Friday, 19 March 2010

Minimum wage disappointments

David Farrar rightly takes the National government to task for its failure to support Roger Douglas's minimum wage legislation.
It will be remarkable to see National MPs argue against a bill, which just 18 months ago they were in favour of. As their MPs get up to explain, why they are voting against, I doubt any of them would really believe what they are saying.

The Government gets criticised, often unfairly, for refusing to break pre-election promises that are a handbrake on greater economic growth. I think it is commendable that the Government places a premium on honouring its major commitments.

But when there was no pre-election promise, when in fact their stance was 100% in favour of a lower minimum wage for teenagers, the u-turn by the National Party is legitimate fuel for those who say the Government’s record is not matching its rhetoric.
Now, I could understand it if English had asked Treasury to run a quick extension of the Hyslop and Stillman paper to check for effects post the 2008 minimum wage changes and they'd found my preliminary analysis was missing something. It very plausibly could be missing something, but there's a prima facie case there to answer.

Instead, the scuttlebutt I've heard is that National did some polling and it looked bad.

Of course the polling would look bad. The median voter is, not to put too fine a point on it, utterly incompetent to make on the spot decisions about appropriate economic policy. Last year I noted some results from the 2005 New Zealand Election Survey:
While economists will disagree vehemently about the magnitude of the effects, most economists would agree that minimum wages reduce the creation of new jobs. In [the New Zealand Election Survey of voters], 983 respondents either strongly agreed or agreed that minimum wages reduce the creation of new jobs, 698 were neutral, and 1461 disagreed or strongly disagreed. ... Whaples' 1996 survey of economists found that 87% of labour economists agreed that minimum wages increase unemployment among the young and unskilled.
Voters reckoning that minimum wages have no effect greatly outnumber those thinking that minimum wages hurt job creation.

I could have forgiven Key if he'd let it go to first reading, let the evidence for the effects of minimum wages be debated in committee, encouraged some popular discussion, then decided to back down because he wasn't able to bring the public onside. It would have been courageous to go beyond first reading if opinion were against it, and Key is hardly courageous. But to kill it before committee? When they opposed Labour's move back in '08 and didn't promise anything on the subject?

I'd happily trade the government for a futures market. But not for a polling firm.

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