Minimum wage rise versus jobs

The effect that the raising of the minimum wage might have on jobs has often been argued but never been proven. It depends on a number of factors, like how much the minimum is raised, and what the business and employment situation is like at the time.

Government officials have warned that the latest increase, due to come into effect next week (1 April), could jeopardise up to 3,000 jobs but the Minister of Workplace Relations disagrees.

NZ Herald: Minimum wage rise to $16.50 at the end of next week could cost 3000 jobs, says MBIE

Government officials say lifting the minimum wage to $16.50 an hour could see a loss of up to 3000 jobs.

Boosting the minimum wage was part of the Government’s 100-day plan and is set to take effect at the end of next week, on April 1.

In its regulatory impact statement, officials from the Ministry of Business, Innovation and Employment said an increase “may have negative employment impacts which include lower job growth and reduced work hours”.

“The estimated restraint on employment for a minimum wage of $16.50 is 3000,” the statement said.

It also noted that the effect on employment “is heavily debated in economic literature … there is no clear consensus”.

And the Minister, Iain Galloway, debates their warning.

Workplace Relations Minister Iain Lees-Galloway said workers had not had a fair share of economic growth, and the boost to the minimum wage was only one part of the Government’s strategy.

“The Government considers advice alongside a range of other factors, including prior experience increasing the minimum wage – which has always been positive.

“I note that Treasury also advised the best time to raise the minimum wage is while the labour market is strong and tightening.

“Treasury forecasts that the unemployment rate will keep falling towards 4 per cent over the next three years, and that average wages will rise on average at about 3 per cent a year over that time, due to a tight labour market.”

So Lees-Galloway seems to be dismissing the MBIE advice, and choosing to use different Treasury advice to support the increase.

This is a fairly modest increase in the minimum wage, from $15.75 to $16.50, but bigger increases are planned.

Labour and New Zealand First have agreed to increase the minimum wage to $20 an hour by April 2021.

One could guess that MBIE may have further job loss warnings if it is bumped up more.

And what if in the future Treasury advises that the labour market is no longer strong and tightening? Would the Government go against that advice?

They already have, last month. Stuff: Labour warned if economy turns, minimum wage plans will hit the young and unskilled

Treasury is urging the Government to ditch its plan to abolish the youth rate, warning that minimum wage pledges will hit the prospects of younger, unskilled workers if the economy cools.

Advice from Treasury officials released under the Official Information Act shows Treasury expressing concerns that a commitment to a substantial increase in the minimum could harming the prospects of the very people the rate was meant to protect.

While Treasury explicitly said it supported hiking the minimum wage by 75 cents an hour to $16.50 in April, as the economy and labour market would see little impact, officials warned the three-year plan to get the minimum wage to $20 could have a series of unintended consequences.

These ranged from hurting the local economy in already slow growth regions, the risk that once New Zealand’s minimum wage was on a par with Australia’s, fewer young, low-skilled worker would cross the Tasman for work and that higher minimum wages “has been shown” to attract young people to leave education to enter the workforce.

Lees-Galloway has been quite selective in picking advice to justify Government policy.

He was a Nurses’ Organisation organiser (aka a union official) prior to becoming an MP,

35 Comments

  1. chrism56

     /  March 24, 2018

    When the economy turns, and it will, his words will come back to haunt him. They will also make it a very easy meme to attack Labour. That and ignoring officaials advice – something that only National was supposed to do.

    • Blazer

       /  March 24, 2018

      what factors can you identify that will make the economy…’turn’?

      • David

         /  March 24, 2018

        Business confidence plunging because of the circus act running the place causing investors to be overly cautious and halting investment.

        • Blazer

           /  March 24, 2018

          Investors in….what specifically?

          • David

             /  March 24, 2018

            Plant, machinery, new milking shed, warehouse, shop, hotel, motel, coffee machine, research and development…the things that create jobs that pay taxes that fund the social services.

            • Blazer

               /  March 24, 2018

              But anecdotal evidence re the ‘Rockstar’ economy shows investment in productive activities is very restrained.The only game in town….is RE,but I’m sure you knew that…anyway.

            • PartisanZ

               /  March 24, 2018

              Business confidence apparently recovered and improving in Northland, according to Chamber of Commerce advertorial in Northland Age …

              If only some past government’s had ignored officials advice …

            • Gezza

               /  March 24, 2018

              Sounds promising. How is it manifested? More jobs?

            • PartisanZ

               /  March 24, 2018

              Yep … more minimum-wage jobs especially in the Tourism & Service sectors …

  2. David

     /  March 24, 2018

    Funny the government raises the cost of ciggies to stop demand but raising the cost of labour wont have the same effect.
    As a % of the average wage I think we already have the highest minimum wage in the world.

    • Blazer

       /  March 24, 2018

      Goods and services have different dynamics.Would raising the costs of employing workers who process butter affect the demand….for butter?

      • PDB

         /  March 24, 2018

        It would likely affect the demand for that particular brand of butter due to the cost of the product having to be raised to account for the extra costs.

        • Blazer

           /  March 24, 2018

          there’s always…’I can’t believe it isn’t butter’.

      • David

         /  March 24, 2018

        Yup, last time butter prices went up people used substitutes and I recall didnt do as much baking as they used to so there was less demand and probably less hours worked.
        Seattle did the minimum wage thing and minimum wage workers earned less because they wernt given so many hours.

        • Blazer

           /  March 24, 2018

          Demand and affordability are different.The price can remain the same if margins/profits are…less.NZ with its temperate climate and abundant dairy,fish,meat and horticulture products still imposes eye watering prices for those things on domestic…consumers.

          • David

             /  March 24, 2018

            Thanks Blazer you are totally correct, if the profit margin is too low people wont invest in the business hence the jobs wont be created/maintained.
            You are also right that demand and affordability are different things but one leads directly to the other, if its too expensive there is less demand for it.

            • Blazer

               /  March 24, 2018

              what margin would be termed …’too low’?.The Japanese are happy with net 3%.

            • PartisanZ

               /  March 24, 2018

              Thankfully most of the products you guys are talking about no longer rely very much or at all on human labour …

    • Zedd

       /  March 24, 2018

      I think we already have the highest minimum wage in the world. sez David

      Yes but we likely have the greatest percentage of workers on or near this minimum wage
      If you have lived o’seas (as I have) you will know this.. 😦

      MIND THE GAP folks.. 9 LOOOOOONG years of Natl ensuring this continued !!

      • David

         /  March 24, 2018

        Well if your minimum wage is sky high the percentage of people on or near it will be really high. If you country has a minimum wage that is stuff all there will be a smaller percentage near it otherwise you wouldnt be able to attract staff.

      • David

         /  March 24, 2018

        “I think we already have the highest minimum wage in the world. sez David
        Yes but we likely have the greatest percentage of workers on or near this minimum wage”

        If you have the highest minimum wage in the world, you will almost certainly have the greatest percentage of workers on, or near, the minimum wage. That is the logical outcome of a high minimum wage.

        • PartisanZ

           /  March 24, 2018

          The illogical inverse of an argument for no minimum wage – where wages would simply be as low as possible …

          Putting wage-setting entirely in the hands of employers already favoured by the so-called ‘free market’ conditions of neoliberalism is very dangerous.

          That’s why we had unions and, for a long time, compulsory unionism.

  3. NOEL

     /  March 24, 2018

    “The estimated restraint on employment for a minimum wage of $16.50 is 3000,” the statement said.”

    So the extra cost per employee is $1560 per employee per annum,
    Gee must have been really struggling businesses before the pay change?

  4. David

     /  March 24, 2018

    “The effect that the raising of the minimum wage might have on jobs has often been argued but never been proven. ”

    It has been proven over and over. Just because you don’t want to look at the outcome, doesn’t mean it doesn’t exist. Even the UK Low Pay Commission believes that a 0.08% increase in wages will result in a loss of 13,000 jobs.

    Look at employment in the area’s of the US that have raised the minimum wage to $15/hr;

    “In a region where all low-wage workers, including those in Seattle, have enjoyed access to more jobs and more hours, Seattle’s low-wage workers show some preliminary signs of lagging behind similar workers in comparison regions.

    The minimum wage appears to have slightly reduced the employment rate of low-wage workers by about one percentage point. It appears that the Minimum Wage Ordinance modestly held back Seattle’s employment of low-wage workers relative to the level we could have expected.

    Hours worked among low-wage Seattle workers have lagged behind regional trends, by roughly four hours per quarter, on average.*

    Low-wage individuals working in Seattle when the ordinance passed transitioned to jobs outside Seattle at an elevated rate compared to historical patterns.”

    No only did employment fall by around 1%, hours worked also fell, on average, by 4 hours per week. Employees also lost their non-wage benefits, as could also be predicted. Restaurant closures have also been telling over the impact of these policies.

    The more interesting question is a simple one, does increasing the minimum wage actually make low wage earners better off? That is far from clear.

  5. David

     /  March 24, 2018

    I would have the minimum wage at 12 bucks and change the tax thresholds, the cost of pricing a marginal young/inexperienced worker a starter job is very high. Both parties have been politically expedient and wishing to avoid ugly headlines rather than actually reflecting on the opportunity cost.
    Generally when you start out your working life you are still at home with few responsibilities and when you do there are many other forms of assistance or you can work hard, be valuable and climb the old fashioned way.

    • Blazer

       /  March 24, 2018

      ‘you can work hard, be valuable and climb the old fashioned way’…hardly the old fashioned way..that is influence,nepotism and privilege.I know which to file your good self…under.

      • Kitty Catkin

         /  March 24, 2018

        Nepotism, influence and privilege are not the reason why someone who starts off as a minimum wage earner succeeds. If they had those, they wouldn’t be a minimum wage earner in the first place.

        • David

           /  March 24, 2018

          Thank you Kitty. I looked at Blazers comment and just despair and wonder what on earth is the point.. of him.

          • Blazer

             /  March 24, 2018

            did you mean when you start out on minimum wage…because this is what you said…’Generally when you start out your working life you are still at home with few responsibilities and when you do there are many other forms of assistance or you can work hard, be valuable and climb the old fashioned way.’..that’s the…POINT!

          • High Flying Duck

             /  March 24, 2018

            What David said is exactly how I started out – minimum wage, learned skills, worked in a variety of jobs and then started a business.
            Just because you have prejudices that demand nepotism as a prerequisite to be successful doesn’t make it true.
            Your mate Bob Jones started with nothing, as did your other mate John Key.

            • Blazer

               /  March 24, 2018

              bear in the mind the key words the ‘old fashioned way’.Have no regard for the 2 you mention drilling down into their careers.As for moi…I started with nothing…and still have most of it…left.

          • Kitty Catkin

             /  March 24, 2018

            ….I….do….too….sometimes….

          • Kitty Catkin

             /  March 24, 2018

            I think that some people can’t bear it that other people are better off than they are, and have to convince themselves that anyone who is successful must have done this by dishonest means.

      • Trevors_elbow

         /  March 24, 2018

        Bitter comment. You get passed over for the owners son?

  6. PartisanZ

     /  March 24, 2018

    Which workers are we actually talking about when we speak of the minimum-waged?

    Is it just the Cafe kids and Fast Food Franchise juniors, Supermarket juveniles, Mega-Store cadets and Customer-Facing Service Workers?

    Anyone been to Makkas lately? I wonder how many minimum-waged workers those giant digital ordering panels have replaced?

    Does minimum-waged include ‘skilled’ Indonesian Dairy Farm workers? Does it include any senior workers who’ve been given ultimatums like, “You can take minimum wage or let a younger person have your job?” … I don’t know …

    How many minimum wage workers are there?

    My searches have not revealed much info. StatsNZ loves median wages, increases in wages and employment and decreases in people receiving govt transfer income … but it would appear between 400,000 and 700,000 workers fall into or near the minimum wage category …?

    http://archive.stats.govt.nz/browse_for_stats/income-and-work/Income/NZIncomeSurvey_HOTPJun14qtr/Commentary.aspx