By Bernard Hickey
Prime Minister John Key has rubbished proposals from Labour's leadership contenders for the government to pay workers a 'Living Wage' of NZ$18.40 an hour.
Key told his weekly post-cabinet news conference that implementing a 'Living Wage' could cost between NZ$2.5 billion to NZ$4 billion and as many as 26,000 jobs.
"They clearly have no understanding of economics," Key said of the proposals from Labour contenders Grant Robertson and David Cunliffe.
"It sounds great in principle until you put 26,000 people on the dole queue and cost the economy around NZ$2.5 billion," Key said.
Cunliffe proposed lifting the minimum wage for all government workers to NZ$18.40/hr at a cost of NZ$25 million.
Key said he was sceptical of Cunliffe's costings, pointing to government estimates that an increase in the minimum wage to NZ$15/hr from the current NZ$13.50/hour would cost NZ$68 million for Ministry of Health, Ministry of Social Development and ACC workers. He suggested Labour would have to apply the Living Wage across all low-paid workers.
"If it was as simple as legislating for higher wages, why wouldn't we legislate for NZ$30/hour? Why wouldn't we double the wages of every single New Zealander? There is no country I can think of in the world that has legislated its way to prosperity. We have to earn our way to prosperity and none of these candidates are talking about that. They are talking about a move to the far left.," Key said.
"They certainly are talking about writing policies they can't afford to fund and being fast and loose with what these things would cost," he said.
"When they go out and say the cost is NZ$20-30 million and the bill is NZ$2.5 billion, it screams why we in the National Government believe that Labour can't be trusted with the chequebook."
Key was then asked if trickle down economics worked for all New Zealanders, he pointed to the government's deficit returning to surplus, falling unemployment, rising house prices and overall economic statistics 'doing OK'.
"Is it perfect? No. But we have a redistribution system through Working for Families that's heavily oriented towards low to middle income workers. Yes New Zealand needs to lift its wages, but if New Zealand is going to do that in a way that isn't inflationary and doesn't put people on the dole queue we need to make our economy far more competitive."
'The Easter bunny'
Key said Labour had opposed many of the government's proposals to make the economy more competitive, including abolishing the 90 day limit and putting pressure on the wage bills of smaller businesses. He also said Labour and the Greens were opposed to more mining and roading and fast broadband.
Key said he accepted that wages needed to rise and that many people struggled on low wages. He said the government had played its part by supporting Working For Families taking some tough steps to keep interest rates low.
"But if anybody thinks that we can just through the click of our hands double or substantially increase wages with no impact then we would do that tomorrow because it's a really popular thing to do. It's not real and the people who believe that we can do that with no implications for the economy also believe the Easter bunny is going to turn up next year and he won't."
I then asked Key for his views on companies such as The Warehouse, which announced in May increases to its wages to at least NZ$18.50/hour as part of moves to reduce staff turnover and improve skills.
"They are free to to go and do that if they want to and that's absolutely supported. We don't encourage people to pay the minimum wage."
Key said the government supported those on low wages with Working For Families and the Accommodation Supplement. He gave an example of a cleaner working in Parliament on the minimum wage of NZ$13.75/hour earning NZ$29,000 per year. If that worker had 3 children, they would lose NZ$4,000 in tax and get back NZ$23,000 through the Accommodation Supplement and Working For Families.
Low wage subsidy?
I asked Key if this meant the government was effectively subsidising companies paying low wages.
"Yes they are a government funded subsidy for lower wages. I accept that fully. But if we don't do that, then essentially what would happen, some of those jobs would disappear and some of those companies would disappear and would force outsourcing to certain areas."
Robertson responds
Robertson described Key's comments as an "hysterical reaction" to his proposal for the government to pay its workers and contractors a living way.
"John Key is deliberately misleading New Zealanders with grossly inflated figures that have no relationship to what I am committing to, and are based on the usual flawed arguments against wage rises for workers. The bottom line is that if John Key can find NZ$30 million to subsidise his share float, he can find the money to give a boost to low paid workers that he directly or indirectly employs," Robertson said.
"I find it odd that John Key is promoting Working for Families as the alternative to a Living Wage. I thought he was all about reducing dependence. In actual fact paying workers a living wage will reduce dependence on programmes like Working for Families."
(Updated with extra details, quotes on The Warehouse's living wage move and subsidies for low wages, Robertson response)
115 Comments
Does Key believe anything he says, let alone expect us to?
Key said he was sceptical of Cunliffe's costings, pointing to government estimates that an increase in the minimum wage to NZ$15/hr from the current NZ$13.50/hour would cost NZ$68 million for Ministry of Health, Ministry of Social Development and ACC workers.
You suspect he has cherry picked those departments because they have the most low paid workers. Most teachers for example probably are already over $18.50 an hour.
So if that cost is the bulk of the cost; then triple it to cater for the $18.50; and you get to $200 million. Get a quarter of that back in taxes; back down to $150 million. Most of these people are probably in WFF, and have accommodation and other supplements in which case actually you would get nearly all it back, but allow say half, and you are at $75 million. Allow the boost to the economy, including extra taxes and GST, and you may well win. Trickle up can work; trickle down clearly does not.
Much much closer to Cunliffe's figure than Key's $2.5 billion. Both incompetence in not looking at the whole economy on the Nats part; and deliberate mistelling of the truth (which has another name that you are not allowed to use in Parliament, so I won't here.)
They didnt win...
Labour LOST with a significant majority because Labour went to the Pools on a higher minimum wage and enough voters realised just how bad that would be for NZ businesses and act as a barrier to employers hiring more people.
Nats just got the protest vote.
So we move the wages from $13.50 to $18.40, what do you think the person currently on $18.40 would expect? $23.30 would be my guess. And the $23 an hour job's new rate will be?
Inflation will be instant and of a scale not seen for a long time, jobs will go, specifically those on the lower end of the scale. Unemployment will go up. The increase in wages will not buy more goods, we just end up paying more for everything we buy. Rent, rates, mortgages.
At the moment there is a lot of taxpayer support for those families below this level, we all pay for this. This tax payer support would be needed less for the time being, saving the government money on the one hand but spending it with the other. But it shifts the real burden to business. This will mean that they will look at increasing productivity, also called: more machinery. Do more with less people and get more ready made componentry from overseas.
We can all lament this "bad" business behaviour but the alternative for this business is to go broke and then the whole lot is on the dole.
I fully agree that the current minimum wage is not enough to live on, hence taxpayer support. But we need to think through what will happen to the jobs of those currently on that minimum wage if we raise it before the market can stand it. And it is not that the job is gone as such, the change is in the geographical location of the job and that is not in NZ.
Why did the previous Labour government not fix it, they had 9 years time? More sense perhaps then the current crop. That is right, they were the government, now they want to get back in.
Lets not forget that as soon as the minimum goes up to the current calculated "living wage" the new living wage will be in the vicinity of $22 within a matter of months.
Actually they'll just waste it on prices rises from rent, power, government compliance and taxes, and pass-on costs from businesses such as warehouses, supermarkets, distributors who all have to pay their staff more.
Inefficiency of collection, and the weighting of wage bill:sale prices, will result in higher consumer prices than the will receive in payment.
At a guess, the long term effect of raising the minimum wage on other wages is less of a spread. Assuming a fixed set of income, the pressures are for much less of a spread between lowest and highest. But then, arguably, the highest are at the moment being indirectly subsidised by government support of the lowest.
The higher wagews occur because of demand. The higher wages paid are for price setters.
Thus they have the leverage to push their value higher, as proved by the fact they were already above minimum wage.
Alternative is to end up with a price ceiling, wage spread shrinks, no money to do anything. Businesses hit the wall like they were in the late 70's and early 80's when that same thing happened last time.
Higher wages do occur because of demand, and the reasons for that leverage can range from being very expert at what you do to capturing the wage setting processs so it does not reflect the value of your contributions.
I don't actually remember the 1970's as being a particularly horrible time, but your experience might have differed.
In reality from all the countries in the world, we know a range of spreads of income are possible and society will work. These range from big differences (China, U.S.A., South Africa), Medium differences (N.Z., India, Egypt), Low differences (Australia, Canada), and Very Low (Scandinavian countries). You can't say "it won't work" because clearly other countries function, you need to say "this is the range I am comfortable in").
But all of that is really an aside from the basic premise: At the moment the government is indirectly subsidising higher paying jobs by directly subsidising lower paying jobs by letting the jobs be viable when the employer pays less than the amount it takes to feed and house the person doing the work.
A true statement JT. However folk with the personality type, discipline and networking abilities to do really well in sales will either be already earning well above the minimum wage, or have a realistic, achievable, time framed plan to do so.
Enterprises that implement a policy of guiding all employees onto a true living wage will prosper from the policy. "Firms of Endearment: How World Class Companies Profit By Passion and Purpose" is an excellent read on the subject.
Now that Key's made it clear that the existence of a viable pool of customers with the disposable income to buy stuff is dependent on the ongoing existence of massive taxpapayer subsidies through WFF and accommodation supplements, can we look forward to the business community and affiliates quitting their endless whingeing about their taxes paying for socialist voter bribes? Pay your workers a decent wage, or shut up and accept that you're being propped up by the taxpayer. Can't have it both ways.
Any local employer who supports a living wage gets my custom, and I will gladly pay more for quality.
I just find it utterly incredible that anyone, leave alone a prime minister, would actually rubbish the idea that working for a living should not see a person receive a living wage. I find it incredible that society accepts welfare for employers, disguised as welfare for the worker not receiving a decent wage. I find it incredible that people who scoff at the idea of living wages on the same hand bemoan that these welfare payments have to be made. Some of them will be people paying minimum wages to people themselves and relying on the top up so their poorly paid people can survive. There is probably an argument for people starting out on lower wages but how anyone can think that a woman looking after vulnerable elderly people can still be barely off minimum wage after many years is beyond me. There is no justification for that, no justification for zero respect for her loyalty and experience.
I am disgusted with NZ
It turns out that this so called "living wage " is actually some arbitrary number equal to 88% of the NZ Household median income .
In other words a living wage if you are feeding clothing , educating and supporting a family with kids , etc , etc .
It cannot apply to the schoolboy flipping burgers on weekends ,
AND thats why we have Working for families and the wage subsidy , so that those with no skills and kids to feed dont live in abject poverty
That's actually wrong. It is not an arbitrary number equal to 88% of the median wage. If you read the research it is the amount that a two parent, two children household with one parent working full time and one parent working halftime would need to be able to pay their own way without being subsidised by the government. Research is here:
http://www.livingwagenz.org.nz/files/embargo%20file/Living%20Wage%20Investigation%20Report.pdf
(Come on people , it is not hard to google this stuff to look at the original research)
It so happens that increasing the minimum wage to around 10% more than Australia's (before other government adjustments) would happen to be 88% of the current NZ median wage.
Your main objection seems to be that young single people have more disposable income than families with children.
The usual justification for this behaviour raegun is that that's the market. Read a article yesterday on the fact that dairy farmers in south land in particular cant get workers. Well surely that means that need to pay more to "meet the market", but no, their reaction is to import more cheap workers. Seems the supply and demand theory only works one way.
Yeah, just like the vintners, sitting around their estates, $1,000 jumper draped over their shoulders, $1,000 sunnies propped on their $300 hairdo, and $1,000,000s worth of cars in the 5-bay garage, and a helicopter in the hangar, whinging because everyone is too "lazy" and "greedy" to get melanoma out amongst the vines for $8 p/h under the table, zero benefits of any kind.
The dairy farmers hire only compliant types, like Philipino people with questionable immigration status, willing to work for next to nothing, no benefits, in slumlord "houses" for which they pay the farmer rent (out of their pay) andpower, phone, etc. Better not be 30 seconds late to hose out the shed at 4 AM or you're a goner. Better not forget to nail the local National Party candidate's election hoarding to the fence come election time, or you're a goner. Better not ask for a half-day to take the sick kid to the doctor or you're a goner. Better not even *look* like the type who might say hello to a Labour Department inspector or ECAN/Council person, or you're a goner. And if you even mention the word "Union" you'll be...... well, best not discuss that.
What would the vintners and farmers do without their slave labour army? How would they be able to jet off on those bi-annual "fact finding" junkets to Tuscany and Alaska?
I have a vineyard which I do most of the work on myself. I pay workers over $18 an hour and have to run a pretty tight ship or the costs swamp me. This year I got some friends and family to help me prune as it was just unafordable to get contractors in. Took me a while to get back into it.
There are a lot of people around me who are struggling and it is tempting to just say, 'I'll give you 7k to prune my grapes', take your time just be done by the end of August. I know they would jump at it and work all weekends for about $6 an hour but its still 7k more than they would have without it, wife hubby and children could all get stuck in. Is that wrong?
The guys you are talking about must be the ones that don't pay me on time.
.. [they could] work all weekends for about $6 an hour but its still 7k more than they would have without it, wife hubby and children could all get stuck in. Is that wrong?
Why would they jump at it? Are the parents struggling to make ends meet at the moment? Are they unemployed or underemployed? Are the children not involved in weekend sport or other leisure activities? Do the children not have any homework or school projects to do? Do they not have friends to catch up with on the weekends? Do these people not have family or friends who might have a project on during the weekends for which they might like to lend a hand to as an act of love and/or generousity?
When I was a kid under 16 years of age (the minimum working age at the time) I had chores to do around the house (which were unpaid - in other words, there was no such thing as pocket money in our family - we made the bed every day because it was a minimum expectation - and we did the vacuuming so that our mother didn't have to).
But my mother (I was raised by a solo parent) never expected me to contribute toward household income - even if that income was going to be used for a nice-to-have, such as a family vacation. I was expected however to be charitable - I recall for example being drafted to tutor children from my school who were struggling with their English and maths homework - but there was never any discussion of being paid for it. I found those subjects easy, so the expectation was that I could give up a few hours of play either after school or on the weekends to help out "those less fortunate" (as my mother used to say). I got thanked by the kids and their parents and felt quite proud for being asked to help. And it was particularly rewarding when my teachers told me they thought I was making a real difference to one of my classmates.
The working age was 16 years and one could apply for an exemption (say for a paper route from I believe 12 years of age or at 15 for a job in retail) but such exemptions to work/earn were only granted to those students who had a certain grade point average. So society valued educational achievement first, ability to earn second.
My mother (a nurse) used to do what was called private duty nursing (in home patient care) on the weekends at times - but the hourly pay was at the same rate she got during the week in her normal job.
I just think its sad if people/families these days are keen to take on weekend work at less than the realistic value of their labour. And I assume it is work they are unlikely properly experienced/trained for. And it's even sadder if they would be keen to draft in their children as well.
Times sure have changed.
Kate, a lot of people are struggling around us. Working harder but getting less.
Some jobs you can make fun, we always did jobs on the farm when I was young and never expected to get paid, some of the work was exhausting for a youngster.
There are a lot of seasonal workers who could get the family into the vineyard, together they would be making $30 an hour or more and 7k off the mortgage is always a good feeling. As it stands I do the work but I feel a bit guilty that Im not giving someone a leg up.
When I used to get the Indians in, it was always a family affair and always on contract.
The biggest problem I have in California is the dispossessed. I cannot believe the numbers living in the parks or under bridges, drugs everywhere. Its just isnt what a modern economy should look like. Especially when you defence budget is huge and so many others game the system.
For the person/children concerned selling their labour for $6 an hour is not a leg up - it's a leg down - it is the "working harder but getting less" scenario you are trying to help out with.. And the question is how far down can we go whilst still thinking that morally we are offering someone a "leg up"? Would $3K be reasonable? If not, why is $7K if that is not the going rate for such contracted work?
If you have $7K that you can afford - what is wrong with offering these struggling folk the work at the hourly rate you would normally pay a contractor (that to me is a leg up and doesn't demean the value of their labour) and then finish the balance of the pruning yourself.
This is in my opinion the right thing to do.
There's no money in grapes, I keep the vineyard going by doing a lot of the work myself. I dont have a problem with a family doing the work for a reasonable price. Money is money after all, it just that vineyards cannot afford the cost structure of NZ.
I used to get $2500 a tonne you start paying me $1200 and I don't have much room to move, I have considered pulling them out. Im looking around here for a new water pump, wow, are they cheaper in the States.
There is no way locals could keep up with the sikhs, those guys go, locals would be going at half the speed. I always pay well and wish I could pay more.
Anyway, do you know how much the Mexicans get screwed to prune over here?
Before I came back I tried to get someone to share farm with me, I even offered to help finance the stock, with no luck. The sort of opportunity I would have killed for when I was young. I had people offer biut i really wanted to help a young farmer. The young man I most wanted to help, had just left for Aussie.
Sure do understand the illegal worker trade in America - why do you think there are so many born and bred Americans living in tents and collecting food stamps- because their labour was displaced by illegal workers on a massive scale. And what I found really amazing when I went back to the US and came to understand the problem was that the children of the illegal workers were attending schools in these illegal neighbourhoods - (i.e. illegal worker 'camps') which I assume were in part funded by the government? Although not sure of that as my mother was volunteering her time as a school nurse and teachers aide at one. All I could think was the US was turning into the Columbia I had visited as a youngster - extreme wealth and extreme poverty.
Alot of these children then went on to register and be accepted at publicly funded secondary school - all the while being in no man's land in terms of citizenship. The government put the brakes on that state subsidy when the children got to university age. Not sure what has happened more recently on that front.
It doesn't make sense to me why you used to get $2500 a tonne - I assume it is because of the guy/gal who decided to package wine in a plastic bladder and stick it inside a cardboard box - it was the sign of the end of it being a premium product. Supermarket fodder. And this is the problem with the present globalization/corporatization of the grocery trade - they unreasonably squeeze grower margins. Banana republics didn't become such because we were receiving a fair price for their produce.
AJ - repackage the labour content as a gym membership......call it the Hawkesbay grind and snip winter package......get a little loud music.......and......to the left and snip......to the right and snip......up and snip......down and snip.......to the left snip snip.......to the right snip snip......and up snip snip.......down snip snip......feet on the march everyone and left and left......face the bush......and up snip snip etc.
If they get a little weary......slow meditation......you know the listen to the birds....feel the breeze upon your face....focus now.....breath in and arm to the left...snip..slowly to the right....snip....gentle bend of the knees.....and half downward dog and...snip..snip......;-0)
Mr notaneconmist, that is pure genius.
Bottle it, package it, put a label on it, and sell your idea around the streets of the North Shore.
That's an absolute winner of an idea. And no, i'm not being sarcastic.
Those stupid turnips up there will pay a mil + 5 for a dung heap villa. I mean WTF,you cannot lose. It would be like taking candy from a baby.
Malarkey - there is no doubt that there is the odd bad employer running around but they are in every industry not just dairy farming so I think it is dangerous territory to pigeon hole everyone.
Good employees can be badly treated just as good employers can be badly treated.
All the legislation and policy that we have has been unable to change the issues which have have plagued society for a very long time.
Employment is a two way street, one can't operate without the other. A business needing employees can't function without them and the employee wouldn't have the opportunity of work if the employer were not to take the risk of business.
The minimum requirements are outlined via the Dept of Labour and there is also scope when agreeing to the contract. I would also point out that there are obligations that an employer has in regards to IRD requirements of how to treat certain payments made to an employee.
I would suggest that employees who are subjected to poor employer practices are part of the problem if they don't do anything about that problem. If someone has broken the law while employing someone then why hasn't that employee taken the employer down the appropriate tracks. If an employee remains ignorant then who's problem is that? If the employee lets an employer away with bad practices - then who's problem is that?
Redcow - the supply and demand theory would appear distorted as you say but it is imperative to acknowledge that the agricultural industry is a price taker not a price setter which means farmers have to budget to different/tighter methodologies than price setter business type models which have more market place flexibiity in the pricing of goods and services.
Supply and demand also applies across similar job types that require similar skills of attitude, physical activity, amplitude, observation, organisation etc.
Sure its a price taker, one has to wonder how long such prices will stay at un-economic levels before enough ppl drop out ie go bankrupt to switch that around.
As an aside I know ppl in the Awatere valley and surrounds that got into grapes when $1600+ was being seen. Last time I heard it was $400, too many jumped in thinking they could make a very good living, that sure seems to have turned sour...
regards
So in Key's example of the poor schumck who cleans his office, wouldn't the pay rise to $18.40 be offset by a reduction in WFF and the other means tested wage subsidies? Looks a bit like his rubber number on the convention centre, pitched as 800 jobs but turned out to be 340 FTE jobs, which turned out to be 18 FTE jobs when you subtract the jobs lost in the wider Auckland economy. But hey, 800 jobs is a great headline. Just like $2.5 billion is. Look over there.
And it could always be offset by a reduction in pay to all Parliamentarians and civil servants on wages greater than say, $100K pa. After all, why should John Key's wife not need to go out to work given he expects every other NZ family to drop the kids into day care or after school care to make ends meet.
I asked Key if this meant the government was effectively subsidising companies paying low wages.
"Yes they are a government funded subsidy for lower wages. I accept that fully. But if we don't do that, then essentially what would happen, some of those jobs would disappear and some of those companies would disappear and would force outsourcing to certain areas."
What a bunch of unsubstantiated twaddle - how do you outsource a restaurant, dairy farm, cleaning company, retirement home?
government out of business, business out of government
Pareto's Principle and the preference for some-one else to tell them what to do
Once upon a time .. a school teacher told us this story .. 80% of the people are like sheep, preferring a paddock with a fence around it so they know what they can, and cannot do. What the rules are. They dislike freedom. They need someone to set the rules. The other 20% cannot stand confinement. They need open space, the freedom to move, the freedom to think, and the freedom to act. They are decision makers. Remove the fence from around the 80% and they become lost. Place a fence around the 20% and they become lost
There is certainly something in that but it is much more complex. It is more to do with where people fit into the structure of a group, or where they find fulfilment. Pick any club and you will see it, sports or some charitable outfit like Lions. There is your committee headed by a chairman for those that like to feel important and express their leadership and those that are happy to warm a seat at the bar. Maori do the same with in connection with the tribe and land. But then you will always have your introverts and independents of various persuasion, which is a camp I am firmly in. Neither is good or bad, just the difference that makes society interesting. Going through the 16 MBTI types is a great insight, or even just the four temperaments. Look into Maslow for another angle on it.
My interest as a designer is to understand and cater to all types.
Scarfie - I think it is dangerous to pigeon hole people. It indicates that they have no ability to change themselves and worse some of these people will then want to change the world as it suit them personally. They make generalised promises that they are gong to help the Nation out when in fact they are only helping themselves out. Too many self-indulgent/absorbed people running around with the "what can I get for free (unearned income) types", but not sure you have discovered this fact as yet.
Haha nice little insult on the end there NAE. Sorry mate but I am light years ahead of you on that one and can even isolate the types/attributes that make for those most guilty of unearned income. The danger is quite definitely in ignoring personality types as it is a very useful tool to predict behaviour. Yes people can be trained, or train themselves, to act differently but they will always return to their natural inclination when given the chance or under stress.
The comment you make, that I quite agree with, about people implying they will help but do the opposite, underlying that is the desire to tell other people what to do. What makes a person want to get into politics/leadership? What is going on in their head when they presume it is okay to take responsibility for others? Why is it that they think they are best placed to look after the interests of others? Worst offenders will be the *ST* types, or choleric temperament. Worse if they are Judging. When you hear the attitude that "I worked hard and made it for myself so everyone else can do so" then most likely it is someone from that camp. Extend that attitude further and you get the personality underlying your comment.
Scarfie - no insult was actually ever intended. I was referring to how people manipulate/participate for gain. There is a clear lack of discussion on the effects of the manipulation/participation events and the effects in both short, medium and long term. While we all post comments on this site none of us are actually being effective. Eveyone wants a better, brighter more prosperous NZ but then many posters get involved in left and right of politics firing bullets in all directions at opposing opinions and evidence. Not very constructive is it?
If I read your reply correctly....your first sentence accuses me of an insult, then an apology although it has disguise attached, then you place yourself in a superior position of being light years ahead........is this constructive and does it relate to the topic? Hardly!
The problems are endemic and probably beyond the ability to change, largely due to the personalities involved. Talking doesn't achieve much either as you also get them working in here as trolls, I mean look at Boatman in the last few days! However it doesn't mean you do nothing. Think global but act local is the saying, and I do :-)
Minimum wages needs to go up living wage .As Taypayer we are indirectly contributing towards working for families ,housing supplement and lot more things just because small business can have cheap labour .If people dont have money to spend is not good economies as standard of living comes down .Worst scenerio a cafe business or take away store or Mcdonalds or Kfc have to front up better wages they employee because there is a need for the business to get more money in so what if their profits come down a little will they stop employing people ?.If John key is so right about its going to effect 26000 jobs i want to ask him are this people getting any working for families or housing supplement or any other benefit who pays for that ?Tax payer not the employer just because he can have cheap labour.
I come from the perspective of..."the purchasing power of money".
The decline of our standard of living is mirrored by the ascension of the financial sector of the economy.. .... Michael Hudson labelled it the FIRE sector.
This sector is pervasive and has lead to the Capitalization of almost everything... ( to the point of councils revaluing the land under the roads )
The fuel for the growth of this FIRE sector of the economy is Money supply growth.... ( the growth in credit creation )...
Growth in money supply results in a decline in purchasing power of each dollar....
BUT.... the decline in purchasing power does not effect everyone equally..... the effects manifest more as a transfer of wealth.... ( some get richer others poorer.. eg home owners vs renters )
Needless to say ...the biggest losers are the average workers.
Our Monetary systems are F***ed up.... and we now have the FIRE sector as a parasite on the productive sector.... and we are in the terrible position that if we want GDP growth , we can only get it thru credit growth... ie. borrow money. ( If NZ has 2-3% GDP growth u can be sure we will have 6-8% money supply growth )
Until we sort this shit out.... we take on more debt.... our economy gets less robust.... our standard of living declines.... FIRE sector gets bigger
Employers aren't evil... as Andrewj says.... many employers are victims of rising costs... just like your average worker..... forcing them to pay more is not a long term solution.
The idea of a living wage is great.... but as things stand... it is not really a solution....just as working for Families is not really a solution.
Real innovation and productivity gains should be appropriated by everyone as a "higher standard of living ".... rather than these gains being, largely, appropriated by the FIRE sector thru money supply growth... eg. the paying of interest , increasing asset values.. financialization of productive sector...
In a world where Money supply was almost a constant these gains would manifest as cheaper prices..... A benign deflation.... a better standard of living ...but at the cost of alower rate of economic growth ( this would be the trade off ) ... In this world most investment would be "productive" investment.... a house would be just a house..( a place to live )
Just my view...
Agree. There's far more getting paid to the Financiers than the Farm Workers. For example; as farm prices rise - the debt rises - the farmer is forced to squeeze his work force. There's about $4,000,000,000 a year getting paid in interest on agricultural bank debt (equal to the wages of 100,000 $40,000 a year workers) The parasitic finance and Government sectors are sucking the guts out of the country.
I was speaking to a local orchardist the other day, asked why they were employing 3rd world and packpacker labour. They said that the locals were work shy layabouts etc. The pay? $13.50/hr about $5 less than a living wage, and it's irregular with seasonal and weather stops often cutting the hours back a lot.
There's something seriously wrong here when a hard working adult doing a demanding and often dangerous job is only getting 2/3rds of what it costs to live. John Key needs to get out and see what's really going on, is this the sort of country he wants?
Yes and they try and avoid paying their tax obligations whenever they can get away with it.
I doubt that the IRD would refrain from throwing the book at tax dodgers with less power and influence in the country and extracting as much penalties as they can. But not the banks.
Bit of a circular argument there Boatman. Some of the ever rising money directed to the NZ finance sector does (reluctantly) come back as taxes but our overseas financiers don't pay NZ tax.
The point I was making is that the high finance costs act like a tax on Kiwi workers so that they are in no position to pay their share of taxes and, worse, are now state beneficieries (WFF & Accom Supliment) to cover basic living costs. It's absurd. They are being undermined by delberate government policies - immigration on one hand and an endless welfare gravy train on the other.
@Kiwidave , I think you have your wires crossed about overseas financiers not paying tax on their NZ Interest Income .
Their NZ earned interest is taxed at source as a Non -resident withholding tax and deducted at the highest rate possible .
DOUBLE TAX AGREEMENTS
They can get tax relief in their own country only if Aunty Helen Clarke signed a bilateral or joint tax agrrement with the corresponding country, sometimes referred to as a Double Tax Agreement
Thanks Zz, I was really on about foreign sourced bank credit, the interest income of which carries no NZ tax whatsoever since the NZ banks source it as interbank lending or bonds. I don't know about overseas based mum and dad depositors but I believe our banks source about 70% of their funds from overseas so there is a massive drain of wealth right there. Money never to be seen again and, really, straight out of the pocket of ordinary Kiwis.
Current account deficits of 5% (and rising to 7%) signal plenty of trouble ahead. Rupees anyone?
I can definitely corraborate what the orchardist says about the level of pay in the orchards, because I've had a lot of experience over the past several years doing seasonal work in the Bay of Plenty and the Tasman region. In fact orchardists often pay is even less than the minimum wage. Pay is often on contract and the rates are based on an assumption of a certain level productivity per hour which often isn't achievable especially at the beginning of the picking season. I was told straight up that my picking crew were to either accept the contract rates which amounted to $8 dollars an hour or be fired. We had to therefore work extra hours for free just to make the equivalent to the minimum 8 hour daily wage.
That scenario happens up and down the country. I do have sympathy with the orchardists who are squeezed by banks on one side and international fruit distributers. Its a shitty situaton and I don't see it changing anytime soon now that fruit is now yet another commodity product grown in countries elsewhere with lower price structures.
Here is an example of the absurdity of it all....
Our Reserve bank has an "inflation Target"... which is the CPI..
As long as the CPI is within a certain "band"... we can grow the money supply as much as we like.. ( M3 has grown as much as 15% in a yr )
We import many goods from emerging economies and since the early 1990s the price of many imported goods have resulted in cheaper prices in NZ.. eg... clothing, footwear, electronics.
This has had a deflationary effect on the CPI which has allowed for excessive money supply growth...
Because we have an "open" economy ...local producers have had to compete with producers in these emerging economies...
As a consequence we have what has been called.." wage rate" arbitrage... where emerging economy wage rates have had a deflationary effect on our wage rates .
http://en.wikipedia.org/wiki/Global_labor_arbitrage
( it is kind of perverse that we impose all sorts of environmental and health and saftey cost on our producers...but then expect them to compete with producers that have none)
So... not only do we have this "labour rate" arbitrage going on ...we also have the effects of the declining purchasing power of a dollar ( because of excessive money supply growth ).
This can be seen , somewhat, by looking at non tradable inflation.... building cost inflation...asset price inflation....etc...
In summary... I'm saying that if we want to address the issue of a certain.."standard of living"... then we need to revisit our ideas on Global Trade/ free trade and the way we manage our Monetary system.
I know of a boat builder that closed down several yrs ago and gave his intellectual property to a Chinese company.... Now his imports those boats and is the cheapest in town... Do u think his local NZ competitors, who employ Nzers, are managing to compete with that...??????
Simply imposing a living wage rate does not address any of the underling causes...
Imagine the cost of the Christchurch rebuild if wages go up 40% as Labour proposes ?
We would not be able to afford to rebuild it .
John Key is our best hope , at least he honest when he says .
YOU CANNOT LEGISLATE YOUR WAY TO PROPERITY .
Labour think we are all illiterate and financially dumb when they promise such nonsense .
My late Dad worked as a warehouseman , and even he would have known that a massive wage increase would come with a scorpions tail .
Our Generation has moved from Postwar socialist thinking , we are better educated and we know that redistribution is just as it says , taking from one and giving to someone else .
An increase of 40% on a business or farm's wage bill either will be devastating for the business, or for the worker who will be unemployed , and ultimately the economy
To start with Chch, the proposal is a minimum wage, right now skilled, self-employed builders will I suspect be on over $30 if not $35 an hour...maybe more. Since there is a shortage of labour, well supply and demand, they will be asking the top dollar.
I dont know where you got what you know from, but your belief you describe above is not from education in the broad sense, political mantra or maybe, one particualr school of economics maybe. Illiterate and finacially dumb, well you put the above words up....I'll draw my conclusions from this and what you have posted earlier in regards to your education and political blinkers.
"Legislate your way to prosperity"...actually with the right legislation, yes you quite probably can.
regards
@ Steven , I see you are getting personal , its one way to lose an argument .
Youngsters have to start somewhere , my first monthly paypacket over 34 years ago was $83.62 ( That was for the month ) .
I was a teenager and owned a Raleigh bicycle, none of my peers had a car , not one of them.
I went to nightschool at the Polytech to get ahead ,
I was 22 before I got a car ( a 30 year old Fiat) and was in nealry 30 when I bought our first property .
WRT to Chch , of course builders with skills earn double the minimum wage , but not the loaders , packers , and those doing purely manual work
Neither can you borrow your way to it whilst expecting higher dividends from said businesses;
http://fmacskasy.wordpress.com/2013/06/14/solid-energy-a-solid-drama-of-facts-fibs-and-fall-guys-2/
Get real Boatman, Key's economic management will go down in history as potentially worse than Muldoon's - at least Think Big left us with some assets! Key on the other hand tried to grow some, failed, and is now trying to hock off Muldoon's.
He's the Black Adder of NZ politics.
You can love the comedy (as I do too) but you can't deny what the basic premise of the character of Blackadder is:
each Blackadder remains a cynical, cowardly opportunist, maintaining and increasing his own status and fortunes, regardless of his surroundings.
Sounds like JK to me.
Steven is Baldrick, Gerry the turnip and Bill, the devoted Percy.
Oh and Judith .. Queenie without a doubt.
Nothing slow about the mediterraneans
Hundreds of thousands of them migrated to Australia in the 1950's and 1960's
Many of them developed what is known as Greek Back
Ending up on disability pensions for life
As soon as they reached retirement age and the pension locked in
They Turkey'ed off back to Greece
Where they immediately got the Greek Pension - in addition to the OZ pension
Very clever people.
I worked with one guy - his father had greek back - didnt work
They owned a 50 acre orchard out in the country
On the weekends the whole family went out there and worked like the proverbials
Monday - back to the wheelchair for 5 days
Degree does matter of course but does that negate the principle?
Or are we saying 'moderation in all things' and trusting we will know when to stop what is, generally, an unhealthy thing?
Or maybe what we do now is in fact moderation already?
Or can something be had for no cost, or managable cost?
Or does the moral cost justify any wider consequences regardless?
No Ralph it does negate the principal....and yes we must give thought to the burden of a debt not being placed (in some cases) on a world not yet born.
Globaly that burden is weighing heavy on future Generations, but as much for reason of population Boom mid century as exorbitant pension provision.
Consequences should be addressed by all who participate in the windfall or losses...as and when they are both ,unintended and detrimental to the wider population need for a dignified standard of living.
The what ,Ralph is the unsustainable component the who, is reflected back through a reduction in living standard based as viewed by cross levels of society.
The administration of the day surely has no problem responding to a statistically supported reflection....?
with respect as always Ralph....your opinions , I find thoughtful and bereft of selfishness. Cheers.
The "living wage" that some guy made up is 88% of the median house hold income. Why on earth does a school leaver with no skills entering a minimum wage job need to earn 88% of the median household income from the get go? Pretty risky to take on unskilled, unkown staff at 88% of the medium household income.
@PROFILE ... Thank you for the insight as to where this so-called living wage comes from.
How can a school leaver with no skills possibly expect to earn 88% of the Median Household wage ?
What would they do with so much money ?
The money would be frittered away or spent on boozy weekends and Boy racer cars
What would they do with so much money ?
Well start paying off the student loan for a start.... unless you think they're not on minnium wage as well..?
They are told post grad or part way there they have no experience is the given reason.
Sure there will always be boy racers, boozers, druggies, dim people, lazy people, social lepers, to people who just smell bad....they have equal opportunity to put their monet to work for them or further their education .
Incidentally .....Boatman ...what was your student loan 34 years ago...? did you start working life in debt...? or were you just collectivising with a one size fits all....?
Boatman - humour me - who is Rev Charles Waldegrave other than someone who jumped another lefty bandwagon and came up with a number? The figure of $18.40 at double the US minimum hourly rate seems a tad unrealistic. All it will do is shut out new, unskilled entrants to the work force.
Key told his weekly post-cabinet news conference that implementing a 'Living Wage' could cost between NZ$2.5 billion to NZ$4 billion and as many as 26,000 jobs.
So essentially everybody loses their job at a cost of 2.5 to 4 billion........there's running off at the mouth , then there is that pile of twaddle.....
The statement fron Key was little more than a veiled threat...as in, you just try it matey...and the Corporate "we" will send em to the dole queues.
The fifty Million dollar Man ( no insider trading incl.).... seems to have a real grasp on just how minnium wage earners will aspire to his dizzy heights , when they have little or no time for anything but servicing their debt in arrears.
I'd have a great deal more respect for him if he didn't choose to insult people's intelligence, ..................... just call them peons...... peasants ,and be done with it.
Stop knocking John Key , he has done an excellent job so far .
Have you all forgotten that his mother was an Austrian Jewish refugee , and that he grew up in a State house. ?
That he rose to be on the rich list and is now our PM is quite an acheivement for someone with such humble beginnings .
He is living proof that if you get off your backside and go for it in life you need not be on the minimum wage at all.
Therein lies the stupidity and hypocracy of the right wing position. You believe in opportunity for everybody on one hand but on the other take it away and destroy the will to work. You can't have both. The position is pretty much summed up by those who think that "everybody should be like me". Usually associated with "I am so good", but also appropriately labelled FIGJAM.
Stop knocking John Key , he has done an excellent job so far .
No! I wont... no he hasn't
Have you all forgotten that his mother was an Austrian Jewish refugee , and that he grew up in a State house. ?
No I have not...that does in no way make his rise to riches somehow sacrosanct...! what exactly is it you admire...his money..?
That he rose to be on the rich list and is now our PM is quite an acheivement for someone with such humble beginnings .
Now your sounding just flat out Servile...in a sycophantic way...it's sickly.
He is living proof that if you get off your backside and go for it in life you need not be on the minimum wage at all.
Now that is just .......bullshit...! there are tens of thousands of honest hard working people who will never be Prime Minister...for lack of cronies as much as anything else.
Give it rest Boatboy....but I'd say what ever floats you boat good luck with that..!
P.S. are you Bill English...?
well I started off plucking the neighbours dead sheep and picking up afterbirth at well below the minimum wage and worked my way up from there. Can't have seen me getting a foot in the dead wool door at 88% of the household income of the time.
PS liked your snow definitions the other day. Gold.
Hoooo Boy
When this came up last week was sorely tested to revisit earlier broadsides about the "brotherhood" and their chosen people .. it is too transparent that key was singled out very early on and groomed to climb the ladder of the "brotherhood" .. look carefully at his resume .. the stepping stones .. accidental? .. chance? .. doubt it .. one day a price will be paid .. if it hasnt begun already
Have you ever considered his unequalled skill at being in posssession of movements in the markets was the result of the helping hand of the "brotherhood's" grapevine?
Right, he said {sound effect of cracking knuckles}. I've looked up some numbers, and for all the "when I was young" posters, the minimum wage in 1969 (so shortly after decimal currency to make the maths easy) for adult males in full time work was $42. Doing a CPI based conversion to 2013 dollars this is around $659. This is an hourly rate of around $17.57. The living wage proposal that labour is backing is within 5% (18.40/17.57) of what you grew up with.
Except for the whole government, and by extension the taxpayer, subsidising the profits of those running minimum wage industries. It depends what you are comfortable fronting up with taxes for.
We know NZ had a minimum wage in this ballpark 35 years ago, and the country didn't fall into chaos. Moreover people objecting to the idea upthread have been mentioning this period as a good one that made them what they are today (I exaggerate slightly, there).
So John Key has worked out, to the nearest Mil, what it would cost to pay a living wage to the people?
What about the cost of not paying it?
Excellent article on the debilitating consequences to the economy of low wages reinforced by low wage immigration. Productivity growth collapses and a race to the bottom sets in. Not good.
"On the whole, business leaders tend to support an open door immigration policy, which helps address skills shortages in key industries. But, more particularly, it also puts downward pressure on wage costs. The effect is similar to having permanently high levels of unemployment, since it creates an inexhaustible supply of cheap labour.
This may or may not be good for corporate profits but it is certainly not good either for productivity or for living standards among low and middle income earners. By making labour cheap, it removes a powerful incentive to productivity gain.
To see why this is the case, look at what’s happened since the crisis began six years ago. During this period, more than 1m private sector jobs have been created, a remarkable achievement given the collapse in output. This has helped keep unemployment much lower than it would otherwise be, which is plainly to be applauded, but it has come at the expense of real incomes.
Much of the job creation has been in low-income or part-time employment. Real incomes have experienced their worst squeeze since the 1920s. Yet this is not just a recent phenomenon. The squeeze on real incomes, particularly at the lower end of the scale, pre-dates the crisis.
Foreign competition, both in the form of immigration and imported goods and services, has been a big constraint on wage growth. This, in turn, has limited the incentive for efficiency gain. Cheap labour has become a substitute for investment in plant, machinery, training and research and development."
Please show me these impoverished starving huddled masses that supposedly exist right in our midst.
Just how many people are
- On the minimum wage ?
- Families who have two incomes on the minimum wage ?
For example a joint family income with 2 minimum wages ( $70k) , taxed at the lowest rate , plus WFF , plus Income supplement , plus free education , plus free healthcare , plus Community Services card , probably equals close to what a family with $100k lives off .
They dont even have to worry about saving for retirement like the Aussies do .
I think you will be surprised as to how many famlies with two minimum wage salaries are quite well off .
Funny how in your example you use as your minimum wage $16.80. Alot closer to the living wage that you moan about than the current actual minimum wage of $13.75
Two people on minimum wage is $58K (per the example in the article). I'm sure if these people actually had the extra $12K you have attributed to them in you example they would be greatful.
I also note that the 16.80 you have implied as the minimum wage is alot closer to the $17.50 that was previously calculated as the 1969 minimum extrapolated to 2013.
Seems based on your calculation that you agree the figure should be around $17 per hour rather than the paltry $13.75.
I guess its difficult to see the impoverished starving masses when you have your eyes closed
Good God, can't have the people earning enough to actually live on!
The welfare supplements are an admission that wages for a huge number of Kiwi famillies are inadequate and there must be many in this position since the median individual income (including Government transfers) is only marginally more than the minimum wage for a forty hour week. So 50% of us earn the equivilent of the minimum wage OR LESS. That does include retirees and part time workers etc. but 1/2 the adult population on under $30k would indicate there are a huge number of working poor.
And whats up with KGB and his crew wanting to keep Broadband prices high plus a $1.2 billion subsidy to Chorus. Or Rio Tintos hand out so we don't get cheap power.
"Instead he (Key) set in train Adam's intervention to hold copper broadband prices artificially high. Commentators were flabbergasted. TUANZ's Paul Brislen: "The only reason that the Minister has directed the ministry to come up with these prices is because Chorus's share price will be affected. That's it."
Labour's Communications and IT spokesperson Clare Curran: "Chorus continues to pull off its sleight of hand after posting a $171 million profit today while asking for $100 million a year in corporate welfare from the National Government."
InternetNZ: "Attempting to give the illusion of competition while effectively cross-subsidising fibre from copper is a recipe for disaster that will only benefit Chorus shareholders at the expense of copper customers."
http://www.nzherald.co.nz/technology/news/article.cfm?c_id=5&objectid=11118623
One aspect that all these bright common taters seem to be missing is the structural nature of a lot of low-to-minimum wage employment.
- Digging holes, turns into mini-excavators and horizontal drilling.
- Running cash registers turns into self-service at supermarkets and petrol stations and of course online sales.
- Stacking pallets with FMCG turns into 24x7 robots with rilly strong arms
- Amusing oldish folk in their sunset years turns into (Japan, anyone?) robots.
- Keying payables invoices from the paper in the mail, into your ERP turns into an XML transform and an auto-entry in that ERP.
- Mailing bits of paper around to get paid and send money turns into....I think yez may be a-gettin' my drift here.
Point is, that we actually need a Lot less of the grunt jobs. For the time being, they have transmogrified into 'service' jobs, but there's a natural upper limit to the numbers of photographers, barista, aromatherapists, manicurists and chefettes, that an economy actually needs. If a neutron bomb went off in a mall or three, the real economy would scarely notice.
After all, the loss of an entire CBD in Christchurch (date, lookit the date, guys) had precisely this effect. No-one starved. No-one ran outta dino juice or water. No-one ....
So it may be more useful to think Interesting thoughts like GM did with the Supersize Kahuna, than recycling these tired old arguments aboot the Dignity of Lowly Labour and the Rights of the Sorely Oppressed.
Just sayin'.....
Yes, GM's Kahuna was an interesting exercise, getting down to the questions of how you balance the needs of a society with the needs of an ecomony. However, none of the major parties are looking at going down such a radical route as GM, so we are left discussing what they are proposing to do, and the effects that might have or had in the past, or the effects of maintaining the status quo.
Waymad....
Once upon a time there was a Wise Maori Leader called jhane Sones... He had a practical understanding of economics and wanted to use his Knowledeg to benefit Maori...
With the fisheries that Maori owned he decided that , rather than simply leasing quota to the Japanese... he would try an experiment.
In Northland he gave quota to local Maori families, ... enough to create small , sustainable businesses. ( he provided low interest loans as well)
He gave seed money to create a med size boat building business... to build commercial fishing boats for these family businesses.... This boat building business became a great conduit for local Maori youth to be employed and learn skills...
He then decided to develop 2 or 3 fish processing businesses... to process fish for local consumption..... and provide employment.
he came up with a business/economic/social "code of conduct" for these businesses... A Moral code that gave these businesses greater goals than just the maximisation of profits.
Fish was sold to the consumer at a very reasonable price....and only the excess was exported for a maximum return.
he kind of knew that this would work , .... as the people he knew had a real affinity with the sea, and a sense of social community.
What he did not quite forsee was that this new "velocity of Money" in the local Northland economy would actually have a vibrant flow on effect into many other small businesses... Towns started to prosper.
He realized the "economy of scale"...can be just a hypnotizing Mantra and that in the longer term small and local can be far more successful
He realized that economics can be a really "Dumb" science..... and that vibrant communities with people earning good incomes and young people learning a "craft" and earning money was far...far... more important than maximising short term profits. ( the irony is that in the long term ... his way was economically more profitable)..
He developed a branch of economics that identified with Maori World view of Land and Sea, and community...
the end.. ( there u go... my first work of fiction )
How about putting that very good story together, or matching it, with a comparitive story. One where the quota owning compnay owns the fish factory and the vessels and employs everyone on minimum wage, or brings in cheap imported labour. Because of their dominance the company also owns all the rental properties which it rents out to the workers at exorbitant rates..... you can see where that goes. Then ask which would be the better community to live in?
Fair enough but I guess that is how and why we raise productivity and it's been going on for millenia.
We would be building roads and harvesting crops with an army of 20c/hour labourers (as they do in India) if that was the going rate so I guess folk just make up bullshit jobs and carry on as you say. Scary stuff when TSHTF though, a lot of these city types are as dependant as babies.
An interesting issue is also just how high the effective tax rate is on additional income earned given the claw back of WFF and accomodation supplement.
If you look at the spreadsheets attached to the living wage document, if I currently earn $40,000 and then take on additional work that earns $10,000 the effective tax rate on the additional $10,000 is 66%
If you earn an extra $20,000 the effective tax rate is 60% on the extra.
I wonder how much an impact these high rates have on disincentivising employers and employees to pay / earn more given such a small proportion of the increase goes into the hands of the employee.
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