Kiwiblog

The Herald puts the minimum wage into context:

New Zealand’s minimum wage is still close to the highest it has been, as a proportion of the average wage, since the late 1970s.

It is also the second-highest of any developed country in relation to the median wage, although well below richer countries such as Australia in dollar terms.

So we have one of the highest minimum wages in the world, and people want to make it even higher.

You can’t make a country richer by just passing a law demanding people get paid more. The key to lifting wages is increased productivity – that is how we will close the gap with Australia.

Internationally, OECD minimum wages are quoted as a ratio of the median weekly income of fulltime employees – a lower figure than the average wage because the average is pulled up by high earners above the median, or mid-point.

On this basis, at last count in 2007, New Zealand’s minimum wage was 57 per cent of our median income – a higher ratio than in Australia (54 per cent) and ahead of all other OECD countries except France (63 per cent).

And an increase to $15 would put us even ahead of France, with a minimum wage at 67% of median fulltime income. Can one of the poorest countries in the OECD afford the highest relative minimum wage? Of course not.

And in another story:

The Warehouse human resources manager Paul Walsh says under-18-year-olds fluctuated between 30 and 33 per cent of his company’s 7500 staff in the four years up to June 2008, then plunged to 25.2 per cent in the year to last June and 24.1 per cent from July to this week.

“It’s dangerous to draw a conclusion that it’s purely the minimum wage rate that has affected that, but you would have to say it must have had some impact,” he says.

I predict youth unemployment will remain relatively high, even after adult unemployment starts dropping.

In any case, Pacheco argues that the minimum wage is an inefficient way of tackling poverty because many minimum-wage earners are actually teenagers or second earners in wealthy households.

She says 16.6 per cent of all those earning within 50c an hour of the minimum wage between 2006 and 2008 lived in the richest three-tenths of all households.

A point I have made. The focus should be on family or household income, not individual income.

The Herald reports:

The Council of Trade Unions (CTU) has welcomed the Government’s decision not to support the reintroduction of youth rates.

So the CTU is happy.

Opposition leader Phil Goff welcomed the decision.

“It’s crazy to suggest that any young person doing the same job exactly as older people should be paid automatically at a lower rate. It didn’t add up,” he told reporters.

As is Phil Goff. This means it must be wrong!

Goff’s own statement shows a total misrepresentation of the situation. Having a lower minimum wage for teenagers is exactly that – a lower floor. How the hell you translate that into “should be paid automatically at a lower rate” I do not know. Once again, for the really stupid people, – this is about a floor – not a ceiling, not an automatic rate that you must apply to teenagers.

In today’s NBR 24/7 column I rip into the Govt’s decision:

It really brings into doubt the seriousness of the Government in terms of job creation, when it persists with a law that has clearly priced many teenagers off the job market. …

Most teenagers are not seeking full-time employment. What they desperately want is to gain some work experience, and to gain some extra money on top of whatever parental or student support they have.

By agreeing to vote down Sir Roger’s bill, the Government is saying we want young people to be unable to gain work, unless an employer thinks they are worth almost $13 an hour. …

Later this year, overall unemployment should start tracking down. If youth unemployment remains persistently high, the Government will have no one to blame but themselves.

There are 45,000 teenagers unemployed. This decision is a very bad one.

1. Employment Relations (Workers’ Secret Ballot for Strikes) Amendment Bill – Tau Henare
2. Smart Meters (Consumer Choice) Bill – David Clendon
3. Minimum Wage (Mitigation of Youth Unemployment) Amendment Bill – Sir Roger Douglas

Tau’s bill requires all votes on strike action to be secret ballots. In theory almost all unions do this anyway, but there has been some dispute on the West Coast recently about whether this does always happen, so it will be good to have it a legal, not a voluntary, requirement to prevent intimidation.

David Clendon’s bill is inherited from Jeanette and regulates the use of smart meters. Not sure of all the details, but it looks to be worth supporting at first reading anyway so a select committee can look into pros and cons.

Sir Roger’s bill will allow the Government to set a different level of minimum wage for younger workers. I welcome it as there is pretty clear evidence that the huge increase in youth unemployment is bext explained by the scrapping of the youth rate for the minimum wage. National will be nervous about being seen to be “cutting wages” but I hope they will support it to select committee, so arguments can be heard about the linkage.

Rather than cut the minimum wage for any current workers, what I would do if I was the Government is just use it to increase the youth minimum wage more slowly than the adult minimum wage.

I’ve previously blogged on my belief that the massive rise in youth unemployment is due to Labour’s decision in 2008 to abolish youth rates for the minimum wage.

Eric Crampton has gone better than mere belief, and analysed the relationship between overall unemployment and youth unemployment.

The graph has (thanks Stephen Hickson!) the unemployment rate for those aged 15-19 and the unemployment rate for everyone else (aged 19 and up). It looks to me like the proper relationship is a combination of a level shift and a multiplicative effect. When the adult rate is very low – below four percent or so – the youth rate bounces around at a point about 10 to 12 points higher than the adult rate. When the adult rate is high, the youth rate exceeds that constant by a multiple of the adult rate. …

Both the constant and the adult rate come up highly significant. So, over the period 1986 to present, we can expect the youth rate to be 1.44 times the adult rate (the multiplicative effect – about 44% above the adult rate) plus a constant of 9 percentage points. So if the adult rate is 5, the youth rate should be 16.2. We’ve ruled out the “it’s just ratios” argument – there is a constant term in there; we’ve also ruled out that it’s just a level shift because the coefficient is significantly greater than 1.

So Eric has calculated the best fit of the data is that the youth unemployment rate will 9% higher than 1.44 times the adult unemployment rate.

He then plots the “residuals”, which is how much greater or smaller the youth unemployment rate has been, compared to what the formula predicts.

So that formula looks pretty good up until, umm well 2008. Eric continues:

If we look at the top graph, we see youth unemployment rates went up a lot during the recession of the early 1990s. But over that period, youth unemployment rates were never more than a couple of points above what the very simple model predicted (residuals graph, above). In recessions, it does look like the youth rate gets hit harder than the adult rate. But look at what happens starting around fourth quarter 2008. We now have residuals that blow up the model. Something really weird starts happening to the youth unemployment rate at the end of 2008. Youth unemployment is now about 10 points higher than we’d expect using the simple model.

And if one goes for different formulas:

I tried a few different variations allowing the constant and the slope to shift for high and for low levels of adult unemployment.  But none of that made any substantial difference.

So the conclusion:

The econometrics here are very simplistic and do nothing to account for differences in labour force participation rates or the obvious problem of serial correlation in the time series data.  But the simple model is still pretty telling.  If we allow youth unemployment rates to vary both as a level shift above the adult rate and as a multiple of the adult rate, which is what we’re doing when we run the simple regression with a constant term, we still have a jump in the current youth unemployment rate that is well above that seen in prior recessions.

My first cut explanation remains the abolition of the youth minimum wage.

Now this does not prove beyond doubt it was the abolition of youth rates that pushed youth unemployment up an extra 10%. But it is the most likely explanation.

The challenge for those who think abolishing youth rates did not contribute to the increase in youth unemployment, is to put up their own data and credible explanations to explain the massive gap between youth and adult unemployment.

The ODT editorial:

The cry from unions and the Opposition parties, without the responsibility of Government, has been to raise the minimum to $15 an hour.

But why $15? Why not $20 or more?

Obviously, much, much higher minimum wages are totally unrealistic and would wreck the economy.

The same principles apply to $15 even if the impact is not as severe.

And what is depressing is the economic illiteracy where the left have convinced themselves that one can close the wage gap with Australia by legislating for higher wages. That’s like thinking one can legislate the Easter Bunny.

The way to raise wages, is through increased productivity. And the best way to earn more than $12.75 an our is to gain skills and experience. Very very few people spend their life earning the minimum wage.

Struggling businesses, and many are still on the brink, would have to employ fewer people, more firms would go bankrupt, costs for goods and services would rise (including for beneficiaries and the poor) and, in the long run, the most vulnerable groups and those without jobs would be the worst affected.

With the abolition of the youth minimum wage, they would be most affected, as $15 an hour would price many of them off the market and deny them the opportunity to gain work experience.

About 100,000 people are directly affected by the minimum wage increase, and relativities flow from these.

Margins for responsibility, seniority and skills will be squeezed, hence one reason for the vociferousness of various unions.

They will, naturally, look for increases to preserve margins.

A move to $15 would have significant flow on effects, and would be inflationary. This means interest rates go up, and again fewer people in employment and lower economic growth.

From an economic point of view, the minimum wage has risen more than enough over the past decade, with detrimental impacts so far cushioned by growth and relatively low unemployment.

The Government, in the current climate, has taken a cautious, sensible and pragmatic approach by withstanding pressure to hike the rate, while tweaking it in line with inflation.

And again the minimum wage is a minimum. Workers should not rely on increases in the minimum wage to increases their wages. They should gain experience, upskill etc so they do not remain in a minimum wage job all their lives. Most workers on the minimum wage do not stay there, I understand.

Throng blog:

Ok, so I’m not 100% sure on the math here (need to check up the tax rules) but both bulletins can’t be right here in their calculations.  Using IRD’s website, currently for a minimum wage earner, they pay $2.27 in total for their tax and ACC levies.  I’m trying to double check these figures quoted, but I think 3 News is wrong – it can’t be right thatminimum wage earners are taxed 40%!

ONE News: $10 – $2.10 in tax – $0.20 in ACC levies = $7.70 in the hand
3 News: $10 – $3.00 New ACC levies in April – $1.00 PAYE tax = $6.00 in the hand

Note: Trevor Mallard also said about $6 in his 3 News interview.

Trevor Mallard is of course wrong, and if TV3 relied on him, shame on them.

One News had is absolutely correct. The marginal tax rate for a FT worker on the minimum wage is 21% and the ACC levy for next year will be 2%, so a $10 gross increase will be a $7.70 net increase.

In opposition you can propose all sorts of things, without having to worry about the consequences. We see this today with Trevor Mallard’s private members bill to have the minimum wage go from $12.50 to $15.00 in just two years.

Increases in the minimum wage can destroy jobs. Not automatically in every situation, but certainly in many situations. If this was not the case the minimum wage would be $50 an hour.

With the abolishment of the youth minimum wage, I have no doubt that the record high youth unemployment is partially because some young workers have already been priced out of the market.

On the other hand the economy had strong enough economic growth for most of the 2000s that the minimum wage was increased without a significant impact on employment.

So let us look at Labour’s record vs their rhetoric.

In Labour’s first term, they had a booming economy (inherited from the previous Government). How much did they increase the minimum wage by? Their annual increase were 55c, 15c and 30c.

So Labour are demanding that just as we come out of a major recession with high unemployment, the Government should increase the minimum wage by $1.25 a year, when in their first term the increases averaged 33c a year. National’s increases have been 50c and 25c, around the same as Labour in their first term, but not quite as high as a percentage. Of course a key difference is the inherited recession.

Is anyone stupid enough to think that if Labour was in Government they would be increasing the minimum wage to $15?

In fact we know this from their own election policy. All their policy said was that they would increase it to keep pace with (the greater of) inflation or average wage increases. Now as neither inflation or the average wage is at 10%, it shows how hypocritical Labour is being – now promising something they know would be bad for jobs, purely because they know they don’t have to deliver on it. If they really thought it was a good idea they would have promised it at the last election.

Labour in their second term increased the minimum wage by just 50c a year.

The one period where it did increase much faster was 2005 – 2008, but that was not because of Labour – that was forced on them by NZ First and the Greens. But even then, they never did an annual increase of $1.25.

So again, when the economy is booming and unemployment is low, Labour implements relatively modest minimum wage increases. Once they are in Opposition and unemployment is high and we have just come out of recession, they advocate the highest ever increase.

Do you really want them running the country again?

The Herald reports:

Sixty-one per cent of people want the minimum wage lifted to $15 an hour, a Herald Summer Survey has found, weeks before the Government is to set the wage for this year.

The minimum wage is now $12.50 an hour, and the Cabinet is expected to decide within a fortnight whether to increase it.

61% probably support a minimum wage of $20 an hour is you asked them.

Trevor Mallard also blogs his support:

Kate Wilkinson would have got a report in October with options for a November Cabinet paper on lifting the minimum wage. In government Labour just about always made a decision before Christmas and there was always an increase effective from 1 April.

Each increase pushed up a relatively small but increasing group directly but a much bigger group indirectly.

I think it is time for the government to commit to $15 an hour from either 1 April this year, or 1 April next year at the latest.

There are a big stack of equity arguements in favour of the change. And it could be a good boost to the increasingly fragile recovery.

Business NZ  would squeal. But most employers know that lifting wage rates encourages investement in capital equipment and training to make their labour force more productive. It is all part of the movement to a high skill, high wage economy.

I am an employer. Trevor is not. In fact as far as I can tell, Trevor’s only jobs have been a teacher, an MP and a unionist. So when Trevor elects himself to speak on behalf of employers, this should be treated with the same degree of credibility as me speaking on behalf of Olympic atheletes.

You do not get to a high skill high wage economy by bankrupting companies that are not high skill and high wage.

At a time of rising unemployment, it would be stupid to have a massive 20% increase in the minimum wage. It would be particular devastating for youth employment. Already we have seen the abolition of the youth minimum wage which has had a devastating impact on youth employment levels.

The simple fact of the matter is that a 15 year old working at a department store (my first significant job) does not produce $15 an hour worth of value. And hell most 15 year olds don’t expect to be earning an hourly wage worth $30,000 a year fulltime. They are living at home, and want to just earn some spending money, and gain some work experience.

A move to $15 an hour would be inflationary also, which would mean higher interest rates, and again fewer jobs and reduced economic growth.

I’m interested in data on how many people actually earn the minimum wage, and how long they stay on the minimum wage for. I suspect most people on the minimum wage do not stay earning at that level for their working life. They gain experience and skills and become more valuable. That is my preferred way to get people off the minimum wage.

Does anyone know of any data about frequency and duration of people earning the minimum wage in NZ?

UPDATE: The survey cited by the Herald is seriously flawed, I can reveal. Not because it was an Internet based survey (even though that by itself makes it fairly self selecting), but because they gave respondents only three options – that the minimum wage should be reduced from $12.50, that it should stay at $12.50 and that it should increase to $15.00.

That is an appalling list of options, as it doesn’t allow people who support a smaller increase (say of 50c to keep pace with inflation) to say so. The Herald has done a disservice to readers by not making clear what the options were, when they report 61% back a rise to $15. That was the only option people were given for a rise.

Kiwi Pundit reports this warning from Obama’s State Department:

In January, Honduran President Manuel Zelaya increased the minimum wage 60 percent, raising monthly wages from US$ 181 to $289. As a result, an estimated 15,000 people have been laid off in urban areas. This number is expected to steadily increase as businesses cannot afford the new mandatory wages. Remittances from Hondurans in the U.S. have also decreased throughout 2008.

Some analysts predict increased crime in Honduras due to citizens unable to find legitimate sources of income. Many unemployed Hondurans could look to kidnapping for ransom in order to obtain large sums of money for a small amount of planning and effort. As the disparity between economic classes continues, wealthy Hondurans or foreigners of affluent appearance conducting business in Honduras could continue to be targeted at a higher rate.

May that serve as a lesson for those who think you can make everyone richer simply by increasing the minimum wage.

The Herald reports on yesterday’s decision to increase the minimum wage to $12.50. As John Key says, it was a balacnign act:

Mr Key said yesterday that they were “concerned that if the wage was to rise too much there would be unemployment”.

“Similarly, no raise at all in the minimum wage would have left the lowest-paid, most vulnerable workers with no increase to offset the costs that they are obviously bearing,” he said. “I think we have hit the right balance.”

Politically the balance is about right. A zero increase would have been a Godsend to Labour and the unions to portray National as heartless. More than 50c during a time when unemployment is rising anyway, could really impact jobs.

Frog Blog comments on the decision, and has a go at Labour for their hypocrisy in refusing to endorse a call for a move to $15 until after National had made their decision.

But there is a price to pay for increasing the wage. The debate has shifted from whether the minimum wage should be increased to “how much should it move to”, and we then face a rash of economic lunacy with Matt McCarten and UNITE seeking a CIR on having the minimum wage increase to two thirds of the average wage within three years.

This would see a minimum wage of $16.40 based on 2008 figures. By 2011 it would mean you are not allowed to employ anyone at all for under $35,000 a year. Nope not even that 15 year old dairy assistant (once they have worked for more than a month).

The communist states tried and failed with their policies that you have to pay everyone the same (or close to the same). The reality is that a 15 year old with no qualifications, no training and no job experience should not be getting anything near the average wage which reflects people with 20 years of experience, training etc.

I worked for a year after school in my fourth form for $1.99 an hour at Woolworths. It was shitty work – I joked the job was to clean up dirt, to get treated like dirt and to get paid dirt. But it was damn good for me as a 14 year old to have a sense of responsibility and having to start earning my own money. So I worked two hours after school every night, every Friday night and Saturday morning. Muldoon ruled then so it was illegal to work Sundays!

Anyway with the policies expoused by McCarten, there is no way I would have picked up that job today. In fact there is no way I would have picked up most of my holiday jobs. The paper run would have probably been illegal too unless as a 12 year old I set myself up as an independent contractor.

It is simplistic and destructive to say the minimum wage should be two thirds of the average wage. It is treating all jobs and all employees as just minor variations, with no regard for individuality.

It also could have profund inflationary impacts. If you have a minimum wage of $35,000 a year, then sure as hell university graduates are not going to accept $35,000 as a starting salary. Would you accept a job with a law firm that pays the minimum wage? Hell no. So starting salaries for graduates would increase to $50K or so. Which means all the salaries up the chain would increase. And this would all increase the average wage, which would result in a nice spiral of wages increasing with no productiviy gain. And boy watch us export jobs overseas quicker than you can imagine.

Keith Ng at Public Address takes a different position on the minimum wage to most of the other left bloggers:

Businesses are taking the brunt of declining exports, consumption and investment. They try to cut costs by cutting overtime hours, not hiring new staff, and trimming back the hours for temporary employees.

It’s that last group who are now on the plank, and if the minimum wage increases, they will be the ones who are most expendable and relatively expensive. Increasing the cost of hiring people will just force these businesses to cut back on hours, or push them into lay-off territory.

Nor will the supposed benefits be worth squat. If you raise the minimum wage by 10% ($1.20) and cause, say, 1 in 20 of those minimum wage workers to lose their jobs, the other 19 are not going to spend their additional earnings. Rather, they’re going to freak out about people getting fired, and get even tighter with their spending.

Increasing the minimum wage is not inherently a bad thing, but to do it now, when so many businesses and their employees are tethering on the edge is a seriously bad idea. The social harm done by the job losses would far outweigh the $20 or $30 it might mean for those other families.

I suspect the Government may keep it constant in real terms, which will be a 50c or so increase in nominal terms. What will be interesting is how many job losses DOL predicts will occur with even a 50c increase?

The depositions hearing for former Labour Minister Taito Philip Field, or “Big Dad” continues. The Herald reports:

A Thai overstayer who tiled MP Taito Phillip Field’s house in Samoa says Field gave him 1000 tala ($553) after asking him to lie to police about the work he had done for him.

Sunan Siriwan, who referred to Field twice as “Big Dad”, told the Manukau District Court through an interpreter yesterday that “almost everything” he said to a lawyer appointed to investigate the case was untrue.

He said Field told him, while driving in a car in Samoa in or around December 2005, that he had “a problem” in New Zealand and that he should tell the police that he did not work for the MP.

“He told me at that time that you are not working at my place, and he also said to me, ‘Don’t tell the police that you and I met’,” Mr Siriwan said.

He said Field asked him the next morning if he had money, and Mr Siriwan replied that he did.

“Then he gave me 1000 tala, which he has never given me that much before,” Mr Siriwan told the court. “I did not understand why he gave me so much money.”

Hmmn, is this a multi-choice test?

He said he worked mostly seven days a week for eight to 10 hours a day. In return, he was paid “expenses”.

“Some weeks I got 100 tala ($55), other weeks 150 to 200 tala ($83-$110),” he said.

Labour’s commitment to strong wages – except for their slave labour working for under $2 an hour.

He said that about three months after he arrived in Samoa, he received a letter from Field about a work permit in New Zealand. Shortly afterwards, two other Thai men, Kaew and Yao, arrived from New Zealand “to do gib-stopping for Big Dad”.

Such a charming nickname, yet so apt.

The Herald have reported that the Labour Department says Air NZ is not breaking the law by paying Shanghai based staff less than the minimum wage on international flights.

The legal minimum wage is $12 an hour but the Labour department report said it was not applicable to Air NZ as “it would appear Chinese employment law applied to the agreement between Air New Zealand and the Chinese Air crew”.

But not quite that clear:

However, in a statement last night the Department of Labour corrected “an assertion” in a media release from Air New Zealand on the issue.

The statement was in response to a release from the airline that stated that the department had found that Chinese law applied to the agreement between Air New Zealand and the Chinese cabin crew.

“What we said in our briefing to Labour Minister Trevor Mallard was that “it would appear that Chinese employment law applied”, workplace deputy secretary Andrew Annakin said.

“This is an important point of difference, as the department cannot definitively determine what employment law applies in a particular factual situation, particularly outside New Zealand.”

It would be a very interesting test case if taken to court. If the staff worked in China, there would be no doubt Chinese law applied. But when on an international flight, the law of the air generally tends to point to the law of the country the aircraft is registered in. However I know that flights into the US also have US Federal Law apply, so definitely not clear cut.

The Herald has a story reporting Air New Zealand’s response to the story on pay rates for Shanghai based staff on Air New Zealand flights. The Herald also rebuts some of the responses, and provides further information such as the fact one of the Chinese air stewardesses put on the Chinese rates is in fact a NZ resident.

They keep saying they are subcontracted through Fasco, but I have been sent a copy of a pay slip, and it certainly looks like they are paid directly.

The pay rate per hour seems to work out to Y25 which is NZ$4.41.

I blogged last week on the news that Air New Zealand pay only NZ$6,240 a year to flight attendants on its Shanghai route, who are Shanghai-based. This is massively lower than the NZ minimum wage.

NZPA reports on the PM’s response yesterday:

Miss Clark pointed to market rates at work, saying for instance that while Shanghai staff were paid less, those based in London would be paid more than those based in New Zealand.

Her understanding was that airlines who based crews in Shanghai did not directly employ them. They were employed through a local government agency.

Air NZ paid “substantial taxes” to the Chinese government over and above the wages paid to Chinese workers.

Could you imagine the outrage if a National PM dismissed the fact people employed by Air NZ on the flights were being paid at around one quarter the minimum wage, by referring to the “market rates”? Around 20 unions would have condemned the Government by now, and protest marches would be planned up and down the country.

This also shows one of the problems with state ownership.  Because the Govt owns 80% of Air NZ, it feels it has to defend what they have done.  If they were not state owned, I’d suspect the PM would be far more critical.

The PM relies on the fact they are not employed directly, but sub-contracted.  Is this the same PM who pushed through a law specifically to stop sub-contracting leading to reduced terms and conditions?

I have no problems with market rates determining how much people get paid based on where they live.  We already have this with salaries higher in Auckland for example. But the issue is having those “market rates” at massively below  the NZ minimum wage.

Sure the NZ minimum wage does not apply to people working in China.  But if someone from China works in NZ, then it most certainly does apply. And I am not convinced being employed by Air NZ on board an Air NZ flight is different to being employed in NZ.

Incidentially the Chinese former cabin crew member (Crystal Zeng) who gave the Herald the story, posted a comment on the former thread, pointing out that the salaries being paid by Air NZ are in fact even less than the Chinese airlines pay.