The Bottom Rung
There is a lot of buzz in the newspapers and the blogosphere about the minimum wage and the rather absurd proposal that it be elevated from $12.50 to $15.00 – a 20% increase. Essentially the minimum wage is a pay rise forced upon employers by government, rather than negotiated between employees and employers. As such, it does not take into account the financial position of the company in any way. One wonders exactly how many wage negotiations starting from a worker’s position of a 20% increase actually are settled at that level?
The Herald says that 61% of people think that the minimum wage should be increased to $15. David Farrar points out that this is a somewhat misleading statistic (What a surprise!) in that the Herald poll only had three options – reduce, stay the same and increase to $15 – meaning that 61% were in favour of an increase, not necessarily an increase to $15. But that is slightly beside the point. Virtually none of the 61% will be people who have to pay the wage bills. It is very easy for you to vote yourself and/or your mates a large pay rise when you do not have to pay for it.
Trevor Mallard makes this odd comment:
“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.”
It is clear that Trevor has had little to do with business. While it is true that raising the minimum wage (not simply raising wages) might encourage capital investment and might lead to extra training (much more doubtful), Trevor seems to overlook that the only reason an employer would be doing this would be so that he can employ less people. At a time when youth unemployment is apparently at an all time high (can anyone confirm this Labour talking point?), Trevor would like to ensure that employers invest in machinery that replaces employees and extra training of employed persons, making that first rung on the employment ladder not only slippery, but damn near inaccessible.
And we won’t even talk about the blow-out in student loans caused by the dearth of summer vacation jobs…
The sad fact is that most of the industries that employ minimum wage workers are of low profitability. Although food franchises often make plenty of money – their franchisees usually have to own several stores before they make a six figure income. By the time the franchise and the mall owners have taken their cuts, there is not a lot left. And wages comprise the bulk of the remaining running costs. Bumping up wages by 20% will have one of three possible effects:
- The store will go bankrupt and close.
- The cost of the stores goods will go up
- The store will employ fewer people.
No sensible store owner will opt for 1. or 2. so increasing unemployment is inevitable. Note that this only effects those on the new minimum wage and the effect is partially obscured by increased retention of the more skilled workers. So, yes, Trevor. We may get a “high skill, high wage economy”. But only at the expense of the youngest, least-skilled workers – condemned to a life on the benefit because they can’t get on to that bottom rung.
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Jan 19 10 8:19 am
“Trevor would like to ensure that employers invest in machinery that replaces employees and extra training of employed persons”
This is often called “raising productivity” and is generally seen as a good thing.
Thomas Beagle´s last blog ..My New Laptop
A very good thing. But raising the minimum wage is a very back-to-front way of doing this.
Jan 19 10 8:23 am
Mallard and his colleagues continue to prove that they inhabit a fantasy land.
Not content with trying to re-write their own political history they bombard us with nonsense like this.
Fortunately, the majority sees through it so I hope they keep it up!
Unfortunately they still have supporters who believe it. Just read the Grassroots Labour blog sometime. Wow, real batshit nutters in there.
Oh and their fantasy world is certainly helped by the way Trevor deletes posts and suppresses opinions.
Jan 19 10 8:28 am
It doesn’t seem to have occured to anyone that an increase in the minimum wage will also result in an increase in tax revenue for the Government.
Jan 19 10 8:44 am
Mark V – maybe; maybe not. The tax take is also dependant on the number of people paying tax. If employers are forced to pay a minimum of $15/hr, there will likely be FEWER jobs available, which will effectively mean that the tax burden is shared by fewer.
Inventory2´s last blog ..SHAME
Jan 19 10 9:24 am
More to the point, an increase in the miniumum wage of that amount, without a corresponding increase in my salary by my employer to keep the ratios the same will make me very very cross.
“And we won’t even talk about the blow-out in student loans caused by the dearth of summer vacation jobs” – This probably wouldn’t be an issue as most student are not drawing any kind of student loan over the summer break, it would increase the costs of the Student Hardship / Unemployment allowance however.
But my point is that less student earnings result in more student draw-downs as many students save their money to reduce their need for a student loan.
Jan 19 10 10:00 am
The sooner ACT gets to 10% or thereabouts, the sooner we can be rid of the minimum wage and the rest of the socialist claptrap around employment.
No unions. No ECA. No contracts. Freedom to hire and fire at will.
VOTE ACT
Jan 19 10 10:04 am
As I mentioned on Kiwiblog Trevor makes good sense from his pov. Agitating for an increase can help split the low paid (Maori, PI and some immigrant groups) away from National either by Govt refusing to raise the min wage to $15.. or by giving it and seeing unemployment rise.. its a short term win win for Labour.
Apart from some of the problems already mentioned about raising the min wage.. what about the effect on marginal tax rates viz Working for Families? In effect low wages, WFF and benefits are all of a package where tinkering with one flows to the other and increases the risk of employers and employees colluding to the advantage of each. The pressure also goes on to adjust WFF margins.
JC
Jan 19 10 12:22 pm
“But only at the expense of the youngest, least-skilled workers – condemned to a life on the benefit because they can’t get on to that bottom rung.”
Yet more evidence of Socialists deliberately trying to create more poor people — er… “clients”. These clowns don’t want to help the poor. They want to make people poor, so that they can pretend to help them with other people’s money.
Jan 19 10 1:30 pm
A 24 hour gas station with one person working will have to find an extra $22k for this idea. Most have more staff than that and will have to find somewhere in the region of $40k.
Having been in the industry for many years I can assure you that the benevolence and generosity of oil cos is a complete myth. The industry will shrink yet again and the big players (think oil cos and their scab proxies) will be assisted, leaving the small operators to shrivel and die.
Oil cos created their franchise operations to insulate themselves from these sorts of things, as did many other industries. Now they are fleeing the retail side of the industry like the rats they are.
The moronic mallard’s assertion that most business would know that lifting wage rates encourages investment in capital equipment and training, shows it is out of touch with the world. Perhaps the same idea should apply to the house of reprehensibles. Every time these creatures have accepted an increase in salary we have seen a commensurate increase in productivity and quality from the duck and its thieving ilk. Every single one of them is a parasite that needs to be removed.
Could I get you a scalpel?
Jan 19 10 2:39 pm
At a time when youth unemployment is apparently at an all time high (can anyone confirm this Labour talking point?),
‘Pretty much’ what Mr Farrar said in his post you link to:
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.
Something vaguely related there:
http://www.kiwiblog.co.nz/2009/11/youth_unemployment.html
Jan 20 10 10:09 am
Trevor is just trying to get in the media. Labour did not raise the minimum wage to $15 when they were in government despite pressure from the Greens to do so.
Jan 20 10 10:20 am
They consistently raised it throughout their term though, plus we’re now over a year on from when Labour were in there.
Jan 21 10 8:35 am
National raised the minimum wage $0.50 to $12.50 and they may make a similar increase again. To raise if to $15 would be irresponsible. Labour did not increase the minimum wage 20% when they had the chance. This pork barrel politics at its worse.