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Mieke Welvaert shows that families who receive social assistance get little from a rise in the minimum wage, would probably lose jobs, and get pushed further towards the bottom

Mieke Welvaert shows that families who receive social assistance get little from a rise in the minimum wage, would probably lose jobs, and get pushed further towards the bottom
Rises in pay for welfare dependent earners accentuates their poverty trap problems because of how benefit abatement works.

By Mieke Welvaert*

In the July quarter, the New Zealand unemployment rate fell to 5.6% – its lowest seasonally adjusted rate since March 2009.

With the election just around the corner, this statistic could be seen as a boon for the incumbent National party, and a sign that they have steered us into more fortunate economic times.

However, the flipside of having a lower unemployment rate, is that people may start to wonder whether we’re actually getting paid enough – hence the minimum wage debate.

Before we start, I will not deny that inequality and poverty are significant issues for New Zealand, but I will argue that if people were having an increasingly hard time finding jobs, campaigns for a higher minimum wage would more likely be replaced by campaigns for employment opportunities.

Furthermore, a higher minimum wage may not be as equalising or poverty alleviating as it outwardly seems.

This I will explain later in the piece.

Economic theory suggests that raising the minimum wage will lead to higher unemployment. This is because, in order for a minimum wage to work, it has to be set higher than the market wage.

Theoretically, this manipulates some firms into employing less workers than they would at the market wage rate and forces workers to compete for a smaller pool of jobs, even though they would accept a lower-than-minimum wage in exchange for employment.

The resulting unemployment and more expensive labour is part of the reason why countries such as Singapore have chosen not to have a minimum wage.

What is interesting about Singapore is that country doesn’t have an unemployment benefit either.

In a free labour market system, theory suggests that those who do not work, do not want to work at the current wage rate.  Similar to Linda Evangelista in the 90s, people will only get out of bed if the wage rate is high enough.

As a result, unemployment – the idea that people are willing to work, but are unable to find work at the wage rates on offer – supposedly doesn’t exist long-term in the free market system.

By having a minimum wage in New Zealand, we as a society are saying that the free market doesn’t come up with a fair wage when left to its own devices.

Instead we choose to put a lower limit on labour market prices and to offer compensation to those that are unemployed as a result of our policy (the unemployment benefit). 

Research from the United States and the United Kingdom almost overwhelmingly suggests that a lift in the minimum wage has very little effect on employment.

The United States Congressional Budget Office estimates that a 39% increase in the federal minimum wage (a number of states have their own, higher minimum wage rates) will result in a 0.3% percent reduction in employment. This seems small but, before we get too carried away with making numbers sound incredibly insignificant, note that 0.3% of employment in the US amounts to about half a million people.

In New Zealand a 0.3% drop in employment would see 6,900 people lose their jobs.

At present, proposals for a minimum wage hike do not go quite as far as the United States’ almost 40% increase. The Labour party’s proposal for a $16 adult minimum wage would be a 12% increase, while the $18.80 ‘living wage’ would be a 31% lift from today’s minimum. These proposals will definitely have less of an effect on employment than a 40% wage hike, but will still result in a few thousand people becoming unemployed. 

Having said this, perhaps now is a convenient time to lift minimum wages.

If we think about the jobs that often lie at the minimum wage rate – services jobs such as hospitality, retail, and care workers –there’s an extent to how much any company can downsize.

To get the same quality and quantity of work done with less human capital is limited.

At a time when business is gradually picking up, employers are even less likely to downsize and are also more willing to pay higher wages in order to have access to labour.

However, raising the minimum wage has more outcomes than higher wages and a drop in employment.

It is important to consider how those who receive minimum wages and who will benefit from the increase.

Information on who gets what wage is not publically available for privacy reasons but, a report by Treasury evaluates the effect of raising the minimum wage to an $18.40 ‘living wage’[1] for different groups in the economy.

This report shows that about two thirds of households earning between $14.25 and 18.40 per hour are those without dependants, and generally don’t receive much in the way of welfare payments.

It is this group that will gain the most from the living wage. 

Groups that receive social assistance, particularly families, will only see a small lift in their take-home incomes under the living wage.

Even though wages have increased, reduced welfare payments will offset most of the change in take home pay.

In the graph below, the whole bar represents the increase in weekly income as a result of an $18.40 minimum wage.  The red bar is how much of this increase ends up with the government, the blue bar is what ends up in the household’s pocket.

Such a policy funds the government first, singles without dependants second, and families last.

Even if we adjusted benefit abatements for higher low level wages, which would reduce the red bars down to just taxes, families are still at the bottom of the pile. This is because the blue bars are still smaller for those with dependents than they are for singles, making them ‘less equal’ than others.

Furthermore, as everyone else’s wages and ability to buy goods increase, prices will rise.

With the smaller increase in incomes to support them, families with dependants would be less able to afford these goods at these higher prices.

Instead of being equalising, a lift in the minimum wage will stratify low income earners, pushing those most in need further towards the bottom.

Both inequality and poverty are significant issues in New Zealand, but simply raising the minimum wage, is not necessarily going to help solve these problems.


[1] The ‘living wage’ was revised upwards to $18.80 in February 2014.


Mieke Welvaert is a data analyst at Infometrics. You can contact her here »

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So if you found yourself on minimum wage, would you still argue against increases?

So if you found yourself unskilled for the job market and unemployed would you argue for a higher mininum wage? Surely it is a basic human right to negotiate your rate of pay - and future opportunities - not some politician?

I know if I find myself in that situation my chances of getting some sort of income is higher if my prospective employer doesn't have to justify $14+ per hr

So in summary. Increasing the minimum wage decreases the indirect subsidy to employers.

And improves the governments books.

An increase in the minimum wage from 13.75 to $15 would also result in approximately 25c in tax. 
With parents earning more and effectively paying more tax far outweighs earning less and receiving higher WFF. 
The minimum wage debate is about self worth, although I would be careful to raise it for all in sundry.
As with any employment you will occasionally have those that are unreliable and a burden for the employer (financially and mentally!)
I personally don't believe a wage rise to $15 or even $16 will cause a rise in unemployment, given our growth in the economy and low inflation.

"The minimum wage debate is about self worth"

I shake my head....

Increase minimum wage ... and ... you're still on minimum wage!!   (and likely now are so all those people that managed to get 10, 20 , 50c hr increases...)

What growth in economy? we haven't got growth yet, just push through effects from fuel and electricity increases.    Although yeah you're NZ we're not allowed to let staff go just because their wage is too high, so unemployment will come when the costs can't be passed on, and companies will retrench people or go under.

Well keep shaking it and you might eventually see some sense in how it will improve the livelihood of some minimum wage earners. 
ps: I suggest you vote Green/labour if you want those electricity prices to come down ;-) 

why? do you think if I shake it enough I'll start getting confused and suffer brain damage.

 raise minimum wage, and minimum wage people will still be on minimum wage - the prices will just be even higher .  they won't feel better (a) because they can't afford as much as they could with lower pay, and (b) they'll pay more tax, and (c) they'll still be on minimum wage.

Voting Green/Labour will put electricity prices up, not down.
They might take actions to push the prices down, but the changes and extra costs will have to come from somewhere, so the prices will have to be put up to pay for the meddling.
If they want the price to go down, then how do they tell the private sector they're dropping returns and investments?  If that dents the value of the equity then the borrowing will be more expensive.  If they have to buy private shareholders that will take money.  Power delivery is now a double (triple?)headed beast - production, sales, delivery.  to drop prices, it needs to reduce all three.   This was told to the "experts" and government repeatedly over the reformation of the power supply market - government knew better, this will keep the prices down they said....

Problem is that the market approach assumes that persons have perfect knowledge and that there is free movement of labour and all other things being equal, unfortunately at the low end none of these things exist.
People just want to work to provide the necessities in life and are not skilled, hence there is a need for a minimum wage.
Raisng the minimum wage needs to address relativities, i.e. if I supervise someone on the current minimum wage and I earn $16.00 then if the minimum wage goes up to $16 then should not my wages go up?
Agree that govt should stop subsidizing work. but will removing the work subsidy divert the money saved to pay for unemployment benefit? If so then is it not better to subsidise work than have no work? 

Except "have no work" is a political position from the right that may well not be true, just like the "trickel down theory" has proved to be hogwash.
A more supportable theory is until a household/individual has disposable income (and hence can save/invest) any extra money will be immediately spent into the economy.  This extra spending creates demand which in turn encourages employers to take on labour to meet it.
What is strange however is the right dont seem to consider such a proposition is possible they after all being employers who produce a good. I mean they do actually make some good dont they? and not "invest their money in hedge funds which seem parasitic in nature.

where will this extra spending be made to?

taxes for a good chunk of it.
payment of interest, now the OCR has lifted.
maybe a bit more rent because OCR and rates increases are being passed on.

Maybe you'll have enough left over for a burger if you save for a fortnight.

To start with your "Economic theory" might suggest that, but there are other economic theories and indeed some evidence that raising the minimum wage means these  workers can spend more, creating demand and hence jobs.
So the Q is what is the NET effect.
Now the data/evidence  on this seems a bit thin yet, but certainly there is even less on it costing NET jobs, so spare me the politcal rhetoric. However I'd be all ears for some real solid evidence, I'll change my stance if the facts change, how about you?

Yes, of course if poor people have more money they will be able to, and probably will, spend more.  That is not the point of contention.  The point of contention is whether raising the statutory minimum wage will actually result in poor people having more money and, more subtly, whether it is the most effective way of ensuring that they have more money.
You've mentioned an engineering background a couple of times and that probably explains why you seem to think that these things can be proven by reference to fundamental and immutable laws and incontestable, peer-reviewed empirical evidence.  
But we are here dealing with people and I do not think there is a single instance where it can be clearly shown, to the kind of standard of proof (for example) that an engineer would expect  when deciding whether to build a bridge to a particular design, that if the government does x, then businesses will respond by doing a, employees will respond by doing b, savers will do c, borrowers will do d, the unemployed will do e and the overall result will be f. 
(You might want to think about whether you'd really want to live in an environment where the government could be quite certain of knowing exactly what everybody would do in response to any given government action).  
There are many, many factors which influence the choices and decisions that people and firms make in response to any given action by government or any other external stimulus.  So the best you can hope for is to say that this or that government action will create an incentive for people to act in a certain way, but that incentive may or may not be sufficient, given individual circumstances and all the other factors that influence their decision making, to ensure that any given individual actually does act in that certain way. 

You seem to be twisting words, going out of context. This seems to be a growing habit of yours, desperation as the right's arguments collapse under the weight of contary evidence built up over the last 20~30 years maybe?
In terms of "immutable laws" I believe it is actually the right's position that raising the min wage costs jobs, without proof, just like the farcical trickle down "theory".  On the other hand I point out I have read some research suggesting there is some proof the opposite MAY be the case or it could well be neutral.  In either of the last 2 cases society can justifyably consider choosing to raise the minimum wage is the best course.
In no way did I state "immutable laws" in this case.

The contention that raising the minimum wage costs jobs is not "without proof".  It's without the kind of "proof" that you seem to be demanding, but what I am trying to point out is that (a) so is your contention and (b) that kind of proof is anyway impossible in a social/political context.  
I've previously directed you to an academic paper in which the authors looked at a large number of studies of the impact of an increased minimum wage on employment and found that there were many cases where the studies showed a negative impact on employment, and a few cases where they did not.   
Yes, this does indeed show that there is "some proof that [raising the minimum wage MAY create jobs] or it could well be neutral".  But it also shows that there is also "some" - actually, more - proof that it MAY cost jobs.  And the evidence is nowhere near demonstrating that raising the minimum wage is "the best course" to reducing poverty.

Well I did a study, of countries with high and low minimum wages, found no correlation with unemployment.  If there is any impact on unemployment it must be very transitory, overall  though, my study concluded that countries with a higher minimum wage have better public toilets, and can more easily afford an iPhone.  Which sounds awesome! 
As to poverty, it's a totally relative term, with constantly shifting goalposts.  If you want to reduce poverty, thats easy.  Set a maximum wage!  Of course this solution is never discussed in polite company.
As Kunst said (when he was still kicking around here) a maximum wage would make a minimum wage unnesscary.  Which is actually close to what has happened in a few scandinavian countries.

how did you segregate the different industries, so you weren't averaging dissimilar data (eg where some people got let go and had to find less suitable work elsewhere)

I never claimed to segregate industries.  Not sure how that is helpful when the purpose was to discover if there was a relationship between minimum wages and unemployment.

because not all unemployment is equal.  nor is all employment.

you need to get deeper into the shape of your data.   Also you should also be looking at the differece between the median minimum wage (per month), and the median average wage (by area, by month).   Having a some small businesses collapse and all those staff end up doing casual or shift work at your local fast food place for 15c over minimum wage, because they couldn't keep the productivity up and prices low isn't good, even if the unemployment looks better.  

or worse if they're hired onto some government incentive/training system or because of governmental policy change, then it's just going to be added cost, and the jobs that are countering the unemployment aren't related to minimum wage debate (ie the lost jobs were real... but someone has stepped in to cover it up/repeair the damage that resulted)


"people" are not an unpredictable or special case, and they follow rules just as any other liquid.

If it appears that it is unpredictable then you are simply (a) applying the wrong model, and (b) probably not understanding the actual causal relationship (instead pickup on some correlated aspect of the behaviour that falls to desire rather than development).

An engineering comparison mentioned recently would be that of Bulldozer(etc) experts being surprised that engine wear corresponds to fuel usage.  Yet any expert with years of operations experience knows this already - as heavy loads or racing the engine consumes more fuel.  A worn engine consumes more fuel.  idling the engine at the correct speed for best tension uses some but only a little fuel.  Why is this obvious? Internal combustion engines are metal boxes full of explosions, so it's an energy thing.  the more engergy used the faster the wear will occur.

Likewise with people.  All you have to do is the proper data-mining and analysis to make sure the populations is correctly identified in the first instance, and then the chaotic effects will reduce out as population increases.   the mistake most people make is by not understanding the driving forces beneath the data model in the first place. and in people that's often simply because most people won't ask the hard truths (because they'd rather have a convenient lie any day)

I think the reference to Linda E is out of context here when discussing increasing wages by say $40/day (ie $5/hr). Some models get paid obsene amouunts of money - that is just not relevant in a discussion on minimum wage.
Some rebalancing of other policies, eg WFF, may be necessary if minimum wage was increased and families were identifed as being the targets of this improvement to our society.

We all go on and on about the minimum wage , and its doppleganger , poverty .
 I would like to know .

  • How many Kiwis earn the minimum wage per hour ?
  • What is their % of the toal workforce and % of Population ?
  • What % finished school with a school leavers certificate  ?
  • Have those on the minimum wage per hour had any from of post-school training in usable or saleable skills ?
  • What is their plan to upskill themselves and get a better paying job ?
  • What work do they do for this wage rate and what are the career prospects ?
  • What is the age demographic ?
  • What % is in a relationship thus resulting in 2 incomes ?
  • How many support a family or a child or contribute as co-breadwinner ?
  • How many receive the income supplement ?
  • How many have a history of extreme poor money management such as failing to pay debts and borrowing from loan sharks and money lenders  ?

I could not live off the minimum wage , but if my wife and I both earned the minimum wage togther , we would be reasonably well off .

A major factor on living on minimum wage is whether or not you're paying rent.  If you own your own place then minimum wage is ok.  If not, then you're trapped in a hand-to-mouth existance, and probably unable to pay the Student Union fees, let alone your own course costs (gee...I wonder where that particular example came from...)

The things I want to know are:
Which industries are paying minimum wage and why?
Is their labour value add, or just service work?
Why then is the minimum wage the correct rate? (eg commodities are low margin, hospitality is diversified my sale price so low end operations willl only have small funds to pay).
what is the nature of the job? (high risk? low skill? financial/equipment supplied?)

And most importantly, where is the money coming from to (a) build the business, and (b) to set prices for the business.    (better a poor income on a job you have  than big income on a job you can't get)

Here is minimum wage by country
My question is that whether minimum wage should be connected to a country's GDP per cap level, and why NZ offers a higher level of minimum wage than some advanced economies when NZ GDP per cap is clearly a lot lower than those countries.

NZ has a lower inequality than many others eg USA that is a choice society makes.  So no.

If reducing income inequality is one of goals for introducing minimum wage, why do Scandinavian countries that do not have a minimum wage have lower levels of inequality than NZ does?

They have much higher taxes which means they can redistribute income to where it is needed.  

needed?  why not earnt...
why do they need a totalitarian State to say who deserves what, and what if they're wrong (ie hard working people get little, while the popular and showest/loudest people get the biggest gifts.)  Remembering of course, that it is considered  culturally evil to complain about things being bad in many Scandanavian countries.  (the have a term for it but it escapes me at the moment)

Well I suppose if you dont want to look.  It might depend on the country,  a) Sweden has some sort of collective contract, hence the same thing I assume. They also have a high un-emplyment payout I believe, maybe if they are not forced to take low paying jobs as they have a decent fallback, hence the employers have to pay more?  dunno I know little on Sweden. b) Norway, well it is a petro currency and redistributes that income around?
It seems some research is being done on the min wage v inequality and shock hoor like the trickle down theory has been shown to be bunkum so maybe is the assumption that having a high min wage costs jobs.

Norways petro value goes to government and corporation rather than the people.  The people dont' have much, but they don't have many costs either and it's not acceptable to question, as it makes one sound like one things one "should get more" which is up there with clubing seals and pedophila

NZ is a perfect example of how the trickle down theory works , the people at the bottom get a trickle , those at the top get a decent shower .
At least everyone gets something

You do understand that the stuff that is trickling down is yellow, don't you?

It seems our commentators here have missed another real effect of raising the minimum wage: people may simply work less hours...
And one moral dilemma hasn't been discussed (but was raised in the article): is it right to prevent a person from working for less than the minimum wage? Let's assume there is a job paying $12.50/hr, why is a person not allowed to take that job?

You can take the job, and the employer has to pay the minimum wage.  The employee will get the money at some stage, all he has to do is ask.  If the employer refuses, it can be settled in mediation or failing that court.

If you pay less than the minimum wage to an employee then you will be taken to the Employment Courts. You will be found guilty. You will be force to pay backpay, use of money, and anything else the judge thinks is fair.
 DO NOT under any circumstances try to hire under the minimum wage.  Even (especially) if the employee agrees to it, they (and the MBIE) can come back at you any time in the future for their "losses", because you can't contract out of your legal obligations.  Trying to contract out of your legal obligations is a very unfavourable character reveal in any court case and will seriously harm your defense, and may earn you extra penalties, even jail time!

Morally speaking the person isn't allowed to take the job because it creates unfair downward wage competition.  So others employers can then coipy and compete with each other, if none offer good wage, then desparate people have to take whats on offer.   Of course, this proves a problem when Fonterra has just ripped out 30% of mark-up, if an employer with a fixed revenue price tries to pay the ever increasing going rate they will eventually go bust, but that's all right because then a corporation can snatch up their land really cheap and make them work on it for minimum wage, because being a wage slave is good.   The Romans call this system "latinfundia", with the slave rate being minimum wage rather than board and feed.

Yes it is right, its the law.

laws change.

Raising the minimum wage to the living wage will do a number of things, amongst others,
- increase tax, good for balancing the books, but some (or all) of this is needed for government employee's pay increase
- decrease family benefit payments in the short term, good for balancing the books
- likely to mean nothing to very little in real terms to those that currently get family benefit, as per above
- it will raise the living wage to $22 within a year, we keep chasing the tail
Puts the burden directly onto the employer which will mean
- the machine that can replace 20 people and last year looked marginally, or not at all, attractive in a financial sense is now a winner
- the employer's client who compares locally made versus made overseas has now been given an extra reason to look at it again and if it is so will change supply country
- the employer's plant in Australia (or wherever)  is now starting to look attractive again to make product for NZ, making people here redundant
- it will raise the total wage bill by at least 25% due to the flow on effect and possibly the full 32%, the person on $18.50 will now want $23, and why not
I agree that the argument about selfworth is a valid one but in my opinion it is better for someone to be employed and get a supplementary benefit then to not be employed and live on the dole. If you are employed you can work your way up, a luxury an unemployed person does not have.
No matter where we start in life, a degree or no degree, we all start at the bottom of the wage ladder for our chosen profession. And from there it is hard work to get ahead. In my experience 40 hours does not cut it.
More people unemployed does mean less tax coming in but more going out in benefits, this leads to borrowing (from China, who cares but many don't like that, tennants in our own country and all that) or reducing benefits to balance the books.
Soon it is time to decide people. One or the other. 
Pick the wrong one and it will set this country back for years. 

personally the major danger from increasing such things (minimum wage, benefits, government employees, infrastructure projects) is that it always results in flow on costs that push up prices.   It's the higher prices which are killing us.    Even now it's much cheaper to important many items from most of the way around the globe than it is to try and source them (let alone produce them) in NZ and that should be a serious warning sign that something is going wrong.   (and if it looks like we need to legislate to fix it/equalise it then it's definitely going wrong)

Jake sums it up well.
The politics of envy and the lack of personal responsibilty will set this country back years..

Economic Theory is divorced from the real world.  In the real world there is zero correlation between minimum wage and unemployment. 
Countries with the highest minimum wage v unemployment

  • Australia 6.4%
  • Luxembourg 7.3%
  • Monaco 2%
  • France 10.1%
  • Belgium 8.5
  • New Zealand 5.6%

Top 6 countries ranked by minimum wage.
Some places with a minimum wage below $1

  • Mexico 4.8%
  • Afghanastan 8.6%
  • Lebanon 8.9%
  • Indonesia 5.7%
  • Pakistan 6.3%

So the real world destroys this economic theory of minimum wages.  All it takes is 5 minutes on the web to understand this.  Yet our leading minds in economics have this 'theory'.
I'd rather live in a country where a decent standard of living is achievable by all, which seems to be the main impact of a higher minimum wage.  But people would rather vote us into poverty (not that voting achieves anything) and abolish the minimum wage because they have not bothered to think, and have been led astray by all the various economic theories out there. 

In the _REAL_ real world, I have not taken on staff, and had to cut hours/staff because minimum wage was too high.  I know several other business who have done similar.

And recent example of the type of rubbish statistic used to "prove" minimum wage didn't cost jobs used information collected from the fast food industry.  Yet I noticed that no-one on this site bothered to ask the important questions:  What is the wage characteristics of the fastfood market they surveyed.  Was it large congolermate or small businesses, what percentage of the staff were on mimum wage, what is the ratio of mimum wage bill to total wages in budget,  could/would the costs be passed on,  and also important things like how is this industry (convenience food) affected by a rise in low-end wage earners (eg are low earners a significant portion of the customer base?)

From that example we can see that using the fast food industry with it's mega-corps, it's super paid CEO's and well salaried middle management,  with minimum wage earners being only a tiny percentage of the overall wage bill, and that it's an industry which has plenty of "slush" spending for promitons/sponsorship and other non-essentials, they're also very dominant in the market, and being a luxury item (instead of commodity) easily pass on costs (opposition will lift prices rather than compete on price for market share).   And the large number of people getting slightly higher minimum wage stil;l won't have enough to make investments or large changes to their lives, and poor people tend to spend a higher portion of their budget on food.  So the increase won't get them out of renting, won't pay of the credit card or the car...but you might be able to grab a cheap conveinence meal.

The "real" world that does well out of minimum wage rises are the big corporations.  So if you love having a boss, and your kids slaving away at someone elses whims, and having your future controlled (and destroyed) by the mistakes of a management team which have no idea about real reality... then push for the increase.

there are those who work with tools (we call them "users")
there are those who work with people (we called them the PHB's and god help use if they touch anything)
there are the money men (well you've seen the CEO, the less they have to do with anything the better)
And so in that list where are those who analyse and design??

Right, we are supposed to believe it's the minimum wage's fault. While you have been cutting back your workforce, the rest of the country has been hiring, and the economy grew at 4% last year.  Maybe you should talk to a business mentor :)

That's like saying there has been a good crop of oranges this year, the harvest was up 4% but not recognising that the inputs had increased due to the inflation pressures of Government/bureaucratic costs.  And the next season that follows you find you have to cut the tree out because it's got a disease. You can't replace the tree because you spent all your money on  further increased costs because someone decided you needed too!!!
Are you in business skudiv ????
And everyone working in the Orange grove lost their job and the Grove gets sold to a Foreign investor but there are no oranges for food cos the foreign investor exported all he/she grew and employed contract overseas labour.

No I think you have that confused.  The average company has increased it's number of employees, if that is your goal, yet you are unable to, and cutting back on staff hours because of minimum wage, you should get some advice.  Blaming it on a minimum wage is just a cop-out.  With 2 staff how much has that cost?  No doubt there are a combination of factors involved and identifying those should be a priority, hence my advice - talk to a mentor.  And yes I have been self employed with a few staff for the past five years.
As to your last paragraph FYI overseas labour costs exactly the same as NZ labour when employed in NZ.  That is the law.  It's a bit of a stretch to pin that on the minimum wage as well.

Which average company?  Most I know of have cut staff numbers or have policies to grandfrather off existing staff.

And yes I've talked to a mentor and they were like "how are you pulling this off, it shouldn't be possible".  And then they refused to have anythign to do with the company because it would make them look bad.  (I refused to take on an equity partner and let them, put in 900k)

If unemployment has fallen it's a reasonable assumption that more people have been hired then fired.
Without knowing any details other then what you have said, it appears to me that there are bigger issues at work then the minimum wage.  Unless of course you have an unusually high proportion of your costs as minimum wage labour.  Especially considering the kind of money you are talking about.  Hopefully things work out for you.

That is not an accurate statement (if unemployment has fallen...).
It entirely depends on what qualifying criteria is used for unemployment.

A common trick is to move many people to jobs scheme or non-unemployment benefits and thus they don't count as unemployed.  This also means no students of any kind (full-time, part-time or on retraining) are included in the "unemployed" figure.  It also doesn't include people on stand-down periods, redundancy or who don't register as unemployed (eg housekeeping people, casual labour)

The moral question is that by raising minimum wage, if unemployment occurs (and it does, because cheap labour is now outpriced its convenience/service value) will the transferable skills and other re-hiring factors be more favourable to people?  In some industries, one area (expert but underpaid commodity production) might become entirely unfeasible - Are those people better off slaving for others at a higher rate?  Or more interestingly enough, if the commodity production is so unrewarding, where is the rest of the cheese going?  are processors and logistics and retail operations soaking up more than their fair share of the consumers buying power?   eg on $6/kgMS, a fonterra dairy farmer will receive 60c per litre - yet a block of butter in a supermarket is over $4 (of which 15% of the 500g block is water) so of that $4 block of butter a farmer will see less than 25c, out of which all farm, labour, environment and finance costs must come.   
 Keeping in mind recently here on we had a "retail" interest (well we're all really in retail at the end of the day, aren't we)... but he was claiming easy pay rates of over $20 or $30 per hr!      well... I suppose he must be getting more than 25c out of $4 sale.

The high proportion of my costs are fixed and externals.
that leaves little left for wages, and the expertise (and food related) risk is very demanding, and honestly I'd happily see the whole industry collapse under it's own poor cost management, if only there was something in NZ to replace it...but since we have little income, and high interest and high taxation/cost of infrastructure, it's very hard for the width and depth of capital for such growth.  Growth pretty much being a dirty word for most of NZ.  the biggest boom sector I know of is the Earthquake refurbishments, which is robbing peter (consumers) to pay paul (building/engineering).

So it's unreasonable to assume that if unemployment has fallen there has been more hiring then firing? 
Yes in the dairy industry costs have increased faster then revenues, and I suspect tough times are ahead.  It's a catch 22 because a lot of dairy farms have invested a lot in infrastructure that makes these costs necessary to pay for the infrastructure and there is no real way to return to a low cost system.  Although interest is the biggest cost for a lot of dairy farms, and those costs would far outstrip any increase in minimum wage.  Still it is early in the season, and anything could happen.

yes it is unreasonable

the low cost system is been pushed out by demands for ever increasing "quality" that isn't been matched by our sales peoples' ability to recover the costs (despite their wages not dropping)

Interest is often a very large cost. GST is much larger.  15% creamed right off the top.

The difficulty arises because wages and retained earnings are the last thing to come out of the wallet, and by then usually the cupboard is bare  (until the mortgage is paid off, then the landlording at 2-4% cuts in - which is why many at the top aren't actually farmers, farmers are too busy working to sit on boards

Shudiv - where is your evidence that the average company has increased its employees??
You appear to have made this assumption on the grounds more people have been hired than fired!!  Perhaps you also need to consider new business venttures like the building industry in particular and you must also consider the public servant type roles including Councils. So it is an unreasonable assumption that companies are all doing well and if companies had of been doing really well then the GST and tax take would be up which it is not!!
Maybe Fonterra's announcements for pay-outs has not got your attention!!!  The whole of the dairy industry is going to be severely affected and business who gets a down spin will also suffer from this news.  Are you suggesting that all dairy farmers and Fonterra should get a business mentor????

As I said, a reasonable assumption, you can call it unreasonable if you like, hardly matters. 
I am aware of the reduction in the fonterra payout, I would have said $6 would have been a reasonable sort of figure to budget for, as well as a worst case scenario of $5 something.  I think severly affected, and 'the whole dairy industry' is a tad overdramatic, but I'm not trying to convince you of that.  The weak hands may get shaken out, happens pretty often in NZ Ag, whats the point in recording history when noone ever learns from it? 

Because the costs that are really kicking are external.  Yes those that go all out for high input and go bust like many others have cast their fate, unfortunately.

But no point budgetting for $5 payout as that's well below cost.   Would any other company or business deliberate sell ALL it's goods for an entire year below cost??
 In cases like that heads need to roll and the price setting departments of the marketing company until at least $6 breakeven is paid.

Although to be fair, the only reason for a $6 payout is likely to pacify shareholders with dividends after last years high milk payout.  (dividends come from other parts of the company operation, which have to buy their milk at the market equivalernt price (which is why they can "guarantee" a certain sale price to a small selection of suppliers)

Overseas labour is meant to be the same I agree......but it doesn't always happen and employees are flown in and gone again in a rotation!  You fail to recognise that people have to complain to the labour dept for any action to take place!!
If you think that putting up the minimum wage is going to close the equality gap then you are dreaming. All as you are doing is placing more people into the lower income bracket and making them more reiant on other handouts.......and anyone in business with a half a brain would be able to do the maths required to work that one out.

Your analysis is divorced from the real world and has zero correlation to a raise in the minimum wage.
A 'descent' standard of living may only be achieved, by increasing our productivity and decreasing our reliance on government.

Right, ok so what evidence do you have?  Got some countries with low minimum wages and low reliance on government which have a decent standard of living to prove your point?  You sound convinced, but you don't convince me.

People don't get the opportunity of low reliance on Government when Governments have a high reliance on people!! You have heard of the Bribe-O-Meter?  You know the give us your vote and we'll take some money off someone else and give it to you.......

Well then you have narrowed your options to non democratic countries, but still lack evidence to back the claim.  Put up, or shut up.

Skudiv.....your first sentence is bollocks and you know it......non democratic countires are even more reliant on their populace than so-called democratic countries!
........the second sentence is emotional, and shows no information that I can help you with and that emotion is not my problem to fix.

Lots of talk, still an unsubstantiated claim.  Rather then attacking me, try backing up the ideas with some basic facts and evidence.

Firstly Skud you are doing the attacking and not putting up any facts or figures which prove that people will be better off.......and maybe you should think of how unconstitutional some of our laws are......what ever happened to the 1688 Bill of Rights obligations that all things must be passed in Parliament? But Section 5 of the Minimum Wage Act grants freedoms to the labour convenient and how unconstitional it that. Hardly democracy at play is it? Perpahs your view of democracy is that dangling carrots at the vulnerable to obtain a vote to get elected so that anything can be achieved is the problem!
If you raise the minimum wage the biggest benefactor of that raise will be the Government in the tax please do your figures and I also posted on this in previous discussions on,nz.
Then there is the inflationary component that will arise from raising the minimum wage. Nice for Governments to have inflation as it moves them away from the debts they created but not so good for those who already suffering the affects of low wages.
As I have said before if business was already doing so wonderfully well then there would be an increase in the tax take but this has not happened as yet......why are you ignoring this point?
You cannot look at wages in isolation when there are many factors that influence the bigger picture. So why pick on one like higher wages as solving the problems when there are other systemic issues at play?
As unemployment levels decline (which they have been) then wages go up naturally it is simple supply and demand at play......if you really want people to be better off then
You also have to consider the global scene here as everything is integrated and has cause and affect......NZ business is not isolated from the currency markets, international low wage economies etc. Globalisation means an holistic approach is extremely important. You cannot look at one industry/business/country that might be doing well and then have a one glove fits all as you're forgetting that there are vast quantities of gloves and it appears you are willing to sacrfice many of the gloves for your beliefs. Have you thought about where that leaves the people you want to help....I think not!
NZ has some 230,000 people who have been identified within the parameters of NZ's poverty levels......funny they all mainly got there when we have minimum wages and enormous State assistance packages......if minimum wages were going to solve the problems then technically this should not just how much more fact and evidence do you require?

The original journalist actually put up this artical with a) no proof b) claiming it was economic theory as if there was no other.
There is however some suggestion in research that raising the minimum wage may actually be positive or at worst neutral.
"means an holistic approach is extremely important"
I prefer the word strategic.
and you have one?
no, you do not, or if you do its utterly crippled by your political blinkers.

Steven there is an enormous difference between holistic and strategic!!!
It would be strategic for Politcians who are wanting to get into power to strategise that is why they offering the increase in minimum wage. There strategy is purely vote buying.
An holistic approach requires one to understand that all parts are interconnected and if you move one part it will affect another part. Throughout history this has been understood and that is why we have constitutions, bills of rights, universal declaration of human rights etc. These documents set the platform for the people, they were given to us by those who understood that there will always be those who want to use pretentious strategies to undermine others.

Here is some comment/evidence,
"two different approaches are taken – one based on changes in the relative employment rates of young adults, and the other on differences in employment changes across industries. Both approaches produce a range of results. The conclusions regarding the negative effects of minimum wage increases on employment are strikingly non-robust."
Now while I'd take this main site with a pinch of salt, the links to research papers seem to support the view,
There are also some papers discusing the effects across state borders.
Then this,
"The easiest way to illustrate this point is simply to look at how unemployment rates have responded to past minimum-wage increases. To do so, we analyzed more than two decades’ worth of minimum-wage increases in U.S. states; we found no clear evidence that the minimum-wage increases affect aggregate job creation when unemployment rates are high.
Our analysis included every state that saw its effective minimum wage increase between 1987 and 2012 when the state’s unemployment rate was at or above 7 percent. In 48 of the 92 times this occurred, the unemployment rate actually decreased over the next 12 months, and in 4 other cases, the unemployment rate remained unchanged.* In contrast, there were only 40 instances when the unemployment rate increased. That means when a minimum-wage increase occurred during a period of high unemployment, unemployment rates actually declined 52 percent of the time.'
So really put up some evidence its detrimental.

You can't use badly assembled data to prove your point.

The negative effects of minimum wages are well known, well analysed, and fundamentally sound.  They also have real world hard evidence of the activity happening.

So what you need to asking is why don't these studies show what is happening.
OK so _aggregate_ unemployment went down.  Where and why?

Was there an actual direct link from the minimum wage and what was it?

Did lots of people lose their jobs and end up working at fastfood stores and other low value fill ins?  Because that isn't good.
Did other measure get put in place to alleviate the unemplyment caused by the minimum wage damage?  
Why are they quoting unemployment rate, rather than increase in income taxes - because if things have improved then the income tax must increase by more than the ratio of minimum wage increase to total wage

Uh no, this is simply not the case.  The so called negative effects seem to be at best wishful thinking on the part of the far right.  In the more moderate world the case for a higher minimum wage is not yet clear cut either way, but its erring on a small positive, or neutral.
NZ would actually be a good place for a test as there are seem to be less side issues/effects eg cross stae border effects etc.

The so called positive effects seem to be at best wishful thinking on the part of the far left.  In the more moderate world the case against a higher minimum wage is not yet clear cut but is erring on a small positive, or neutral.   There you go - fixed that for you.
How is it "wishful thinking on the part of the far right" to state that if the price of something that is non-essential, or easily substitutable, increases, fewer people will buy it?  
Can you give some other examples of where the price of something has gone up but people have been just as happy and willing to pay for just as much of it as they were before?
Are you seriously taking information from a site called as representative of what is happening in "a more moderate world"?

no. the negative effects have been observed, duplicated and tested. they also fit with basic fundamentals.  to pay more, you need more revenue; the revenue must come from increased number of sales or increased prices.  If it's increased prices then those at the bottom, minimum wage for example, lose out the most.  If it's increased sales then where is the extra business coming from, for very few places is the increase in minimum wage significant enough to see sales increases (those being fastfood and cheap bulk retail).
Where we do see increases is, tax take, rent increase, power usage increase, convenience spending, and the big one... more interest paid on credit cards, secured and unsecured debt and hp.   But that means increasing minimum wage creates long-term debt...that isn't a good sign at all.   although your debt-seller may take on extra staff...until the addiction has run it's course and the minimum-wage junky needs another hit to keep it together.

Firstly you are aguing a straw man.   As I have previously stated poverty is a relative term with ever shifting goalposts. To reduce inequality is easy, just have a maximum wage.  Or a very progressive tax system like some scandanavian countries.
You have gone way off track from the original point, being the above post by Caleb, who seems to think I am detached from reality, and you seem to agree with.
"A descent standard of living can only be achieved by increasing productivity and reducing reliance on government"
So I asked for some proof of that claim, and have yet to see any.  But you keep on going on about other things etc.  I'd say the above quote is indefensible, but put out some evidence if you have it,  still havn't seen it.

the government side is because government spending and collection is inefficient and frequently ineffective at adding value or wealth.  More often it is spent in areas which are consider "deficient" ...however often those areas are deficient for a good reason, so having government find the most expensive way to achieve the job is hardly benefical, and often chases away real development and/or innovation opportunities - especially as the legal systems become more despotic/totalitarian

Skud.....What Caleb wrote is good old common sense stuff !!!  So of course it is easy to agree with him...
You're asking for proof on something that is simple mathematics and accounting. What part of maths and accounting don't you get??? I asked you if you were in business and you told me you were......if you can't understand the basics of pricing then you obviously have employed someone who does.....and you had better thank them very much for keeping your business going for you.

Hilarious... if you would like to destroy theories in the real world or any other world, perhaps you should compare apples with apples, not first world countries with developing countries. Also, would have some substance if comparing wage changes within a country rather than between countries. What makes you say that the impact of a high minimum wage is a decent standard of living? possibly countries with a decent standard of living pay a higher minimum wage... egg or chicken?

How about you compare some 'first world' countries with first world countries, show me the correlation....please.  There is none, no correlation between minimum wage and unemployment.  It's just another [Known Falshood] [perpertrated For Political Purposes]
As to causality maybe you could provide some data with which we could draw a rational conclusion, as opposed to the rationalisations we have currently promoted as economic theory.

Good thread - for larfs.
A lotta heat and few have absorbed the main thrust of the article, which can be summed up in three bullet points thus:

  • Raising minimum wages has a number of effects, few exactly predictable
  • Applying the 'cui bono?' test, the apparently deserving are averred to be the worst off 
  • So, be careful wotcha wish for....

what I have noticed is one of the effects of raising the minimum wage is that a lot of people still end up on _minimum_ wage, "lowest of the low"  AND very shortly afterwards peopel are complaining it's now not enough to live on and they need to raise the minimum wage.

Absolutely correct Cowboy and it is not only another minimum wage raise it is all the extra costs of rental top-ups, WFF, Doctor visit subidies etc that end up getting thrown into the mix.
Then there are the voluntary organisations like food banks etc that people end up relying on because they can't make ends meet.
Higher wages actually come naturally from fewer unemployed and less reliance on the State for is a good sign the economy is doing well and that there is good market competition.....people naturally end up with more money to spend and this flows through to business profits which allows for wage increases and the pressures of fewer people to employ drives the wages higher.
Every string any political party pulls interferes in the natural process. The Universal Declaration of Human Rights recognises this interference.

NZ 1997
Unemployment 7%
Minimum wage $7
NZ 2014
Unemployment 5.6%
Minimum wage $14.25
Show me your confirmation bias, cognitive dissonace please.
Minimum wage up (faster then inflation)
Unemployment down
How can you attribute validity to an economic theory that is so wrong?  Malicous, spiteful and greedy.  "All for me, none for you"
Please note, I am not claiming raising the minimum wage decreases unemployment.
There are the facts, it's not rocket surgery.

97 was the pulse of a minor recession.... minimum wage has DOUBLED in 17 yrs??  Wow I wonder if everyone else wages doubled?  I'm sure my dairy payout hasn't...even through petrol prices have.

20.1.1997 = $47,100 top of the scale for a teacher
20.1 2014 = $71,000 top of the scale for a teacher.
Interesting looking at the pay rise up until 2009. Check this link
Of note, the top scale has only risen 2.9% in the past five years under a National government. Those greedy MP's received that alone last year.
Dairy payout 1997 was $3.43 so yes, based on last year's payout of $8.10 yours certainly has doubled.

Considerably high that my raises.

I'm talking real working people, not those paid to be happy out of the government slush funds removed from decent people by threat.

Payout is $6, and 97 was recession dairy year.apples bro, fkin apples

I'm talking real working people, not those paid to be happy out of the government slush funds removed from decent people by threat.
Cowboy, based on the above, I assume you're talking about those in my profession.
Just bear this in mind, when you next call your vet to treat a sick animal think of the many hours they spent studying to get there, the people that may have inspired them and subsequently taught them the skills to study at a higher level.
If we weren't doing our job, you'd be using more bullets than you cared for.

Then go user pays if you're so good.

You aren't succeeding at your jobs and you shouldn't be funded from public funds (for above decile3).

And until recently I just used a pipe.  The vets don't have guns to shoot with anyway.... but a clever educated person like you would know that

Judging by the irrational nature of your comments Cowboy you obviously didn't have a great experience at school.
It doesn't take a clever person or even an educated one to realise what kind of disturbed person you are.
For the record I will steer well clear of any future debates/discussions with you.

Why are you making a personal attack on me?

Is this the debating system your education system teaches?

I find it increasingly difficult to read some of the above statements from a "self employed" view which appears resentful to paying a fair wage to a potential employee.
My understanding is that if you go self employed, ie running a 4 square, a 200 cow dairy farm or as a tradey you are just that...self employed.
If you happen to make good coin and decide to reduce those 16 hour days to 10 then suck it up and pay the 'man'. if you can't afford it then stop begrudging how much a wage is and get on with your business. At the end of the day, it's a choice and I don't believe in paying people peanuts as you'll most certainly get monkeys! Then you'll spend more valuable time, energy and money trying to get rid of them.
I worked years ago 1997/98 for a dairy farmer. My boss paid me a fair wage for milking his cows and an hourly rate of $6-7p/h for other work which I would record in a wage book. He never questioned how many hours I wrote down. He was a good bugger that "valued" his employee and paid me accordingly and gave me reasonable time off. 
He couldn't understand this philosophy of working some young person 19 days straight before a having a weekend off. It would inevitably lead to costly mistakes and even injury.. 
NZ is an expensive country to live in. If you wish to pay some people an unaffordable wage and are happy to subsidise their very existence with your taxes then so be it.

Dobrydan - there is no resentment by self employed people to pay higher wages. Self employed people are perhaps more aware of the wider distortions that affect any pricing level and any intervention that causes distortions ends up affecting the most vulnerable people as those distortions end up impacting on them the most.
If people really cared about the lot of poor or low paid people they wouldn't distort the pricing of labour they would make sure that business was easily and readily able to set up and get going.......the average business that wants to start has many regulatory hoops that are extremely costly to implement hence a larger amount of capital is needed at the front before they can become operational......this slows down any expansion in employment and wage increase an employee might benefit from......
There will always be a minority group of employers who are not very good to staff.....just the same as there are a minority of people who commit crime etc......if there are more jobs than people to fill those jobs then those bad employers simply wont stay in business very long or they will have to change their ways if they want to stay in business. This is a natural cycle and the hands of politicians and bureaucrats constantly interfere.

Fair comment.

I don't know if the group of employers who aren't good to staff is that small.  That's why I think employees are getting it a bit to easy/laid out for them.

Being a good employer is a major undertaking.    It's easy enough if there's some big predefined system, and you're just another cog filling the formulas with a compatiable team member.
 However often it's much paperwork, patience, reliable workload, dealing with other peoples' dramas...all when you still have your own workload to deal with.  that's why I prefer to work with contractors whereever possible - everything is open and up front.  No worry about being sued because you upset their feelings when they called in sick from drinking too much, and you had to dump your first day off in over a year to hold the fort.
"We review the burgeoning literature on the employment effects of minimum wages in the US and other countries ... there is a wide range of existing estimates and, accordingly, a lack of consensus ... However, the assertion that recent research fails to support the traditional view that the minimum wage reduces the employment of low-wage workers is clearly incorrect.  A sizable majority of the studies surveyed ... give a relatively consistent ... indication of negative employment effects of minimum wages.  (...)  We see very few - if any - studies that provide convincing evidence of the positive employment effects of minimum wages ... the studies that focus on the least-skilled groups provide relatively overwhelming evidence of stronger disemployment effects for these groups."

nbr? as an unbiased source?
yeah right.
oh and a paper written is 2006?  8 years ago?
Counter evidence, see my reply to notaneconomist.

You don't think there could possibly be any bias in papers published by and the Center for American Progress Action Fund? 
I  agree that there is some evidence to suggest that raising the minimum wage may be positive or at worst neutral. 
Do you accept that there is some evidence to suggest that raising the minimum wage may have a negative effect on employment and employment prospects?

Ooops This is a recent Ted talk that among other issues reports on an American city that unilaterally raised the minimum wage.

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