Friday 22 January 2010

Minimum wage [Updated 2]

Despite the numerous arguments against raising the minimum wage, and especially during a recession (see AntiDismal, for example), trading at iPredict suggests that Key is likely to raise the minimum wage this year. 87% chance of an increase of at least twenty-five cents; 40% chance of at least seventy-five cents. Only a 14% chance of no increase, and no chance of an increase of $1.25 or greater.

I started long on no change and short on the various increases.

But I've since switched to short no change, long 25 cent, short all other increases. The best bet is to expect Key not to do something completely stupid (increase > 75 cents) but not to do the right thing either.

Come on, Key, make me lose my shirt shorting MINWAGE.2010.NC. This is money I want to lose. Make it happen.

Update: The NBR calls out Kiwi economic illiteracy:
When the 2025 Taskforce made its controversial list of proposals for increasing New Zealand’s economic performance to catch up to Australia’s, it missed an obvious one.

The only way to really lift New Zealand’s woeful economic performance is to smack every New Zealander over the head with a textbook of “Economics 101”.

This nation-wide lack of financial common sense was reflected in a poll by the NZ Herald that found 61% of respondents want the minimum wage lifted to $15 an hour.

Of course, the Herald didn’t ask the follow-up question- “do you support higher unemployment, particularly among groups vulnerable to labour market changes such as young people and Maori, as well as the possible collapse of many businesses already burdened by ever-increasing government-imposed costs?”

While it may be tempting just to tut-tut at the stupidity of our fellow Kiwis and forget about it, this survey could be a sign of even worse to come.

The Unite Union is circulating a petition to get the minimum wage increased to $15 an hour and by the looks of the Herald survey, it has a good chance of getting the required number of signatures (10% of enrolled voters) to force a Citizens Initiated Referendum.

Fortunately the National government will probably ignore it like all the other CIRs this country has had.
Hit the Economic Thinking tag for correlates of economic thinking in New Zealand....

Update: Turned out to be a 25 cent increase. Not the right thing, but not a completely stupid thing either. About what I expected.


  1. "The only way to really lift New Zealand’s woeful economic performance is to smack every New Zealander over the head with a textbook of “Economics 101”."

    Yes and yes.

    New Zealand people are clever, but we need a comprehensive economic education from a younger age.

    Better understanding of trade-offs in public = better outcomes (both in policy and generally)

  2. I would argue that it's not as clear cut as all that, mainly because the labour supply curve isn't a nice upwards sloping line. ECON101 digrams showing that minimum wages are either unnecessary or cause unemployment are over simplistic, and dare I say, easy for economics lecturers on decent salaries to make. Depending on the slope of the supply curve and its orientation (forwards or backwards sloping) minimum wages can have positive or negative effects on low income workers.

    What's the overall change? Do workers as a whole benefit from fewer being hired but at a higher wage?

    I think the answer to the question "do minimum wages harm low income workers?" isn't "yes"; it's the same as the answer to all our other economics questions: It depends.

  3. @Rupert: It'll always be a tradeoff between the welfare of the lucky folks who get to keep their jobs and enjoy higher wages, and the ones that don't. Check Holzer and Neumark -- the empirics are very sound. Also very good work showing the rather bad effects on lifetime earnings of poor urban black men (US) of having experienced higher minimum wages when young....