It never ceases to amaze me how outraged the richest people get when you suggest paying poor people a little bit more.

Act’s new leader Jamie Whyte said it was "hard to think of a crueler policy" for people most in need of work than increasing the minimum wage.

Say what? Cruel to pay people on the lowest incomes 50c more? Surely he can think of something crueler than that, like not having a minimum wage at all.

When John Key announced the small 50c increase he said ministers had been advised that a slightly higher rise - to $14.50 - would have cost about 2300 jobs.

If the adviser is right, then he or she will get the Nobel prize for economics because no economist has been able to prove a direct link between increases to the minimum wage and job losses.

In fact back in 1994 two economists (David Card and Alan Krueger) were awarded the so-called “junior Nobel prize” from the American Economics Association for proving employment actually increased when the minimum wage went up.

Their research showed that jobs aren’t like tomatoes, where if the price goes up, people purchase less of them.  The opposite is true. They compared fast-food restaurants (leading employers of low wage earners and enforcers of the minimum wage) in New Jersey where the minimum wage had gone up, with the same restaurants in neighbouring Pennsylvania where they hadn’t. Card and Krueger showed that employment increased in New Jersey because there was less churn in the labour market; people stayed in higher paying jobs; job security increased, which was good for staff and good for the employers who saved on the costs of training new staff. (Their study is updated here.)

Here are further sources showing that changes in the minimum wage have little effect on employment.   

Even when some jobs are lost, it doesn’t necessarily lead to higher unemployment. An employer may decide to invest in the business rather than pay the higher minimum salary to the person who, for example, screws on the bottle tops. The bottle-top-screwer may get replaced with a new high tech bottle-screwing machine.

But the productivity of that company increases; ultimately they take on more staff, and the person operating the new machine gets paid more to do a skilled job. (That’s still hard for the minimum wage worker who loses his or her job, so it demonstrates why the mantra for those who care about working people should ‘protect the worker, not the job.’)

If you look at the whole economy, a higher minimum wage is good for growth. It means more money in the hands of the working poor, which is more money to spend, pay off debt, and buy stuff — all of which boosts the economy and demand, even just a little. People on low incomes tend to spend their incomes on basic goods and services like food and repairs. Those with more money already buy the necessities, so greater spending power in the hands of the lowest paid is more efficient.

To all those companies complaining today that paying someone just $14.25 an hour  - 50c more than they were paying -  could ‘put them out of business’, if you can’t pay people the absolute minimum they need to survive, then you don’t have a profitable business. But lets not forget the supermarkets that are paying minimum wage and then - well Shane Jones has pointed out what they’ve been up to.

It is an iron principle of capitalism that employees get paid less than the value their labour produces, and this is especially true at the low-wage end of the labour market where competition for jobs is at its highest. 

In the long term savings to society result from a reduced burden on the welfare state, less reason for the tax payer to subsidise low wages with tax credits, and a growing economy.

Wages have  stagnated for most New Zealanders. There is little that more clearly highlights right wing hypocrisy about the economy than to hear them arguing against higher wages, as they always do.

But at least have the intellectual rigour to admit that, if you’re not in favour of a higher regulated minimum wage, then you should be in favour of increasing the workplace muscle of working people so they can negotiate their own higher wages.

Comments (5)

by Quentin on February 25, 2014

Thanks, good article & good sense. 

by Frank Macskasy on February 26, 2014
Frank Macskasy

Act’s new leader Jamie Whyte said it was "hard to think of a crueler policy" for people most in need of work than increasing the minimum wage.

In which case, CEOs who have their already bloated salaries increased by many millions of dollars more - plus bonuses - must be in sheer agony.

Yeah, right.

Jamie Whyte - not a very sensible person.

by Fentex on February 26, 2014

If the adviser is right, then he or she will get the Nobel prize for economic

No they won't. No one will as there is no Nobel Prize for Economics, there is the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, but not a nobel Prize.

It is a dishonest effort to ride Nobels coat-tails to conflate the Sveriges Prize for Economics with his awards, and an insult to his memory to presume he wanted to reward that field for it's efforts.

by stuart munro on March 01, 2014
stuart munro

While we're looking at research based findings, the data on CEO bonuses is interesting too. They're not very effective; they interfere with other motivations. 

The economic lens is a remarkably impoverished tool for predicting human behaviour, and a self-styled philosopher who has nothing more rigorous to offer is no ornament to the profession.

by Andrew Osborn on March 01, 2014
Andrew Osborn economist has been able to prove a direct link between increases to the minimum wage and job losses

Neither have they proved the opposite. In fact nothing is ever proven in economics because of the complexity and dynamic nature of economies. That said, numerous studies have been conducted which strongly suggest it is in fact the case.

A scenario you fail to mention is the bottle topping business packing up and moving elsewhere. A hike in the minimum wage or adding other inflexibilities to the labour market may likely not instantly result in layoffs but business strategists quietly take note of the policy shift and may decide the next bottle topping factory is going to be build elsewhere. If they fail to act, their opposition may grab their market share. Thus there is generally a significant timelag between a change and the consequences of it.

If you want specific examples, please refer to the current state of the French economy or closer to home: Qantas. The collapse of both are underpinned by inflexibility in employment conditions.



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