The rise of the robots

June 21st, 2016 at 3:00 pm by David Farrar

Stuff reports:

In the hospitality sector, Carl’s Jr chief executive Andy Pudzer has said he wants to try fully automated restaurants, where customers never see a person, in an effort to deal with rising minimum wages. 

“If you’re making labour more expensive, and automation less expensive, this is not rocket science,” he toldBusiness Insider.

“[Machines] are always polite, they always upsell, they never take a vacation, they never show up late, there’s never a slip-and-fall, or an age, sex, or race discrimination case.”

It is inevitable.  Unions keep insisting on huge increases in the minimum wage, and one day they will wake up and realise they have no members left!

Labour campaigning for higher youth unemployment

May 31st, 2016 at 11:00 am by David Farrar

Stuff reports:

Labour employment spokesman Grant Robertson said the catering staff in question were doing the same job older workers were.

“If people are doing the same job, they should be paid the same wage.”

Robertson did not believe the concept of youth wages had a future in New Zealand.

Delaware North has been approached for comment.

The food and beverage concession company is headquartered in Buffalo, New York. Its website says Wellington Airport is its only New Zealand operation.

National, United Future and ACT voted in favour of legislation to reintroduce youth rates in 2013.

By law, employees aged 16 or older must be paid at least the adult minimum wage rate, unless they’re “starting-out workers” or trainees, for which there are several definitions.

Employees must be paid at least the minimum hourly wage rate for any extra time worked over eight hours a day or 40 hours a week.


* Workers aged 16 or 17 yet to complete 6 months’ continuous employment with their current employer.

* Workers aged 18 or 19 who have been paid a specified social security benefit for 6 months or more, and who haven’t completed 6 months’ continuous employment with any employer since getting a benefit.

So Grant wants to make it illegal to pay a 16 year old anything less than $18 an hour for their first job. He also wants to make it harder for a teenager who has been on a benefit to get a job.

The problem with large increases in the minimum wage

April 4th, 2016 at 1:00 pm by David Farrar

Charles Lane writes at the Washington Post:

Meanwhile, in California, Democratic Gov. Jerry Brown and the state’s labor leaders have announced legislationto raise the state’s minimum wage from $10 to $15 per hour; it’s likely to pass the Democratic-majority legislature.

Whatever else might be said about this plan, it does not represent an exercise in evidence-based policymaking.

To the contrary: There’s a total lack of evidence that the potential benefits would outweigh potential costs — and ample reason to worry they would not.

 The basic trade-off, per Economics 101, is that the increased earnings that a higher minimum wage gives workers at the low end of the income scale might be offset by pricing those workers out of jobs they could have had at less than the new, higher minimum wage.

If this was not true, you’d simply set the minimum wage at $100 an hour.

That view has been modified, a bit, in recent years to reflect research by Alan Krueger and David Card suggesting that employment effects of moderate increases in the minimum wage — the kind typically enacted by Congress — can be neutral or slightly positive, due in part to greater employee retention and higher productivity.

The key word there is “moderate.” California’s increase is huge, or, in the Brooklynese of that proponent of “15 bucks an hour,” Sen. Bernie Sanders (I-Vt.), “Yuuuge.”

So yes moderate increases can be done without a large impact on jobs.

By 2022, when fully phased in (small firms with fewer than 25 workers would have until 2023 to comply), the California minimum wage would represent 69 percent of the median hourly wage in the state, assuming 2.2 percent annual growth from the current median of roughly $19 per hour.

That 69 percent ratio would be all but unprecedented, in U.S. terms and internationally.

That 69% is very close to what we have in NZ – 67%.

Other industrial democracies with statutory minimum wages typically set theirs at half the national median wage, too.

Dube, generally a supporter of minimum wages, recommended that states use 50 percent of the median as their benchmark in the United States.

So the NZ minimum wage is already considerably more than most countries.

RNZ tells only part of the story

April 1st, 2016 at 1:00 pm by David Farrar

Radio NZ reports:

About 150,000 workers will get a 50 cent-an-hour pay increase from today with the minimum wage rising to $15.25.

Now the highest in the world, relative to median wages.

But a cleaner who does night shifts at Auckland Council said the rise was still not enough to make it easier to support her family.

Before today, Lupe Funua’s wage was $15.10. That rate would be pushed up 15 cents to match the new minimum wage.

With a three-year-old son at home, a baby due in a few months, and a husband who was also a cleaner on minimum wage, she said every week she worried she was not earning enough.

Radio NZ doesn’t mention Working for Families (which has also increased for low income workers).

If they both work FT on the minimum wage their combined income is $63,440 a year.

On top of that they will get for 2 children, WFF of $111 a week.

Also on top of that will be a parental tax credit of $2,200 for the new child. And they may well get other support such as the Accommodation Supplement.

She wanted the living wage, which advocates had set at $19.80.

Who doesn’t want more money. However if you increase the minimum wage overnight to $20 an hour, there would be massive job losses – possibly including her job and her husband’s.

Real net minimum wage now 11% higher than under Labour

March 1st, 2016 at 2:00 pm by David Farrar

Michael Woodhouse announced:

The minimum wage will increase by 50 cents to $15.25 an hour on 1 April 2016, Workplace Relations and Safety Minister Michael Woodhouse announced today.

The starting-out and training hourly minimum wages rates will increase from $11.80 to $12.20 per hour, remaining at 80 per cent of the adult minimum wage.

“The Government has once again taken care to ensure the right balance has been struck between protecting our lowest paid workers, and ensuring jobs are not lost,” says Mr Woodhouse.

“An increase to $15.25 per hour will directly benefit approximately 152,700 workers and will increase wages throughout the economy by $75 million per year.

“With annual inflation currently at 0.1 per cent, an increase to the minimum wage by 3.4 per cent gives our lowest paid workers more money in their pocket, without imposing undue pressure on businesses or hindering job growth.

“The Government has increased the minimum wage every year since coming to office, from $12 to $15.25. This is an overall increase of 27% compared to inflation of around 11%.

What matters to people on the minimum wage is indeed not the nominal increase, but what it does to their after tax income. If you have low inflation, lower taxes and ACC levies and an increase in the minimum wage the combined impact can be significant.

Here’s what the difference is between April 2008 and April 2016.

April 2008:

  • Minimum wage $12.00/hr
  • Gross income on MW $25,029
  • Tax $4,881 (19.5% effective rate)
  • ACC $350 ($1.41%)
  • Net Income $19,798
  • Real Net Income (2016$) $22,718

April 2016:

  • Minimum wage $15.25/hr
  • Gross income on MW $31,807
  • Tax $4,486 (14.4% effective rate)
  • ACC $385 (1.21%)
  • Net Income $26,836
  • Real Net Income (2016$) $26,836

So someone working FT on the minimum wage is now 10.9% better off than in 2008. Worth remembering that when the unions and others all state how evil National is to low paid workers.

The problem with increasing the minimum wage is that if it goes too high, it will reduce the number of jobs available. This is beyond dispute – if you don’t believe me, then try a minimum wage of $100/hr and see what happens.

So the question is at what level does an increase in the minimum wage really start to impact employment. The research I’ve seen points to when the minimum wage becomes a high proportion of the median wage, you then start to really price jobs out of the labour market.

Now here’s the ratio of the minimum wage to the median wage since 2008:

  • 2008 67%
  • 2009 67%
  • 2010 66%
  • 2011 65%
  • 2012 66%
  • 2013 66%
  • 2014 66%
  • 2015 67%
  • 2016 67%

So the ratio has not changed greatly.

What I’d like to see is the minimum wage not become a lottery every year but instead be set by statute as a percentage of the median wage, say the status quo of 67% (which is I think the highest in the OECD). This would then put the focus on increasing wages over the whole economy (which needs productivity gains to occur sustainably) rather than the politics of envy.

Minimum wage is great for machines

September 7th, 2015 at 12:00 pm by David Farrar

The Institute of Economic Affairs blogs on a study into the minimum wage:

One limitation of the great majority of these studies is that they focus on employment in the first few months, or at most a few years, after a minimum wage hike – we label this time frame as the “short run”.

The supply of and demand for both products and factors of production such as labour and capital might well be more elastic in the long run than in the short run. This means that the effect of changes in wages on the number people employed might be greater in the long run. Indeed, we can think of a process by which firms change the way they produce their goods in reaction to higher labour costs is slow.[1]  In some cases, for example, this process might require firms which operate a large low-skill labour force to shut down in the face of higher costs and these firms may be replaced by firms that operate with fewer workers and more capital. This is a process that takes time. The long-run loss of jobs in response to the minimum wage hike might be bigger than the short-run effect often estimated in the literature.

Our recent research presents new evidence on how the restaurant industry, the largest US employer of low-wage labour, responds to minimum wage hikes. We document three new findings:

·         Fast food restaurants are more likely to shut down (exit) and open up (enter) after a minimum wage hike.

·         The rise in entry is higher among chains, which use less labour.

·         There is no change in employment among existing fast food restaurants that continue to operate – the fall in employment arises as a result of more labour-intensive restaurants being replaced with less labour-intensive restaurants.


This is very interesting. Basically they find that there is no fall in employment in the businesses that stay open. They just increase prices I guess. But that some businesses go under and they get replaced with businesses that are less labour intensive.

To interpret these findings, we develop a model where new restaurants can choose how mechanised their production will be. However, once they open, they cannot change the way they make their products. Economists call such a technology ”putty-clay”: the initial choice of how to operate is flexible like “putty”, but once the firm is open, the production process hardens into “clay” and cannot change. For instance, some restaurants might choose to have customers order their meal from a worker, while others might set-up a computerised ordering system. But, once the systems are established, they do not tend to change. This does reflect the reality of how businesses operate – of course old establishments can change how they use technology but, in this industry, it is new entrants that tend to bring about changes.  

This model predicts that when the minimum wage increases, labour-intensive restaurants are more likely to shut-down, whereas capital-intensive restaurants are less impacted by the minimum wage and may even open new restaurants to replace labour-intensive competitors that exit.

In this model, the employment loss due to the minimum wage grows over time because labour-intensive restaurants are slowly replaced with more capital-intensive restaurants. This process is slow, since it is costly to shut down a restaurant and open a new one in its place. The results of this research suggest that a typical minimum wage hike causes an older fast food restaurant to shut down one year earlier than it otherwise would have done.

So minimum wage hikes are great for robots, but not so great for the humans who lose their jobs. But it may lead to a more productive sector of the economy?

Previous work has shown that all the higher labour costs of the minimum wage are pushed on to consumers in the form of higher prices. But, what about the level of job losses? How big are the potential effects? These are difficult to measure precisely, although our estimates suggest that a 10 per cent increase in the minimum wage reduces restaurant employment by less than 1 per cent one year after the hike. Our model, which matches this very small short-run effect, as well as the facts on restaurant entry and exit rates, predicts a 4 per cent reduction in restaurant employment in the long run.

This is only for restaurants, but it may hold true for other sectors. They key thing is that the short-term loss in jobs may be a lot less than the long-term loss.

Seattle’s minimum wage law

March 23rd, 2015 at 9:00 am by David Farrar

Western Journalism reports:

In a few weeks, Seattle’s new, highest in the country, $15 per hour minimum wage will go into effect. Like many liberal policies, it was passed by City Hall with the best of intentions. The only problem is, in the end, it may do more harm than good for many.

Private businesses, unlike government entities (which, in theory, can always raise taxes or borrow), must make more than they spend in order to pay the rent, make payroll, keep the lights on, pay their business taxes, and, heaven forbid, have some left over for the owners and investors who are taking the risk and putting in the long hours.

Earlier this month, Seattle Magazine asked, Why Are So Many Seattle Restaurants Closing Lately?:

The magazine went on to report that one “major factor affecting restaurant futures in our city is the impending minimum wage hike.” Anthony Anton, president and CEO of Washington Restaurant Association, told the magazine, “It’s not a political problem; it’s a math problem.” He estimates that restaurants usually have a budget breakdown of about 36 percent for labor, 30 percent for food costs, and 30 percent to cover other operational costs. That leaves 4 percent for a profit margin. When labor costs shoot up to say 42 percent, something has to give.

Restaurants can take actions to adjust, such as raise their prices, acquire cheaper ingredients, and cut their operating hours and labor force. However, all those actions generate reactions from the public which can still lead to lower revenues for the restaurant and, for some, the decision to close their doors.

This is no surprise.

3rd Degree on Kim Dotcom and his staff

September 18th, 2014 at 10:00 am by David Farrar

It should have aired months ago, but better late than never.

3rd degree interviewed three former staff of Kim Dotcom’s. The programme revealed testimony from former staff which included:

  • Dotom constantly referred to New Zealanders as cheap ass farmers
  • Dotcom hates John Key (no surprise that one)
  • The three staff have claimed they are owed $367,000 in wages
  • Dotcom has an explosive temper and would yell at them
  • Staff worked a minimum 16 hours a day, and one staffer worked for two days straight attending Dotcom as he played video games
  • Staff worked on average 90 hours a week and got paid an average of $5 an hour – almost a third of the legal minimum wage
  • Staff rarely had a day off
  • One staffer was sacked for questioning his pay
  • Dotcom has refused to supply a certificate of employment to his former staff
  • They only got around a third of their backpay as Dotcom said he needed to deduct tax. This suggests he may not initially have been deducting tax as required, but also suggests he has deducted it at a higher rate than he should have

Dotcom in response said:

  • admitted he sometimes yells at his staff
  • says it is acceptable to yell at his staff when they make serious mistakes
  • says he is like their family father, and it is like when your child does something stupid
  • He cares for them, and they are like family to him
  • He never gave written warnings before dismissals
  • says he loves New Zealanders
  • says in regard to his staff “We’re all on a first name basis, they call me Sir”

So where is Helen Kelly and the CTU? Where are the unionists in Labour and the Greens? Where is that champion of worker’s rights – Laila Harre? They’re all silent on this, because Dotcom and his party is their route to power.  Imagine Dotcom had given $4 million to the ACT Party? They would be insisting that he be charged with breaching labour laws, putting out press releases non stop.

So the next time the CTU and the parties of the left go on about workers, ask them why they were silent on Dotcom’s alleged employment abuses. While this story only went to air this week, the allegations have been well known for months.

Dotcom has enough money to give $4 million to Laila Harre and Hone Harawira to help get them into Parliament. But not enough money to pay more than $5 an hour to his staff, according to them.

Cunliffe on minimum wage

September 11th, 2014 at 11:00 am by David Farrar

Stuff reports:

Cunliffe cited US research that shows there is no relationship between a minimum wage rise and unemployment, saying this was backed by Treasury.

This is simply not the case. David Cunliffe is entirely misrepresenting the research. There is no such research that says there is no relationship between the minimum wage and unemployment. That would be like research which says there is no relationship between gravity and apples hitting the ground.

There is research that says some increases in the minimum wage will not affect employment. That is correct. What matters is what level the minimum wage is compared to the median or average wage, and how big any particular increase is.

Only a moron for example would claim increasing the minimum wage from $14.25 to $25 an hour would not impact employment. Going from $14.25 to $14.75 an hour probably won’t. Going to $18.80 an hour almost definitely would.

Now the NZ minimum wage is already the highest in the OECD compared to the median wage. Significant increases beyond the 66% level it is currently at, are highly highly likely to have an impact on employment.

If David Cunliffe really believed there was no relationship, he would announce a $30 per hour minimum wage, and we would legislate our way to prosperity.


Kiwibuild good for big business and bad for small businesses

September 4th, 2014 at 11:00 am by David Farrar

Liam Hehir writes in the Manawatu Standard:

There is a persistent assumption that big business suffers under Centre-Left governments and prospers under Centre-Right governments. …

But this is an overly simplistic analysis. Consider Labour’s “Kiwibuild” policy, under which it promises to build 100,000 cheap houses in the next 10 years.

Hehir continues:

Last week, spokesman Phil Twyford claimed that in some instances they would sell for as much as $125,000 less than current market prices.

This is to be achieved through the state leveraging its buying power and the contracted building firms agreeing to take a smaller profit per unit in the hope of making it up through sheer volume.

Without commenting on the overall viability of the proposal, it is certainly ambitious.

For its targets to be achieved, the programme would need to have an average of 10,000 new houses built every year. That works out to more than 27 new houses being completed every single day.

The question is: Which businesses will be in a position to undertake work on such a grand scale? It is not likely to be your typical small, medium or even large regional operators. At best, some of these people might pick up employment or subcontracting work.

However, the number of companies that could take on the scale of work required to make such a venture profitable is actually small. The most prominent firm normally mentioned here is Fletcher Building – the largest company listed on the New Zealand sharemarket. In fact, Labour met with the multibillion-dollar company to discuss the policy when it was first launched last year.

So how is that for corporate welfare and crony capitalism!

Once you grant that government intercession often privileges big businesses, it is easy enough to find other examples of the principle in action – often to the detriment of smaller competitors.

For example, something that has been suggested is that only those businesses that can pay their employees the “living wage” of $18.40 should be eligible to tender for public sector contracts.

Naturally, big businesses are much more likely to be able to absorb a 30 per cent increase in labour costs than start-ups or smaller competitors.

Were such a rule put in place, it would be much harder for those smaller players to compete in that key segment of the economy.

So small businesses go under.

Where the cumulative expense of new restrictions and mandates might slow down big business, they can be fatal to smaller firms.

Is this a problem? The answer probably depends on what your interests in the matter are.

First Union secretary Robert Reid was criticised last year when he said small businesses that could not operate under the conditions his union demanded should go out of business. In the context of his job, however, those comments were not totally unreasonable.

Unions advance the interests of their members – few of whom work in small businesses. Any benefit big corporations get from union proposals is incidental to the union’s purpose.

The union’s purpose is to get their preferred parties into power, so they get policies that help boost union coffers.

Greens wages policy

September 2nd, 2014 at 1:00 pm by David Farrar

The Greens wages policy is here. Some extracts:

As a first step to restore workplace fairness, the Green Party will increase the minimum wage to $15 immediately, in December 2014. We will then raise it in $1 steps on April 1st each year, so that it reaches $16 on April 1 2015, $17 on April 1 2016, and $18 on April 1 2017.

They also want to abolish the starting off wage, so they want to make it illegal to hire a 16 year old for less than $18 an hour!

The minimum wage in NZ is very high compared to the median wage. It is set at 66%. This policy would see it go to close to 85% (less any increase in median wages by 2017). The Department of Labour estimates this policy would see 24,000 lose their jobs, and go onto welfare.

Treasury have said that the minimum wage in New Zealand is the highest in the OECD compared to the average wage (at 49%) and third highest compared to the median wage.

National has increased the minimum wage by 19% in six years. Combined with tax cuts, the after tax income of someone on the minimum wage has gone up 27%. Adjusted for inflation a minimum wage worker has had a real income boost of 11%.

There is no case for the massive increases in the minimum wage, proposed by the Greens. We already have almost the highest in the world compared to median and average wages.

The Green Party also supports the Living Wage Movement, which has established that a typical family needs a wage of $18.80 to buy the
basics and participate in society. In order to lead by example, the Green Party will pay the Living Wage to all core public service staff,
and require all relevant Government contractors to pay a Living Wage when their contracts come up for renewal.

This will mean a de facto $18.40 minimum wage for most of NZ. There are very few companies that don’t have a government agency as a client. If you run a photocopier business, and supply services to a government agency, then you’ll have to pay the 16 year old intern $18.40 an hour!

As another major step towards a more stable and secure future for workers, we will implement recommendations from business, Government and unions for a statutory minimum redundancy payment for all staff equivalent to four weeks’ pay

And as part of this:

These changes will give workers more stability, and discourage unnecessary restructuring. In the case of large-scale redundancies, we will also fund union delegates to work with staff for 3-6 months to support them through the transition

This is the real policy – to have taxpayers fund unions.

We will also incorporate pay ratios into Government procurement policies.

So the Greens in Government will ban companies from gaining Government contracts, even if they are the cheapest and best provider, if they think their CEOs are paid too much!!!

The Green Party will work with the Union movement to see how the terms and conditions of unionised workers can be extended to others in their industries, whether through the Council of Trade Unions’ Extension Bargaining model or other policies

De facto compulsory unionism to return!! Joy. And hey by coincidence those unions are major donors to parties on the left.

To tackle the unacceptable face of precarious work, the Green Party will introduce laws banning zero-hours agreements, as part of greater
regulation of hours of work.

This is insane. This means a company would have to pay casual staff, even when there is no actual work to do.

Increasing the minimum wage will cost $1.1 billion over three years, owing to higher Government staffing costs, especially in the health
sector. However, that will be offset by increased tax revenue from wages of $1.9 billion over three years.

This is economic failure of the highest kind. They are counting the extra tax from higher wages, yet have ignored the fact companies paying those higher wages will have smaller profits and pay less tax. And low paid workers pay tax at around 15% and companies at 28% so here’s the actual cost of this policy:

  • $1.1 billion in higher government staff costs
  • Extra PAYE tax from higher wages -$1.9 billion
  • Less company tax from lower profits – $3.5 billion

So the actual fiscal impact of this policy would be $2.7 billion, not the claimed $800 million savings.

Now think about the economic incompetence of a party that doesn’t realise that profits fall if wages increase. And think about how massive that deficit will be if these people are making economic decisions in a Cabinet!

Labour’s Hobbit Haters are back

July 31st, 2014 at 10:00 am by David Farrar

The Herald reports:

The Labour Party wants to repeal the law changes that were ceded to Warner Bros over The Hobbit films, a move which the Government says would cripple the $3 billion screen industry.

The Greens policies will kill off the oil industry while Labour’s would kill off the film industry. Combine the two of them together, and you shudder.

A $2 boost in the minimum wage to $16.25 an hour by early 2015 would mean an extra $4000 a year for those workers – but the Government was quick to dismiss this as costing up to 6000 jobs.

Why stop at $16.25? Why not $25 an hour?

Mr Bridges said the minimum wage in New Zealand was the highest in the world, relative to the average wage.

It is. The way to grow wages is to increase productivity, not by legislation.

Minimum wage incomes

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


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.

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.

The flipside of minimum wage increases

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



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.

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!

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.


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.

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.

The living wage debate

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



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.

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!

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.

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

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.

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.