Minimum wage incomes

May 29th, 2014 at 3:00 pm by David Farrar

minwage

Just done some quick calculations on what someone on the minimum wage would have in terms of real take home pay today, as opposed to six years ago.

The gross minimum wage has increased 19%.

However tax has been reduced, so despite earning 19% more income, they are now paying 14% less tax.

The ACC rate is slightly higher today than in 2008 (when ACC was near insolvent) so that has gone up. Hopefully next year will drop again.

The net income of a fulltime minimum wage earner is 27% higher than six years ago.

The key thing is how have costs risen during the period. And the good thing is that even with the GST increase the cost of living only increased 14% in six years, so a minimum wage earner has had an 11% increase in their real disposable income in that period.

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A fail for the press editorial

February 27th, 2014 at 12:00 pm by David Farrar

The Press says:

Cynics would say that the latest rise was an easy move for the Government to make. When the minimum wage rises by 50c, the Inland Revenue Department gets nearly 9c extra for every hour worked by a minimum- wage earner as the income tax liability increases. For workers with children, the Government’s Working for Families liability will decrease at the same time. All of this money will be funded by employers directly, and indirectly by the consumers who use the goods and services that those employers provide.

A number of people make this mistake. Putting up the minimum wage decreases the tax take for the Government. They have ignored the fact companies pay tax, and at a higher rate than individuals on the minimum wage.

A full time minimum wage of $13.75 an hour is $28,679 a year. Going to $14.25 an hour is $29,721. An increase of $1,042.

Tax on the former is $4,039 and the latter is $4,221. So an increase in tax of $189.

However the employer pays tax at 28%. Their profit will drop by $1,042 and hence the tax they pay drops by $292. That means a net reduction in tax to the Government of $103.

So a rather big fail for The Press editorial.

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The flipside of minimum wage increases

February 25th, 2014 at 2:00 pm by David Farrar

minwage

 

Sent in by a reader. It makes a very valid point, the higher you force up wages for certain jobs, the more likely it is that they will be replaced by technology. That may actually be good for the economy eventually, but very rough on those who find themselves without a job.

Talking of the minimum wage, some useful analysis on Stats Chat:

From April 2008 to April 2013, the minimum wage increased 14.6%. Inflation (2008Q1 to 2013Q1) was 11%. So, the minimum wage increased faster than inflation, and the proposed change will keep it increasing faster than inflation.

From whole-year 2008 to whole-year 2013, per-capita GDP increased 9.7%.  Mean weekly income increased 21%. Median weekly income increased 18.8%. Average household consumption expenditure increased 7.8%.

Increasing the 2008 minimum wage by 18.8%, following median incomes, would give $14.26, so the proposed minimum wage is at least close to keeping up with median income, as well as keeping ahead of economic growth.

As I said yesterday, I think it would be sensible to link it to the median wage.

As a final footnote: the story also mentions the Prime Minister’s salary. There really isn’t an objective way to compare changes in this to changes in the minimum wage. The PM’s salary has increased by a smaller percentage than the minimum wage since 2008, but the absolute increase is more than ten times that of a full-time minimum wage job.

Of course a higher wage will always have an absolute higher increase. That is why percentage comparisons are done. I didn’t realise however that the relative movement in the PM’s salary has been less than the movement in the minimum wage.

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Minimum wage to go to $14.25 an hour

February 24th, 2014 at 4:26 pm by David Farrar

Simon Bridges has announced:

Labour Minister Simon Bridges today announced the adult minimum wage is to rise to $14.25 an hour.

The current adult minimum wage rate is $13.75 an hour.

The Starting-Out and training minimum wages will increase from $11 an hour to $11.40 an hour, which is 80 per cent of the adult minimum wage.

“Setting these wage rates represents a careful balance between protecting low paid workers and ensuring jobs are not lost,” says Mr Bridges.

“The increase announced today balances the needs of both businesses and workers and will have minimal impact on the wider labour market and inflationary pressures.

“This increase will keep the minimum wage at around 50 per cent of the average hourly rate, which is the highest rate in the OECD.

A lot of people do not realise how high our minimum wage is compared the average wage. And the linkage is important, because if the minimum wage gets too close to the average wage, then it can have huge distortionary effects on employment.

To use an example, a shift in the minimum wage from say 25% of the average wage to 35% may have little impact on employment. But a shift from 50% to 60% will definitely have an impact.

I actually think it would be sensible to formally link the minimum wage to the median wage, so the focus goes on lifting wages through productivity, which would them automatically assist those on the minimum wage.

The minimum wage will soon be $14.25 an hour, and if the same increase happened next year it would be $14.75 an hour. This means that Labour’s policy may be to simply hike it a further 25 cents. Sadly I guess this means they will now pluck another number out of the air, and say that this is the level the minimum wage must be at. They’re effectively saying all Government employees must get paid at least $22.89 an hour, so why not that for all employees!

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Waldegrave on living wage

January 21st, 2014 at 12:00 pm by David Farrar

Rev Waldegrave defends his living wage calculations:

Second, she shamelessly selects luxury categories out of the Household Economic Survey (HES) database which is used for all New Zealanders, including the very wealthy, to imply the living wage includes international travel, Sky TV and the double counting of mortgage insurance simply because the questions are there. HES data is the record Statistics NZ gathers to show movements in income and expenditure for all New Zealanders. Everyone is asked all categories, but lower income households are hardly likely to be recording owning yachts or regular international travel. People who rent houses don’t record mortgage insurance, just as homeowners don’t fill in the rent columns.

Actually many low income households have Sky TV. The point is Waldegrave could have asked Stats NZ for data that excluded the costs of luxuries, but then that would not have produced such a high number. And he states why:

A living wage, on the other hand, refers to having those necessities, but also having the ability to participate modestly in society. Examples include being able to afford a computer, especially for children in a household, and a modest insurance policy. It could also include a trip to family in Australia or Samoa for an important occasion where savings have been put aside or extended family contribute.

So Waldegrave’s living wage is designed to include overseas travel. Clear.

Waldegrave misses the key issue around the living wage, and doesn’t mention it once, because it is so fatal to his cause. Only around 10% of those who earn the living wage are in the sort of household his calculation is based on.

We see this issue also in the minimum wage. Tyler Cown blogs a recent paper on the US minimum wage:

Only 11.3% of workers who will gain from an increase in the federal minimum wage to $9.50 per hour live in poor households…Of those who will gain, 63.2% are second or third earners living in households with incomes three times the poverty line, well above 50,233, the income of the median household in 2007.

A stunning figure.

I once was earning at (actually below) the minimum wage. That didn’t mean I was poor, or in a poor household. It meant I was young.

 

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Labour effectively pledging a minimum wage of $18.40

September 5th, 2013 at 4:00 pm by David Farrar

David Cunliffe writes at The Standard:

I’d like to thank Lynn and the authors of the Standard for this opportunity to contribute a post here, where Labour members and the broader left come together online. The Standard is certainly one of the most respected political blogs and I am a regular reader.

I’ve always wondered if David is also an author :-)

I will introduce a living wage for all employees of Government agencies – and I will extend this policy over time to any business that seeks to win Government contracts.

This pledge goes further than what we had before. This is not saying if you are doing work for the Government, the staff doing that work must be paid the Anglican Church mandated living wage. It it saying that any business that has (or seeks) any contract with the Government must pay $18.40 (for now) an hour.

Now the Government is a massive chunk of the NZ economy. There are few businesses who wouldn’t have at least one contract with a government agency. So if you own a copy centre, and you win the contract to do the copying for say the NZ Transport Agency, then you have to pay all your staff $18.40 an hour or more – even the 16 year old copy assistant.

So the way Cunliffe (and I presume Robertson) have worded their pledge, is in fact a de facto minimum wage for all. The destruction of jobs that will follow would be massive.

Some may argue that it will only apply to those working for the Government through the contractor. But I can’t see that happening. Say you are a cleaning company. Could you pay staff $15 an hour when they clean the ANZ but $18.40 an hour when they clean the Reserve Bank? Of course not. No employment contract would allow you to pay people based on who your clients are. It would inevitably mean you would have to pay all your staff whatever figure Rev Charles Waldegrave proclaims every year to be the new living wage!!

The Herald editorial makes the point:

Everyone agrees that New Zealand needs to lift its incomes overall, to match Australian rates if possible. But the Labour Party seems to think that this can be done at the stroke of its pen. Mr Robertson in particular, is talking as though an economy is simply a job-creation scheme and all that a government needs to do is make its priority “people”.

He is surely insulting the intelligence of Labour Party audiences, most of whom appear to have been around a good deal longer than Mr Robertson and can remember when the economy was largely a job-creation scheme.

Promising to lift wages by stroke of a pen, and that there will be no impact on jobs, is a cruel hoax. If it was that easy, everyone would do it.

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Minimum wage and KiwiSaver

August 22nd, 2013 at 11:00 am by David Farrar

Stuff reports:

An employment case that could effectively raise the minimum wage for workers enrolled in KiwiSaver is being “watched closely” by employers, a lawyer says.

The case, which was heard in the Court of Appeal yesterday and could mean an extra $450 a year for those on the minimum wage, was described as of “considerable public interest” by one of three judges assigned to make a final ruling.

Lower Hutt caregivers Vasivasi Faitala and Dalrene Goff took employer TerraNova Homes & Care to court last year, arguing it was unfair that they had to pay their own and TerraNova’s KiwiSaver contributions under their employment agreement.

At the time, the women earned the minimum wage of $13.50 an hour, made up of $13.24 plus 26c for TerraNova’s KiwiSaver contributions.

Most employers pay the contributions on top of an employee’s salary, but some favour a “total remuneration” approach that includes their contribution, on the grounds that it treats all staff equally.

Although that approach was legal, Ms Faitala and Ms Goff argued it was a breach of the Minimum Wage Act, and the Employment Court agreed, ordering TerraNova to pay any compulsory contributions in addition to the workers’ gross salaries.

TerraNova’s lawyer, Elizabeth Coats, told the court yesterday that although the KiwiSaver Act said compensation should be paid on top of a salary, there was a provisional clause that allowed it to be included if both parties agreed.

It will be interesting to see how the Court of Appeal rules. For my 2c I think the employees are in the right, and likely to win.

While you can agree for KiwiSaver to be based on total remuneration, and hence deducted from what would be your gross salary, I don’t think such an agreement can over-ride the minimum wage requirement.

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The living wage debate

May 20th, 2013 at 8:22 pm by David Farrar

Public Debate POSTER FINISHED 2

 

This debate is tomorrow (Tuesday) night.

James Sleep from the Campaign for a Living Wage (and the SWFU) is the guest speaker for the affirmative and Luke Malpass from the NZ Initiative is the guest speaker on the negative. Members of the debating society will also be speaking.

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Advice on minimum wage

April 4th, 2013 at 12:00 pm by David Farrar

Kate Shuttleworth at NZ Herald reports on what Government agencies said on the minimum wage. The summary is:

  • Treasury – $13.50
  • Cabinet decision – $13.75
  • Ministry of Business Innovation and Employment – $13.80
  • Ministry of Social Development – $13.80
  • Ministry of Women’s Affairs – $13.80
  •  Ministry of Pacific Island Affairs – $15.00
  • Te Puni Kokiri – $16.00

Te Puni Kokiri must think we need more unemployed people!

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Why we need education reform also

March 23rd, 2013 at 9:27 am by David Farrar

Narelle Henson at Stuff reports:

Frustrated bosses say they can’t find suitable workers for even the most basic of labouring jobs despite the high unemployment rate, as they deal with people who turn up drunk if they come to work at all. …

But despite the many jobless, employers say continual absenteeism, substance abuse and poor work ethic appear to be making a lot of them unemployable.

Dave Connell, vice-president of the New Zealand Contractors Federation and managing director of Connell Construction, who is juggling operations in the Waikato and for the Christchurch rebuild, said 100 people responded to a Trade Me job advertisement for a junior construction role, but not one was suitable to hire.

“We are letting seven people go for every one we keep,” he said.

“I have had some people last half a day and walk off the job with $800 worth of [work] gear on them; one guy had six sick days in two weeks, and we have had issues with physicality too.”

Mr Connell said he was desperate to fill positions, but could not find anyone with the right attitude.

It will take many years to fix these problems.

The first is we need to stop people leaving school with inadequate literacy and numeracy skills.

The second is we need to install a work ethic in people from their teenage years. That is why I don’t support a minimum wage for under 18s, and why I support welfare reform.

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Youth Rates

March 20th, 2013 at 7:03 am by David Farrar

Audrey Young in the NZ Herald wrote:

The temperature in Parliament is sure to rocket when the law “reinstating” youth rates is debated this week.

It happens every time the emotive issue is debated, as it did last week when the bill to bring them back passed its second reading. …

The new youth rates will be called the Starting Out Wage.

Labour says youth rates will be reinstated, suggesting that they were previously abolished.

But Labour did not support the bill of former Green MP Sue Bradford to abolish youth rates. It opted instead for a dilution of her bill but which limited the amount of time that a new young worker could remain on youth rates to 200 hours or three months.

National went to the last election campaigning for a change to that regime, saying the move had contributed to a significant rise in youth unemployment.

The change is in fact quite modest. It is not full youth rates. The starting out rate will only apply:

  • To a 16 or 17 year old with a new employer, for the first six months
  • To an 18 or 19 year old who has been on a benefit for more than six months

The $13.50 minimum wage will be raised to $13.75 on April 1. From May 1 the Starting Out Wage would be 80 per cent of that, or $11.

Act leader John Banks said his party believed 80 per cent was too high as a minimum. In Britain the rate was 60 per cent for 16-year-olds and in Australia it was 48 per cent for 16-year-olds.

He compared the Starting Out Wage to the dole, paid to 40,000 young people every fortnight between 15 and 19 – equivalent to $4.50 an hour. He said they desperately needed the “dignity of work and a job opportunity”.

I believe getting a young person their first job is incredibly important and making it illegal for a 16 year old to work for less than $13.75 an hour is incredibly stupid.

We see the impact of this stupidity by the fact that the unemployment rate is currently 30.9% for under 20s.

Labour MP Darien Fenton compared the move to discrimination against women and Maori who at one time were paid less because some people said they were worth less. No one would tolerate that type of discrimination today.

You are remain female or Maori for ever. You do not remain 16 for ever. Also minimum wages are not maximum wages.

It would then also be acceptable, she said, to discriminate against older workers.

We don’t allow a 16 year old to vote, yet allow 70 year olds to vote so the comparison is invalid.

“It perpetuates its stereotype of young workers being unreliable and incapable, and it ignores the fact that many young workers have already had considerable work experience at the age of 16.”

if they have had work experience at 16, it can only be because they were employed under the age of 16 – when there is no minimum wage.

One of the strongest submissions against the bill came from the Human Rights Commission. It said unequivocally that the discrimination could not be justified.

“In New Zealand, the age at which children and young people are deemed to be adult is considerably younger than 20 in many critical areas of life.

“The minimum age of criminal prosecution is 14 for most offences, 12 for serious offences and 10 for murder and manslaughter.

“Children in New Zealand are legally able to marry at 16 (with parental consent if either party is 16 or 17) and drive at 16.

“Children can enlist in the military at 17 and be deployed at 18.

“Yet they are not considered to be sufficiently adult enough to be protected by the minimum wage.”

I agree you gain you rights of adulthood at before 20. I actually support 18 and 19 year olds getting the adult minimum wage.

But I think there is no justification for having the minimum wage start at 16 instead of 15 or 17 or 14. 16 is arbitrary and capacious.

18 is when you are generally deemed an adult who can vote, marry without permission etc. It is also when most people finish school and leave home.

So what I would do is simple.

  • No minimum wage at all for 16 and 17 year olds (like it is for 14 and 15 year olds). Getting a job is far more important than what it pays, especially when almost everyone at that age is still living at home. 
  • Full minimum wage at age 18
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The union view on jobs

March 16th, 2013 at 8:58 am by David Farrar

Kerri Jackson at Stuff reports:

Small businesses that cannot afford to pay their staff a living wage should probably not be in business at all, a union leader says.

First Union general secretary Robert Reid said while the movement supporting a living wage of at least $18.40 an hour was generally targeted at large corporations and city councils, some undercapitalised small to medium-sized enterprises (SMEs) needed to think about their business practices as well.

“Why should a worker suffer for being employed by a business that maybe shouldn’t exist?

What an appalling statement. It shows the hatred for business that some union leaders have. Small business owners often spend months or years struggling to set up a business when they can’t even pay themselves a salary. And they create jobs for others, but Robert Reid thinks they are making their workers suffer if they pay them less than $18.40 an hour.

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The living wage

February 14th, 2013 at 9:00 am by David Farrar

Katie Chapman at Stuff reports:

Kiwis need to earn nearly $5 more than the minimum wage to meet the “basic necessities of life”, a new report has found.

Bzzt Wrong. Not the story – just the report.

The wage was calculated as the necessary income for a two-adult, two-child family and is based on both adults working, one full-time and one part-time.

This is not the majority of households or the majority of adult New Zealanders. Most workers either do not have children, or their children are adults.

It is silly and wrong to say you need to earn $18.40 an hour to meet the “basic necessities of life”, even if you accept the calculations of Rev Waldegrave as gospel. This is what has been calculated as necessary to support a four person family.

Now the report (which does not appear to be online, which means it is hard to check how robust it is) seems to ignore the existence of Working for Families which can pay up to $217 a week net.

Now there is an argument to be made that you should have wages at a level where people can have a family and not need Working for Families. That is a legitimate argument.

However I bet you that not a single proponent of the living wage campaign is saying that wages should be higher so the Government can scrap Working for Families. They want both.

And the reality is that economically it is daft to have a minimum wage based on the needs of 850,000 adults yet applying to all three million workers. Targeted assistance to those with children is more efficient and fairer than a one size fits all type living or minimum wage based on one particular family structure.

I would hope that most adults who are raising kids are in a job that pays $18.40 or more an hour. There are many jobs that pay that rate. But to advocate that every job in the economy should be at that rate is again daft and would kill off many jobs. A 16 year old living at home does not need $18.40 an hour to survive.  A couple with no kids doesn’t need that much. The partner of someone who is earning say $25 an hour doesn’t need $18.40 an hour. Individual circumstances vary greatly, and a campaign based on what is a minority living situation is no template for anything.

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Matt Nolan on the living wage

February 13th, 2013 at 3:00 pm by David Farrar

Matt Nolan blogs at TVHE:

Let me start this by underlying everything with a certain point – living wages are idiotic if our concern is to make sure that the worst off in society have a sufficient income.  By imposing a “price floor”, you are ensuring that there are a group of people who can’t get jobs and will get hurt – unions don’t care because they don’t represent the unemployed, but I find it morally abhorrent.  You want a minimum standard of living for societies worst off – have a minimum income, it’s as easy as that.

A minimum income scheme, which has merits, would need a radical reshaping of the tax and welfare systems.

Let’s take someone working full time at $19hr.  What does this person earn pre-tax $39,420pa (this excludes benefits which they are targeting to increase it further). What is nominal GDP per capita.  $47,157pa.

So either we have a society where different types of labour, and different peoples requirements for income (eg a 18 year old and a 57 year old), aren’t terribly different and so people shouldn’t get paid very differently – and as a result the potential worker who “offers the least” may well still get hired – or this will lead to higher unemployment and cut backs in hours for these people.  Who won’t get hired in this sort of situation – people that are risky to hire or haven’t developed skills yet.  So the young, the vulnerable, those that have been out of work.

I just think it is daft to claim an 18 year old with no experience living at home needs to be paid the same as a 45 year old with 20 years experience who is supporting a family and mortgage.

I mean I swear to god unions, and their determination to get what they want without thinking about the consequences for other people, makes me sick.  There are people who struggle, and as a society I think we should try to help them – part of this is ignoring faux research by unions, and making sure that we actually push government to sufficiently redistribute to the poorest

Instead so many on the left and unions support paying welfare to millionaire parents. That is because they are really just about growing the size of the state that they tend to live off.

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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 minimum wage, 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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The minimum wage

January 25th, 2013 at 2:00 pm by David Farrar

Matthew Jones wrote in the NZ Herald:

I read with astonishment the contribution on Friday from Julie Fairey who seemed unaware of the facts of minimum wage increases and their dire, unintended consequences.

There is little doubt that we desire higher wages and higher standards of living for our society but this cannot be done through legislation.

The effects of a minimum wage increase, despite their good intentions, have led to those whom it is intended to help being unemployed or finding it more difficult to find jobs and learn skills as the incentive to hire gets legislated away.

American Samoa had a terrible case of this when the federal Government increased minimum wage up to US$7.25 an hour, in some cases an increase of $4 an hour.

This is good isn’t it? High incomes and more economic demand as Julie Fairey “argues”. Well no, what happened was a mass exodus of jobs, one fishing and canning company slashing thousands of jobs on the island nation, sending them to the US state of Georgia.

Those earning around US$4 an hour now had nothing and American Samoa lost enormous job-creating investment that now headed to a small town in southern America where more skilled labour can justify the higher costs.

There is only one sustainable way to lift wages – productivity.

You could increase the wage to $100 per hour, surely even a diehard socialist could see the damage it would do. But the principle is the same at every level. The ripple effect of these job losses caused by such intervention in the market can be devastating.

The damage tends to depend on where the minimum wage is set, in relation to the median wage.

Although many who study minimum wage come up with differing opinions about the amount of job losses due to minimum wage increase, the most devastating is surely what is unseen.

What we don’t see is the entry level jobs that could have been created if legislation did not distort the market, jobs that would have allowed those unskilled, maybe currently on the dole, to earn an income and provide them with hope for the future.

Have you ever wondered where those ushers went from movie cinemas? Or window washers at service stations? Bag packers at supermarkets?

There is no point in the employer hiring if the cost is greater than the value produced. This is a law that tells employers to discriminate against the young and unskilled.

It is no coincidence that youth and minority unemployment is much higher than the national average. And indeed no coincidence that it was not always like this.

Absolutely not. There was a strong correlation between youth and adult unemployment for around 25 years up until the abolition of the youth minimum wage in 2007.

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More on a minimum wage is just a minimum

October 23rd, 2012 at 11:00 am by David Farrar

Here’s a pop quiz for you all. What percentage of 16 and 17 year olds who are in employment, are currently earning more than the minimum wage?

Guess to the nearest 10%.

UPDATE: The answer is 79% or roughly 80%. So only 20% of 16 and 17 year olds are in minimum wage jobs.

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Australian youth rates

October 18th, 2012 at 12:00 pm by David Farrar

David Shearer said on the starting out youth rate:

Labour Party leader David Shearer criticised the move, saying “it’s not going to create jobs by driving down wages”.

“These people are going to leave and go to Australia,” said Shearer.

Peter George has blogged the rates in Australia:

  • Under 16 years of age  $5.87
  • At 16 years of age   $7.55
  • At 17 years of age   $9.22
  • At 18 years of age   $10.90
  • At 19 years of age   $13.17
  • At 20 years of age   $15.59

The NZ rate is $10.80 and only for 16 to 19 year olds in some circumstances for a limited six months. Can’t really see those 16 year olds going to Aussie for the higher minimum wage.

Of course what matters is not the minimum wage, but the actual wage paid. So many people seem to think a minimum wage is a maximum wage.

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Herald on youth rates

October 11th, 2012 at 3:00 pm by David Farrar

The Herald editorial:

 Young people are particularly vulnerable to unemployment in times like the present. When the world economy is beset by problems and business everywhere is wary of taking on more commitments, older people cling to the jobs they have and vacancies are taken by applicants with a solid work record. …

The youth rate will be available for all 16- and 17-year-olds for their first six months with a new employer, but for 18- and 19-year-olds it will apply only to those who are coming off a benefit after more than six months, or are taking a recognised industry training course.

The legal minimum hourly rate for trainees of any age is already 80 per cent of the adult minimum. The youth rate, to be introduced in April, could reduce the present incentive for school leavers to take a job at the minimum adult rate rather than start a training course.

But mainly the rate is aimed at youth who are least likely to gain employment on the open market and less likely to seek some formal training. The youth rate will give them something to offer that might offset the record, maturity and reliability of their older competitors for the job.

If a temporary saving for employers can get the unskilled young taken on, they will get a chance to show their aptitude and know that after six months they have a right to a rise. It is a sensible step, approved at last year’s election. Let’s hope it works.

It is a sensible step. There is well documented evidence that the abolition of youth rates in 2007 led to a significant increase in youth unemployment. This is no surprise.

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The starting out wage

October 9th, 2012 at 4:00 pm by David Farrar

Kate Wilkinson has announced:

The Minimum Wage (Starting-out Wage) Amendment Bill provides for eligible 16- to 19-year-olds to be paid no less than 80 per cent of the minimum wage.

“The new starting-out wage will help some of our youngest and most inexperienced workers get a much-needed foot in the door, in what is currently a tight labour market.

“The starting-out wage was one of National’s 2011 campaign promises, and designed to provide 16- to 19-year-olds with the opportunity to earn money, gain skills and get the work experience they need.”

Three groups will be eligible unless they are training or supervising others:

  • 16- and 17-year-olds in their first six months of work with a new employer
  • 18- and 19-year-olds entering the workforce after more than six months on benefit
  • 16- to 19-year-old workers in a recognised industry training course involving at least 40 credits a year.

This is not a return to youth rates. While Labour will wail about this, the reality is that it is a modest extension of what they had in place.

Labour had a “new entrants” wage which also was at 80% of the minimum wage. It was for the first three months or 200 hours. Almost no employers (2%) utilised it due to the uncertainity over hours.

All National has done is doubled the period from three to six months, and extended its availability to those coming off a benefit.

So if you get a job at age 16, then at age 16.5 you will have to be paid the adult minimum wage if with the same employer. And please don’t tell me employers will sack staff after six months as a way to save money. Only a moron with no actual experience as an employer would think that. Staff recruitment and training is expensive.

Personally I would go far beyond what the Government has done. I would have no minimum wage at all, until people are legal adults at 18. The most important thing for a 16 or 17 year old s to start to gain some work experience. They almost invariably are living at home, and are not paying their own way in life yet. The value of an initial job in terms of skills, maturity but also references for future jobs is immense.

Why have the minimum wage start at 16, not 15 or 17 or 14? 18 is the logical age.

I do like the lower starting off wage for people coming off an extended spell on a benefit. But I’d not make that age restricted. I’d have that for anyone who has been on a benefit long-term.  So long as the work is paying significantly more than the benefit, then getting them that opportunity is all important.

This change is in fact quite minor. I can guarantee you that the media will treat the minimum wage change, as a maximum wage, and interview teenagers complaining about it, and portraying it as cutting their wages when it does no such thing. No one in a current job can have their wages cut. All it means is that they can be offered a job at a 20% lower rate than the adult minimum wage, for their first six months. The trade off is that it will mean more of them get jobs, but some of them will get paid less (for six months) than what it would have been. I have no faith that the media will get this distinction at all right.

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A contradictory story

August 26th, 2012 at 11:27 am by David Farrar

The SST reports:

Some Burger King employees say they have been working for up to 10 years on the minimum wage without receiving any performance or service-related pay rises.

If this is correct, I think BK are short-sighted as you want to give staff opportunities to earn more than the minimum wage. However I don’t think it is correct, based on the same article.

On April 1, when the minimum wage went up to $13.50 from $13, it is alleged many workers also lost a margin they were earning above the minimum wage.

How can you have spent ten years on the minimum wage, yet also lose a margin above the minimum wage? The article appears to be logically inconsistent, or very badly explained.

They were told they had to to earn back their right to that margin by completing “module” training. It is understood staff are being told they need to do the training in their own time.

And this contradicts the claim you can’t get a performance related pay rise.

The female worker said it could take months to complete all the modules and at the end of it there was no guarantee of the pay rise.

Umm, that’s because it is performance related I presume.

What would have made this a far more useful article is to state what the basic pay rate at BK is, how extra pay can be earnt and maybe compare it to the minimum wage.

Sadly thought the article just repeats a number of apparently contradictory assertions and gives us no actual hard data to decide on.

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Free debate, beer and pizza!

August 3rd, 2012 at 3:58 pm by David Farrar

The NZ Initiative is hosting a debate between Vic and Canterbury university teams on the topic “A minimum wage helps young people get a fair start in the workforce”.

It is at:

Mac’s Brewbar
4 Taranaki Street
Thu 9 Aug 2012
5.30 pm onwards

As well as an interesting debate, there is free beer and pizza! However you need to RSVP if you wish to attend, so they can cater enough food. You can RSVP online here.

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“Labour MP clueless on minimum wage price tag”

July 31st, 2012 at 10:00 am by David Farrar

The Herald reports:

Labour MP David Clark has admitted he doesn’t know how much it will cost employers if the minimum wage is raised to $15 an hour, despite sponsoring a bill to do just that.

Of course not. Why worry about the cost!

I supported the Mondayisation bill as the impact on wages was minimal – around 0.2%, and it was standardising the practice of Mondayisation. An 11% increase in the minimum wage though is exponentially larger, and is calculated to cost around 6,000 jobs. That is too much in one go.

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It is about how big a change

June 2nd, 2012 at 4:00 pm by David Farrar

I think it would be useful to compare the debate on class size, to the debate on the minimum wage, specifically does class size impact on the quality of learning, and does the minimum wage impact on the level of employment?

The answer for both is yes. If you are from the left and say class sizes impacts quality of teaching but the minimum wage does not impact employment then you are a hypocrite.

Likewise if you are from the right and you say say the minimum wage does impact employment but class size does not impact quality of learning, then you are also being a hypocrite.

Let us take an extreme example for both, to prove out points. Would a child learn better in a class of one, with one on one teaching – or in a class of 1,000 people? Obviously in a class of one (all other things being equal).

Likewise imagine if the minimum wage was $10 an hour and $100 an hour. Could anyone dispute that at $100 an hour, we would have mass unemployment?

So there is no doubt both the minimum wage and class size can have an impact on the number of people employed and the quality of learning. However that doesn’t mean that every change you make has a significant impact, and that degree of that impact may be less than other benefits. Let us start with the argument over the minimum wage.

If the minimum wage goes from $5 to $6 an hour, there may be no impact on employment (as few people may have been employed at that level). Let’s say though it goes from $14 to $15 an hour, which probably will have an impact on employment. Why do the left say this should still happen? They support it, because they argue that if it gets a pay-rise of $40 a week for 150,000 families who have someone on the minimum wage, then that is a satisfactory trade-off for say 4,000 people losing their jobs. It is an issue of what do you see as more important – the level of wages or the number of people in employment.

Now likewise for class sizes. Of course a class of 1 would be far greater than a class of 1,000. But does a class size of say 27 compared to a class size of 25 make a significant difference? The international research is very clear that it has not. Now this is not an argument to have class size of 40 or 50 or 100 because obviously at some stage it will have more of an impact. Hence a private school with a class size of 15 can be better than say a public school with a class size of 30. But that does not mean that a difference between 25 and 27 will make any significant difference.

If it will not make much of a difference, you might say why not then stay with the status quo? Well the reason the minimum wages goes up despite some impact on employment is because it increase wages for those who receive it.

Likewise with class sizes, the benefit of a modest increase, is the funding it frees up for investing in teacher quality – something which has a far greater impact on the quality of learning.

The focus therefore should always be on the trade off. If in the minimum wage debate you focus just on higher wages or just on employment levels, you are missing the picture. Likewise if in the education debate you focus just on class sizes you are also missing the picture.

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The living wage campaign

May 23rd, 2012 at 12:00 pm by David Farrar

The Herald reports:

A campaign has been launched for a “living wage” in New Zealand, inspired by policies in United States cities and London.

In New Zealand, Labour Department research shows that 103,800 workers under 25, and 161,000 aged 25 to 64, earned less than $15 an hour in the year to last June.

I have no issue with the campaign. But I caution that not all employees and not all employers are the same. I don’t think a 16 year old earning $14 an hour in an after school job is an issue. I think it is more of an issue if someone is earning that 10 years later. But also wages can only be paid if a company is earning enough income to employ people. An increase in costs can make a company unprofitable. This is why in the main individual employers negotiate agreements with individual employees – because that reflects the position of both of them.

Low wages for the Kaufisis mean the children don’t go to school when there is no money for lunch.

Leo Kaufisi, of New Lynn, earns $14 an hour as a dispatcher for Pacific Inks in Avondale. His wife Lopaini earns the legal minimum of $13.50 an hour as a cleaner.

Four adults and eight children live in the three-bedroom house which they rent for $350 a week – Mr and Mrs Kaufisi, their six children aged between four and 12 , Mrs Kaufisi’s unemployed mother, her mother’s partner, her 12-year-old sister and 10-year-old brother.

Six children sleep in one cramped bedroom.- The other children sleep with their parents.

Mr and Mrs Kaufisi are both working hard to care for their family. I have no problem with taxpayers helping them make ends meet. Sadly the article doesn’t detail what this support is.

I presume the two other adults receive the unemployment benefit. So my estimate of the weekly net income is:

  • Mr Kaufisi $471
  • Mrs Kaufisi $455
  • Family Tax Credit $598
  • UEB (couple) $342
  • Accom Supplement $32

This is a total net income of $1,898. The equivalent gross before tax income (if it was a single earner) is $2,627 a week. That is a gross annual equivalent of $136,604. Now that is for a large family, but it gives a more complete picture than just talking about $13.50 an hour.

Even with family tax credits, Mr and Mrs Kaufisi say almost all their income goes on the rent and on payments to finance companies. These total about $500 a week for furniture and other items including two cars, which were both repossessed recently when Mr Kaufisi’s work permit expired.

Actually the rent is under 20% of the net income, according to my calculations. The problem is the finance company payments.

Having 12 people in a three bedroom house is massively over-crowded. It is not clear if they are in a state house, but it seems to me they would easily qualify.

Mrs Kaufisi said their combined wages now were not enough to live on and she supported the call for a “living wage”.

“With a living wage, maybe we can afford to rent our own place or buy healthy food for my kids,” she said.

I’m not sure higher wages will make a huge difference to their household. I think the biggest issue is only two out of 12 people are earning. Let’s assume that both the Kaufisi’s get paid $17.50 an hour, or $35,000 a year. What would this do to their income:

  • Mr Kaufisi $584
  • Mrs Kaufisi $584
  • Family Tax Credit $524
  • UEB (couple) $342
  • Accom Supplement $0

This is a total of $2,034 a week. That is an extra $136 a week, but only a 7% increase in net income despite it being a 30% increase in wages for Mrs Kaufisi and 25% for Mr Kaufifi.

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