Friday 11 November 2011

Minimum wage nonsense

I love it when journalists think that their crappy interpretation of an OIAed email from Treasury gives them a scoop that overturns basic economics. Here's Patrick Gower:
Everyone knows it’s got bloody hard to live on the minimum wage - even John Key admits that. His defence is that a rise from $13 to $15 an hour will cost jobs.

Key has used this defence in a televised debate, and he's used it to workers on the shop floor at McDonald's as seen in my story last night. But what Key doesn't want to admit, is that this claim is not the full picture and may just be fear-mongering - a rise may not cost jobs at all.

That's what Treasury says in this advice from March 2010 obtained by 3 News under the Official Information Act.
Yes, that's right - the Treasury.

The Treasury are the big guns - Government's quasi-independent economic advisers.

And the Treasury says the "claim" (yes Treasury calls it a "claim") a minimum wage rise may cost jobs - "has not been true in the past".
Ok, so Gower's claiming that Treasury says a minimum wage increase from $13 to $15 will have no employment effect.

Go read the Treasury email and you'll find Treasury's Tony Burton wondering about the rise in youth unemployment through 2010. What "has not been true in the past"? That changes in the youth minimum wage hitting 18 & 19 year olds a decade ago resulted in increased youth unemployment - the Hyslop and Stillman study found no effects. The period of study saw some of the lowest adult unemployment on record in New Zealand, so it's not exactly the kind of period in which we'd expect strong disemployment effects. Burton then wonders about other things that might have affected youth unemployment rates through 2010.

But it's insane to extrapolate from anything in that Treasury email to claim that Treasury supports an increase in the minimum wage from $13 to $15. I hope that somebody at Treasury steps up to make that clear.

Gower tries to frame this as a scrap between Treasury and the Ministry of Labour over estimates of the disemployment effects of minimum wages.
So the Department of Labour report actually mentions about 6000 forecast new jobs that might not happen under a theory that the Treasury doesn't believe.
But absolutely nothing in the OIAed email from a single Treasury analyst speaks to the Ministry of Labour's estimates. Nothing.

Brash's assessment of Gower seems about right.

TVHE comments as well, but as usual, is too kind. Update: It gets worse. See here for Treasury's very clear opinion in the 2010 minimum wage review that raising the minimum wage from $12.75 to $13 was a bad idea.


  1. finally ... someone that speaks some sense. can you please try and get that across to the dumbasses at The Standard, tho i do believe that they may be beyond help.

  2. Well, this is the same journalist who I tweeted the following to:

    Why did you say on TV3 Firstline that Green's plan to set up Government Kiwisaver provider was a good one? It's not.

    He also said he was surprised Labour and National hadn't thought of it. He can't have read National's mission statement, albeit limited government assigned to National is laughable.

    Anyway, he tweeted back:

    Hey there... Why not?

    To which my only reply in 140 characters could be:

    Because liberty (remember that) exists on limited government not the State running every fucking thing. Tyranny 101.

    If you have to editorialise into what is supposed to be straight reportage, know what you're talking about ...

  3. ... that's 'could only be' ...

  4. Gower's major argument is that $13.50 per hour is not enough to live on. Right, and nor is $15 or $16 per hour, especially if living in Auckland Central. So why not legislate for everyone to receive a minimum of $20 per hour?

    TV3 can certainly see no downside in jacking up the number to any level that might prove useful. The higher the number, the higher the buying-power, and we'll all benefit from a trickle-up effect.

    What's much more astonishing is that Mr Burton of Treasury apparently holds the same opinion!

  5. @Clarence: Burton doesn't say anything of the sort. Burton says that evidence from the youth minimum wage changes in the early 2000s suggests we shouldn't jump too quickly to blame more recent changes for high current youth unemployment. That's it. Maybe he also believes that minimum wages have no effect in general (I don't know him, and he doesn't write on it), but if he does, that isn't Treasury's official position.

  6. "So why not legislate for everyone to receive a minimum of $20 per hour?"

    Indeed. Fewer Audis in the carpark, and better food for our kids. Makes sense to me.

  7. @fearless: Whatever you hope to achieve by that is better achieved by wage subsidies paid out of general tax revenues than by minimum wage hikes that push a lot of people from work into poverty.

  8. The reports you describe as "Treasury Reports" are in fact reports prepared by the “Department of Labour”, not Treasury. Why do you refer to them as Treasury when they are not?

    Lindsay Carswell

  9. They're Treasury's comments in the RIS and the Cabinet Papers.

  10. Anonymous, its only the media who calls a sort opinion in a letter a Treasury report ;)

    Fearless, you forgot to add the bit about the larger number of people out of work struggling to afford food for their family - but I suppose when you dogmatically believe in something its easy to ignore the costs ;)

  11. Eric is exactly right, but no one is thinking "outside the box" Maybe there is another way to live without money "gasp".

    Whose ever wondered why you only get to choose between John Key and Phill Goff. I don't remember having an election to make them candidates. I don't remember voting on the policies they chose to make.

    How much liberty do people lose before they realize the truth that's all around them.
    We are wage slaves the minimum wage the lower middle class the upper middle class we are all part of the wage machine that makes banks and corporations and governments ultra wealthy.

    The politicians don't have that much difference in their ideas, they still work under the principle that resources like food, water, electricity. Behaving like its scarce and so they manage money to manage resources. This is a game we all play together called the monetary system.

    Neither government proposes a plausible idea to help the New Nealand economy like keeping more exports here so that its people can benefit of more food and lowered food prices.

    Increasing more use of geothermal wind tidal and wave energy all abundant renewable and clean energy sources, so its people can benefit of free electricity. Lets help the people even more by producing cars that run on all of New Zealand's free electricity.

    Lets help social infrastructure and increase funding on things like schools and medical facilities in small communities.

    "oh this will cost to much" Not if you took the price tag of planetary resources and instead of using money to move things around you use science and logic to efficiently and effectively distribute global resources.

    I can't stress this point its not the free market and governments and banks and everyone whom lives to acquire wealth at the expensive of human well being. They are expected by products by the monetary system at its foundation core.
    incentive scarcity and reward for creativity.
    But its at war with itself with the cheap and efficient Profitization that comes with automation of labor.
    It did it in 1929 with the great depression industrialization killed the employment rate and purchasing power went down.
    It's only a matter of time before it happens to us but rather than fight it with the monetary system we embrace it and let our technology take care of us.

    Governments don't want the system the institution of money to change. They benefit of the current system. They take home the big pay checks. They own hospitals, they own our health car and what is profit? inefficiency, scarcity they profit when people are sick.

    Why would they want to find a cure of cancer? Imagine if they did, all the doctors whom specialized in treating cancer, chemo-therapy, surgery. Thousands would lose jobs hospitals will lose trillions of dollars in revenue if cancer could be easily cured. When you think about that. Do you think the monetary system and hence modern economics have human health in their interest?

    They don't want people to have a prosperous life with the necessities given to you. One where you won't be forced into a job somewhere to get your little slot in the world.
    They want to keep you working paying your taxes paying your bills paying your debt so that they can say they have a healthy economy.

    Even though the police get more funding the crime fluctuates the prison populations swell all because people aren't getting properly looked after they get given so little money and they get asked to come from the bottom and aspire to be rich. Work hard study hard well I'm a realist. I know no matter how hard you work or everyone around you worked only one person will get that job the other 99 won't.

    look at lotto adds homeless man given lotto ticket and suddenly he lives the big dream living expensive and the slogan "It could all change in an instant". What could all change the job you hate? the debt that crushes you? Fight with me to break the monetary system and its slavery.