Thursday 24 September 2020


The 2020 Household Income Statistics are out! Well, I'm not sure when they were released, but they're there in NZ.Stat now. Hit the Incomes tables, then hit "Earnings from Main Wage and Salary Job by Occupation" tab. 

Median hourly earnings in 2020 are $27.

The minimum wage in New Zealand is currently $18.90 per hour.

Diving the latter by the former tells me that the minimum wage is now 70% of the median wage. 

Labour has promised to increase it to $20.

We are going into a rather substantial recession.

Inflation is low, which means that nominal wage rigidities are also real wage rigidities, amplifying any disemployment effects. 

Hospitality will have a fair few workers on minimum wage, and we have to expect that collapse in demand for bars and restaurants with the borders being closed will mean a pile of those places are teetering on whether they'll shut down or not. The size of the industry has to shrink if it's at least another year before there's any kind of return to normal, even if rising binding real wages weren't an issue. 

The OECD tables for 2019 had New Zealand's minimum wage as fifth highest in the world, behind Colombia, Turkey, Costa Rica, and Chile. 

I've never been able to reconcile the OECD tables with the NZ statistics, but I assume they've made things somehow commensuable across countries. By the 2019 table, the NZ minimum wage was 66% of the median. In France, it was 61%. In Canada, it was 51%. In Germany, it was 48%. In the Netherlands, it was 47%. And the US Federal minimum wage (states can have much higher minimum wages) was 32% of the median. We were already well into territory that should be of concern. 

The current path is reckless. If the government wishes to strengthen support for workers on low wages, doing it through Working For Families or other wage support schemes makes more sense than doing it through minimum wage hikes in a recession. The government also needs to make faster progress on getting housing costs down by enabling more building. Way too many poor families are spending far too much of their income on housing. But getting that done in a hurry wouldn't be easy. Strengthen support in the short term through transfer payments, not through minimum wage hikes. 

Back in 2017, when Labour started pitching a $20 minimum wage by 2021, I worried that would likely take us to around 73% of the median. It would be 74% of the current median; I'm not going to make guesses about median wage changes to next year.  

All of my analysis on this stuff from last year hasn't changed. If you want to yell at me about this post, go read that one first. Working for Families is a better way of supporting the incomes of the working poor than are minimum wages. Why?

First, it's better targeted. Pacheco and Maloney found that only about 40% of minimum wage workers are in households in the bottom three deciles. I go through that in the link above.

Second, it's better supported. The burden of minimum wage increases is shared among disemployed workers, purchasers of the goods and services produced by minimum wage workers, and owners of firms employing minimum wage workers. The burden of WFF falls heavily on households in the 8th, 9th and 10th deciles. Both versions will have negative effects on the overall economy, but spreading it through the tax system at least tries to minimise the overall deadweight costs of raising that next dollar of wage subsidy.

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