A minimum wage story

February 11th, 2013 at 1:00 pm by David Farrar

A reader writes in:

I thought I’d share my experience with , or lack of.

Earlier last year I hired a fresh graduate student – she was at the time my first hire for the new company. Her starting salary was less than 20k, an amount that would be tough (but manageable) to live off. It may seem rough considering Singapore is one of the more expensive cities in the world but she lives with her parents. I was simply unwilling/unable to pay any higher as I was starting a business however she was happy to get a job and to prove herself.

She has since proved her worth and has been a relief to my workload enabling me to focus on getting new business. Her first salary increase was after six months, she got 25%. Her second review is coming up shortly, it marks one year since she started and she is being raised to double her starting salary. Not bad for someone just one year out of uni.

 Another example – I recently hired a virtual assistant through Odesk. It was a take it or leave it proposition, I thought it could be helpful but not essential. 

There were a lot of offers from $1 an hour through to $40 an hour.

One applicant I liked, from the Philippines, offered to do the work for $3.50 which I felt was ridiculously low and unfair. I spoke to her several times on Skype and I raised my point to which she had this to say.

“Sir, if I work at local company I maybe get $1 an hour, these are long and hard jobs and I have young children. If I do this job I get more money but I can stay at home to care for my children at the same time.”

She then pointed out that many Filipinos leave their families and move overseas to work as maids and are extremely happy when they get jobs paying $400 SGD a month and here I was offering a job that paid more for her to stay at home with her family.

Long story short I hired her and she has been amazing. She is also loving her diverse role and the new skills she is learning – I have her doing anything I can think of from building databases, researching assignments, uploading for websites through to basic accounts and emailing for me.

And yes, I did ask her to stop calling me Sir.

 I realise these examples are not applicable to NZ directly however they do highlight two situations where a minimum wage would been worse off for both me and the employees. 

The minimum wage is one of those classic trade-offs. It is good for those in low paid jobs, who get more income. But it can be bad for those seeking a job. If you have a minimum wage, the challenge is setting it at a level that doesn’t drive too many people out of jobs.

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19 Responses to “A minimum wage story”

  1. cha (3,829 comments) says:

    Nice story but was it really an assistant that was needed or was your reader just out-sourcing their own job?.

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  2. alwyn (397 comments) says:

    There was an article on the effect of minimum wages in the Economist a couple of months ago on the effects of minimum wages on employment. For “moderate” minimum wages there appeared to be little effect on the employment. “moderate” was not strictly defined.
    An interesting item in the article was that New Zealand had one of the highest minimum wages in the OECD when taken as a fraction of the median income in the country. New Zealand was at 59%. Only France at 60% was higher and other countries recorded included Britain at 46%, Canada at 45% and the USA at 38%. Our minimum wage is therefore very high by world standards.
    The union movement, in conjunction with Charles Waldegrave are arguing for a “living wage”. I haven’t seen the full details but it appears that the want a rate of about $20/hour for a man who is supporting a wife and two children.
    I don’t have access at the moment to the details but it would seem to me that when you take into account WFF and the various earned income credits available anyone in New Zealand with that sized family and with a full-time job at the current $13.50/hour minimum wage would be recieving the “living wage” and that no adjustment would actually be necessary. If this is so it would seem to be a massive own goal for Helen Kelly and the CTU.

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

    Minimum wages are a disgusting practise for a country to engage in.

    As Milton Freidman and Thomas Sowell point out, the most racist law on the books.

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  4. Nigel Kearney (904 comments) says:

    The unions have already ‘negotiated’ higher wages and conditions for their members. So they need to protect their members jobs by lobbying for it to be illegal for non-union workers to do the same job for lower pay or conditions. There may be some simple but well-meaning souls who think a ‘living wage’ is about having enough to live on, but for the unions it’s just a tactic.

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  5. backster (2,106 comments) says:

    Does the Phillipino mum also get ‘working for families,’ ‘ accomodation supplement,’ etc.

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  6. berend (1,671 comments) says:

    backster, WWF is an absolutely awful law for employees: these days business set the salary as: net income we think this person should have = wwf + what we have to pay.

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  7. Muzza M (291 comments) says:

    backster, I live in the Philippines and the answer to your question is NO. The Philippine people get absolutely nothing.

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  8. Ryan Sproull (7,056 comments) says:

    Can someone explain to me why minimum wage can’t be keyed to the success of the business? I’m sure numbers would be fudged, but start-ups running at a loss could provide jobs at lower amounts while established profitable businesses could be obligated to pay a higher minimum wage based on the number of their employees and their last recorded profits. That way there are jobs, small businesses aren’t penalised, and successful businesses are obligated to pay a decent wage.

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  9. berend (1,671 comments) says:

    Ryan, the effect will be that in order to be competitive, there will be only startups.

    Just like there are less and less permanent jobs any more. If firing gets to hard, hiring doesn’t happen that much.

    Please, please, let the market provide for itself, everything done to “improve” things has huge unintended consequences.

    And please please please let the government not safe banks, businesses, provide R&D credits, etc etc etc etc either obviously.

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  10. chris (584 comments) says:

    @ryan One slight flaw in your argument is that you can be a very successful business but make very little profit…

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  11. Ryan Sproull (7,056 comments) says:

    Thanks for that feedback, guys.

    I don’t see why there would only be startups, berend. Can you explain?

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  12. Monique Watson (1,062 comments) says:

    Can someone explain to me why we don’t accept that some times in our lifespan we can’t expect to be paid more than a pittance? I’m talking students, ex convicts, returning to work, retirees.

    Sure, at the peak of our careers our expectations are ging to be higher and we’ll be paid more. By the market.

    I’m all for a minimum wage to prevent slave labour. But it’s a hell of a lot less than $20/ hour

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  13. JC (929 comments) says:

    We already have a Living Wage or Minimum Wage.. they are called the unemployment benefit.

    JC

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  14. Rightandleft (651 comments) says:

    I absolutely believe in a minimum wage, but ours is already quite generous as it is. Increasing it by a bit each year to keep pace with inflation is a good idea too. But the living wage campaign is a step too far.

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  15. Viking2 (11,220 comments) says:

    Providing New Zealanders with a living wage is not high on the Government’s agenda and it is unlikely to support the campaign, Prime Minister John Key said today.

    Speaking at his post-Cabinet press conference, Mr Key said it was up to companies whether they paid a rate above the minimum wage and above $18.

    The living wage campaign will be launched on Thursday by unions. It calls for wage rates families can realistically live on and is expected to be $18-$20 an hour.

    The minimum wage is $13.50 an hour.

    “The only area where the Government plays a role is in setting the minimum wage. If you ask me whether we intend to raise the minimum wage to $18 a hour, the answer is no, not in the next 12 months,” Mr Key said.

    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10864742
    ————————————————————————
    So as I predicted Slippery key Hasn’t said NO we will not be doing this, just not in the next 12 months.
    Next announcement will be this year it is going to $14.50.

    As bad as that Cullen prick.
    National the Party of Freedom
    Fuck off.

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  16. KevinH (1,142 comments) says:

    Outsourcing is not helpful to the local labour market and local graduates, however that is your choice if you so choose. Don’t expect the local market to support your business.

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  17. Azeraph (603 comments) says:

    I know a brilliant woman that is usually over qualified for the jobs she has taken and is run off her feet 7 days a week, why? modern business practices. Everyone is going to hire Indians and Asians. I told her to go back to Britain, leave this dump and get back to what she was earning at quadruple the rates she’s on here.

    She could run IRD if she wanted.

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  18. hamnidaV2 (247 comments) says:

    $3.50 an hour – what a generous guy.

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  19. ISeeRed (244 comments) says:

    He sure is, hamnidaV2 – 3.5x more generous. “Sir, if I work at local company I maybe get $1 an hour”. You either need to work on your reading comprehension or your recall ability.

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