Labour’s minimum wage policy

Yesterday Labour announced their workplace policy which included a modest bump in the minimum wage, from the current $15.75 an hour to $16.50.

There has revived arguments over the effectiveness of a higher minimum wage.

Andrew Little says it is just a start.

Maori Television: Promise of minimum wage hike “a start” – Labour

It’s more of a stroll to the dairy than a hike.

The Labour Party promises a boost to the minimum wage as part of its Workplace Relations Package announced today. It says the working class is missing out on economic prosperity, but will $30 extra a week make a real difference?

Labour promises and extra 75-cents an hour, in its first 100 days if elected.

Party leader Andrew Little says, “It’s a start. We’ve still got a heap of work to do in getting people onto the living wage, we’ve got a heap of work to do to get our employment framework in place with the fair pay agreements and every other device we can use.”

Little says in addition to this Labour would increase the minimum wage year-on-year like it had done while in government.

“Starting with the immediate increase to $16.50 an hour in our first one hundred days [we would then] work towards a long term goal of two-thirds of the average wage.

But there is debate over what the overall effects of a higher minimum wage can be.

Chrism56 cites a new study from the US:

Here is proof of what will be the effect of Labour’s minimum wage policy – more unemployment.

Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle
Ekaterina Jardim, Mark C. Long, Robert Plotnick, Emma van Inwegen, Jacob Vigdor, Hilary Wething

NBER Working Paper No. 23532
Issued in June 2017

This paper evaluates the wage, employment, and hours effects of the first and second phase-in of the Seattle Minimum Wage Ordinance, which raised the minimum wage from $9.47 to $11 per hour in 2015 and to $13 per hour in 2016.

Using a variety of methods to analyze employment in all sectors paying below a specified real hourly rate, we conclude that the second wage increase to $13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent.

Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016. Evidence attributes more modest effects to the first wage increase. We estimate an effect of zero when analyzing employment in the restaurant industry at all wage levels, comparable to many prior studies.

Washington Post: A ‘very credible’ new study on Seattle’s $15 minimum wage has bad news for liberals

When Seattle officials voted three years ago to incrementally boost the city’s minimum wage up to $15 an hour, they’d hoped to improve the lives of low-income workers. Yet according to a major new study that could force economists to reassess past research on the issue, the hike has had the opposite effect.

The city is gradually increasing the hourly minimum to $15 over several years. Already, though, some employers have not been able to afford the increased minimums. They’ve cut their payrolls, putting off new hiring, reducing hours or letting their workers go, the study found.

The costs to low-wage workers in Seattle outweighed the benefits by a ratio of three to one, according to the study, conducted by a group of economists at the University of Washington who were commissioned by the city.

On the whole, the study estimates, the average low-wage worker in the city lost $125 a month because of the hike in the minimum.

The paper’s conclusions contradict years of research on the minimum wage. Many past studies, by contrast, have found that the benefits of increases for low-wage workers exceed the costs in terms of reduced employment — often by a factor of four or five to one.

The situation in New Zealand is different to that in Seattle and the US. How a small increase would affect take home pay for low waged workers is difficult to predict.