We are all justified in breathing a sigh of relief that the economy seems to have survived the COVID pandemic reasonably well. Not all sectors, of course. International tourism and education have suffered terribly, and the hospitality sector is also still in trouble. Nevertheless, it is no time to be complacent. COVID still ravages parts of the world, and we simply do not know if we will be put back into lockdown. We also do not know if the effects of lockdowns have been fully felt yet; it may be that the worst is in fact yet to come.
That being the case, you may think that this is not the time to start making demands for further increases in minimum wages, particularly when the government is still committed to a further increase next year. Well folks, you would be wrong. A report published jointly by the Helen Clark Foundation and NZ Institute for Economic Research suggests that further increases in minimum wages is the way to fix growing inequalities brought on by the pandemic.
New Zealand should increase the minimum wage to the level of the living wage, as part of a rethink of the way it boosts productivity and inclusion, a new report says.
The report from the Helen Clark Foundation and the New Zealand Institute of Economic Research highlights growing inequality, exacerbated by the pandemic.
Great. Let us beat up business owners, especially small business owners, by further increasing their costs, at a time when they have lost as much as 2 months income so far this year.
“With border controls to prevent importing Covid-19 limiting the inflow of migrants, labour will become relatively scarce and costly. Capital has never been cheaper.
“This is an unheard of combination of factors and should allow for a more equitable economic model. The recovery gives us an opportunity to build a more inclusive economy that shares the gains.”
Yes, but a cup of coffee is still a cup of coffee, whether you pay your barista $18.90 or $22 per hour. If you are forced to pay the latter, then the chances are, the cost of the cup of coffee will go up. This creates a little thing called inflation (something we could probably do with a bit more of, if the Reserve Bank is to be believed), which pushes up the price of everyday goods… which, in turn, makes the extra that is paid to minimum wage workers ineffective, as the price of everything else has increased.
Economic 101. You would think that someone from NZIER would understand that. Or do they think that, somehow, COVID has changed even basic economics?
When the minimum wage increased to $18.90 it was estimated that it would create a restraint on employment of 6500 jobs.
But many of the job losses that could be expected with a big increase in minimum wage now had already happened, Krieble said.
I am having a little difficulty following the logic here. People lost their jobs because of the last minimum wage hike, so therefore it won’t happen again? Really?
“These annual minimum wage reviews… miss the long-term impact of restructuring to a high-wage, high-productive economy. The short-term costs of a minimum wage boost appear significant, but are minor in the context of a $20 billion reduction in GDP following the March-April 2020 lockdown and a 12 per cent [in the June quarter] GDP reduction for 2020.”
Yeah… so it is okay to increase minimum wage because we have a $20 billion GDP reduction, which means that many industries and businesses have lower turnover so far this year… so, like I said, let’s hit them again by significantly increasing their costs. Makes perfect sense, doesn’t it?
The Government is on track to increase the minimum wage to $20 an hour from next year. Krieble said it should go further. The living wage should be a guide, he said. That is currently $22.10.
“With Aotearoa New Zealand’s relatively low rates of productivity increase, an increase in the minimum wage can help increase productivity. That could begin immediately as limited migration forces the dedication of the highest skilled workers to a focus on their specific talents.
Please note how increased minimum wages ‘can’ help increase productivity. No one is saying that this does actually happen. In fact, I have never seen any evidence to suggest anything of the sort. The barista making coffee for $18.90 per hour is not going to work any harder if the minimum wage goes up. Why should she? It is a legal requirement, not an incentive. I would have thought that higher minimum wages actually disincentivise workers. Why work harder than you have to? Anyway, the barista will make the number of cups of coffee that customers request, which is likely to be less than before if the price has just gone up due to increased costs.
He said the Covid-19 shock was not being felt equally. Those who were most affected by jobs losses were the people who were already facing the most disadvantage – Maori and Pacific, young people, people with disabilities and women. Job losses had been felt heavily in sectors such as retail, hospitality and tourism.
Yes, they have, and this is precisely why we do not want to increase minimum wages any more at the moment. The job losses are in sectors where people with low skill levels can work. These sectors have been hardest hit. How much sense does it make to then cripple those sectors with higher costs, at a time when they are struggling to survive? This will guarantee that more of these outlets will simply go to the wall.
I agree that we are a low wage economy, but raising minimum wages will not fix it. More training, better skills and improved productivity will increase wages over time. Statutory enforcement will not improve productivity.
Krieble said employers who had to pay staff more would be more likely to invest in them and the work they did. With the cost of capital so low, it was a good time to do that. People who were paid more were more likely to be engaged with their work.
Stuff.
Definitely. Time for cafe and restaurant owners to take the cheap capital available and buy those fancy machines… that don’t need humans to operate them at all… just like the ones we see in most McDonald’s restaurants these days.
Smart thinking, NZIER.
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