?

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  87. ross (1,437 comments) says:

    “if I happen to comment here later this evening don’t take anything I write too seriously.”

    The right-wing nutbars never do. :)

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  88. Kimble (4,440 comments) says:

    First level thinking: improve the well being of poor people by forcing others to pay them more.

    Second level thinking: those forced to pay more will also change their behaviour.

    Spirit Level thinking: the first level must be correct because the second level doesnt hold true in all circumstances.

    a- That doesnt make much sense.

    b- OK here is a study which shows a circumstance in which the opposite of the second level actually happened.

    a- That study is flawed.

    b- Here is another one that says the same thing. That proves the first study was right.

    a- No, it doesnt. And it actually confirms the second level, but simply claims that the gains to some are worth the costs to others.

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  89. Kimble (4,440 comments) says:

    Huh?

    I was referring to the CK study.

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  90. ross (1,437 comments) says:

    Kimble

    The only clown is you…the minimum wage matters a great deal to skilled workers. I’ll let you work out why. But if you read the CTU submission on the minimum wage, which I’ve linked to previously, your questions are answered there. It is more than 70 pages and it doesn’t have any pictures, so I’ll understand if you choose not to. But please don’t comment from your position of ignorance.

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  91. ross (1,437 comments) says:

    “100hrs x $13 = $1300 pw less $600 costs = $700 saved”

    And not a cent paid in tax! Is that how you make money: you pay workers the minimum wage and at the same time you pay no tax?

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  92. Kimble (4,440 comments) says:

    I’ll let you work out why.

    See, I COULD work out why. I could come up with a half dozen reasons why. I have. And yet I havent come up with a reason that is powerful enough to become one I believe is true.

    You DO have a reason that is powerful enough to set your mind. So. You tell me what it is. What train of “logic” (a word you cheapen with every use) led you to believe it? It might be one I have already rejected. But at least then I would be able to explain why I rejected it.

    You CAN explain your position, cant you?

    And you ignored the other two things. Do you only read a third of any post?

    1. Why does an increase in the minimum wage necessarily result in an increase in employment?
    2. Why does New Zealands lower cost of labour not provide it with a competitive advantage over Australia?
    3. Why does the minimum wage matter to the much better paid, skilled people who are leaving to go to Australia?

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  93. toad (3,674 comments) says:

    @ross 5:24 pm

    Yeah, a lot of the neo-libs think it is their “duty to their country” to avoid paying tax.

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  94. Kimble (4,440 comments) says:

    And many lefties treat “duty to the poor” as a fine goal for making themselves feel good about themselves, but care little for effective fulfilment.

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  95. F E Smith (3,305 comments) says:

    ross,

    re your 4.55pm comment: in what way am I straining credibility? Do you deny that the Webbs were hardline socialists who admired the Soviet Union for the entirety of their lives? The were, of course, early members of the Fabian Society, as well. In my view, their work is entirely coloured by their political positions, especially given the nature of their positions.

    My knowledge of economics is irrelevant in this case, the political views and associations of the Webbs speak for themselves.

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  96. slijmbal (1,236 comments) says:

    It’s bleeding obvious price affects demand – the question is not if but how much and in what way. Increasing minimum wages will affect employment. Try doubling minimum wages and see how many ‘discretionary’ jobs will disappear – all of a sudden people will mow their own lawns etc etc

    Minimum wages are a social construct to redistrubute wealth to get around market forces setting very low wages for lowly skilled people. To pretend that redistribution of wealth will fix the economy is exceedingly illiterate unless some in the economy pay more, which was DPFs point and whether his numbers are right or wrong the point still stands.

    The issue with wages is that jobs are becoming split in to high and low wage as skilled employees or business people earn more and more people cannot find a skilled job and end up in low wage employment.

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  97. Sonny Blount (1,782 comments) says:

    To correct my earlier post

    2 people working 50hrs at $13 = $1300 pw after tax = $1100

    Less rent $150, food $250, expenses $200 is $500 saved per week

    Plus $1100 holidays sold per year.

    Earning 3% interest at the end of each month = $556,000 after 16 years

    A couple leaving home and never getting off the minimum wage can have $500,000 in the bank at 32.

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  98. Anthony (796 comments) says:

    How about some real life examples. Do the boys at the supermarket who put the trolleys away after shoppers have left them deserve or need a pay rise to $15 an hour. Will their employer find more productive ways of getting the trolleys back in order with the higher cost? Will the poor be better off when their grocery prices rise slightly to pay for the higher costs?

    The same argument can be run for most of the workers at McDonalds. Do left wing people really believe McDonalds could just carry all the extra cost. Their food prices would have to go up. But then only the rich eat McDonalds don’t they.

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  99. ross (1,437 comments) says:

    “Increasing minimum wages will affect employment.”

    And you know this, how? Trying acquainting yourself with the research. Who knows, you might change your mind.

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  100. ross (1,437 comments) says:

    “My knowledge of economics is irrelevant in this case…”

    So you admit you know next to nothing about economics! But if someone is a socialist, that’s a crime. You’re too funny. Try playing the ball, not the man.

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  101. ross (1,437 comments) says:

    “You CAN explain your position, cant you?”

    Yes, I can. But you have given no indication that you’ve read the CTU submission, which, as I’ve explained, will put your mind at rest with respect to your questions.

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  102. ross (1,437 comments) says:

    “Why does an increase in the minimum wage necessarily result in an increase in employment?”

    Kimble,

    I’ll take the bait and answer this question, strange question as it is. Who said that a rise in the minimum wage will result in an increase in employment? Not any economist that I know. However, some studies have shown a slight increase in employment after such a rise. If you read Appendix 1 of the CTU submission which I’ve linked to below, there is more info on this issue.

    http://union.org.nz/sites/union.org.nz/files/Minimum%20Wage%20Review%202011_0.pdf

    The argument from the Right is that increasing the minimum wage costs jobs. But the research literature does not support this position. The research suggests that increasing the minimum wage has little or no effect on jobs. It is curious that the Right seems so concerned with jobs when we have high unemployment. Is the Right committed to full employment? Clearly not. This suggests that there are other reasons behind its opposition to raising the minimum wage. The issue of jobs is a red herring.

    Another problem with the Right’s opposition to raising the minimum wage is that it conveniently ignores the benefits that accrue from such a rise. To quote again from the Barry and Brosnan (2006) paper:

    “Wilkinson (1984) has argued that a realistic minimum wage alters the terms of trade between different productive systems, and
    making it more difficult for disadvantaged firms to rely on disadvantaged labour, thus forcing firms to become more efficient, by investing in better equipment, better methods and in the training of their workforces (Cahuc and Michel, 1996). At the international level, countries with higher minimum wages will have fewer inefficient firms and therefore be able to compete.

    The other benefit is that the higher minimum boosts consumption spending. Workers on the minimum wage are likely to spend all of their wage (Borooah and Sharpe, 1986), and spend more of it on domestically produced products (Borooah, 1988).

    …..

    ILO Convention 26 [which relates to minimum wages] was adopted only nine years after the ILO had been founded. The aim of the convention was twofold: one the one hand, to provide wages that were fair to the worker and which reduced the risk of poverty, and on the other hand, to make international trade fair by preventing economic dumping whereby a country used low wages to gain a cost advantage in trade. Today minimum wages play many and different roles in different countries….Minimum wage can be called upon to fill at least six different roles (a) to reduce poverty, (b) to improve equity, (c) to stimulate economic development, (d) to regulate wages in general, (e) to set rates for social security benefits, and (f) to fight inflation.”

    See pages 46-60 http://www.nzjournal.org/NZJER%20ISSUE%2031%20(2).pdf

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  103. Bogusnews (474 comments) says:

    Kimble

    Excellent work. You’ve said it all so well I can’t really add much, except for one comment.

    About a third of the way down the lefties commented on why wages should not have risen as personal productivity has and how the right mantra is to increase wages with productivity.

    I haven’t checked the rates but had anticipated they would increase with the more sensible policies of National. Under Labour, personal productivity fell to its lowest level on record (0.7) down from the highest on record (2.2) during the 90’s (under those dreadful “failed” policies.)

    It was one of the reasons why I knew we were headed for a terrible crash and falling into recession a full 8 months before the rest of the world. The bloggers began to notice things like this about 2005. In a very prophetic comment I have kept from 2007 and well informed blogger commented that by 2008 things would have become so bad that the economic commentators and even journos would start to notice.

    So unfortunately, while productivity has increased, I suspect it will take a little while before this benefit can be translated into higher wages.

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  104. Elaycee (4,392 comments) says:

    I’m feeling charitable on Christmas Day, so I’ll try one more time to explain business 101 to the economic muppet – ross.

    He can’t work out how an increase in wages will affect employment.

    Well, ross, it’s simple – if I produce a widget and it my labour cost increases, I have to either absorb the increase (at the expense of profitability / margin etc) or I have to recover the cost via a price increase. But the market in which I sell my widget may be price sensitive and I cannot increase my prices because it will affect sales. And if sales are affected and I no longer have to produce the same number of widgets as before, then I no longer need the same staff levels. That means job losses. So I have to look at reducing my costs.

    Still with me? If not, go back to the start…. If so, read on.

    If I have contract pricing for my supplies (most manufacturers will have fixed pricing for components / supply chain etc ) then that only leaves the labour element to try and trim (and labour is often one of the highest costs in a manufactured item anyway). So if the time to make the item is 1 hour, then (using your numbers) my labour costs have increased from $13 to $15 – to make the same widget that I have to sell at the same price.

    Still with me?

    So either I increase productivity (whereby it takes me less time to make the widget) or I have to reduce the labour costs by reducing staff numbers. One way I can increase productivity is to invest in a machine that will do the job quicker (but that will cost jobs and increase my finance costs) or I find a way to produce a widget in perhaps 50 rather than 60 minutes – an increase in productivity. But productivity increases may not offset the increase in labour cost anyway – so that means fewer staff.

    Now you can throw all the socialist text books you want at the debate but it won’t change the facts. Business these days in NZ is not like the old NZ Rail – where 24,000 staff were at one point ‘employed’ in NZ so the unemployment figures were kept artificially low. Or the ferries (same Company). Or the Ports (and we all know the labour disasters there).

    It is absolute crap for the Greens to suggest that incremental increases won’t be noticed – they ARE. Not sure if you realise that an increase from $13 per hour to $15 per hour is actually a 15% increase! Extrapolate that across many staff in a business and see what happens to your bottom line…

    The fact that the Greens struggle to understand an absolute basic principle of business is staggering – if ever you wonder why the business community looks on the Greens as economic retards, then go back and read what you have written / what toad has written about business matters and then you’ll understand why your destiny is in opposition.

    Merry Christmas! :D

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  105. Bogusnews (474 comments) says:

    Elaycee..

    hear hear!

    Merry Christmas all.

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  106. Kimble (4,440 comments) says:

    Ross, I said without referring to studies or surveys. The reason I did that is I want you to explain the mechanism of the change, not just that some observations have been found to be different. What is the logic behind it?

    The idea that increasing the price of something affects the demand is fundamental. What you are saying is that this relationship does not exist for minimum wage labour. Why?

    The intuition behind the minimum wage is that it helps poor people. The actual result is counter-intuitive, that it makes the poorest people less employable. What you want us to believe is either the original intuition (which cant survive the counter) or some new counter-counter-intuition.

    Seriously. You guys are the creationists of labour economics. And you in particular are the spluttering redneck claiming that all scientific evidence shows evolution to be false.

    Who said that a rise in the minimum wage will result in an increase in employment? Not any economist that I know.

    I can think of two you should know. They were referenced in the Union paper you linked to. And by toad. And neither toad nor the Union paper made any reference to the major criticism of the paper, which is that its measurements were bad enough to make any inferences worthless.

    And BTW, any paper that glowingly references The Spirit Level is junk in my opinion. And yes, I have read it. But I did it with an open mind.

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  107. F E Smith (3,305 comments) says:

    ross,

    you accuse me of playing the man, but rather than responding to the points I raise, you attack me instead. Your tactics are classic left-wing and show that you are not actually willing to address my point.

    I never said that it was a crime to be socialist. Mind you, that is not the first time you have put words in my mouth and then attacked me for what you have written.

    My point was, and is, that the Webbs views were and are on the extreme left of the 1920s to 1940s British Labour Party, which was more left wing than today even, being basically non-revolutionary communists, although they strongly supported the Soviet Union and all that it did, including the show trials of the 1930s. Their economic views were/are filtered through a very strong left wing bias, one that permeates their entire world view. In no way can the Webbs be considered either impartial or scientific (notwithstanding the frequent claim of leninist-marxists that their views are ‘scientifically proven’). The Webbs were arguing a point of view that accorded with their extreme left-wing political position, not an economic theory founded upon impartial theorising.

    So stop playing the man and not the ball, and instead address criticisms that are properly addressed and validly made.

    Oh, hold on, you can’t help yourself, can you?

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