Friday 1 November 2013

The Living Wage, in one chart.

I love this chart from Treasury's advice on living wage proposals. 

There's a morbid part of me that wishes the thing would be implemented as a minimum wage - the resulting substantial increase in unemployment would do a good job of settling certain empirical debates about the effects of minimum wages. I don't really want it implemented: some data points are just too expensive to acquire.
But wait, there's more!

Other key points in the Treasury information release:

  • The group that produced the $18.40 figure based it on what would be needed to sustain a family of two adults and two children. Treasury notes that families with two adults and two children make up only 6% of families currently earning below the $18.40 living wage. Three-quarters of families earning below the living wage have no kids; sixty-three percent are single adults with no dependents. Twenty-nine percent of low-earners are in families with family income greater than $60,000.
  • After taking into account abatement of income-tested benefits for those with kids, the living wage would do far more to subsidise those without children. The biggest benefit would go to families with two low-earners with no children, conditional on both of them keeping their jobs.
  • The proposed living wage is just shy of the median wage. Employment effects are then likely to be large: MBIE reckoned 25,000 job losses. We would also expect reductions in staff benefits and reduced hours.
  • If the goal is to improve outcomes for low-earning families with young children, it is better to consider some mix of:
    • Shifting WFF towards parents with younger children
    • Targeting ECE subsidies more strongly (I agree entirely; see here)
    • Fix benefit abatement rates to encourage 3-5 days of work;
    • "Making our system of service interventions for children aged 0-5 years more focused and integrated."
  • The policy would further hinder manufacturing.
  • Minimum wage increases have substantially outpaced CPI but have not helped increase average wages; we shouldn't expect this hike to do better.
  • We'd reduce the incentive to acquire skills because the policy would attenuate the returns to upskilling.
I love it when Treasury makes it very clear that some proposed policy is a very bad idea.



  1. Excellent post, Eric!

    Gee - what a great way for Labour and the Greens to make New Zealand less competitive in the world.

  2. Does Farrar, Kiwiblog, come over here to steal your work, and put into simple, or is it all coincidence

  3. Paper just came out this afternoon; I expect simultaneous discovery.