Keith Ng on the minimum wage

Keith Ng who blogs at Public Address normally has a reasonably progressive attitude towards workers’ rights.

So I was surprised to see this post from him, in which he argues that the minimum wage should be frozen because the economic situation will result in job losses if it is increased. He suggests:

Increasing the minimum wage is not inherently a bad thing, but to do it now, when so many businesses and their employees are tethering on the edge is a seriously bad idea. The social harm done by the job losses would far outweigh the $20 or $30 it might mean for those other families.

Well, he might be right, if increasing the minimum wage significantly were to happen without any complementary measures.

But the reality is that many of the major employers who pay at or just above the minimum wage can well afford to pay more. No-one will convince me that the big players among low-wage employers (Progressive Enterprises, Foodstuffs, Restaurant Brands, McDonalds etc) can’t afford to pay their workers more. Raising the minimum wage won’t even affect the competitiveness of these big players, because their only competitors are each other.

Where Keith Ng does have a valid argument is with small and nascent business enterprises. They will struggle in the current economic climate to meet any significant increase in the minimum wage.

But the fair solution is not to deny workers a reasonable increase in the minimum wage, as Keith proposes. It is to increase the minimum wage substantially, like to $15 an hour, and to provide a transitional targeted Government subsidy to employers whose viability would be genuinely adversely impacted by such an increase.

A low minimum wage means that the taxpayer subsidises all low income workers through Working for Families and Work and Income supplementary assistance. A higher minimum wage, with targeted subsidies to employers who cannot afford to pay it, means that small employers maintain their business viability, while those like Progressive Enterprises pay their workers something closer to a wage they can live on, thereby reducing the taxpayer subsidy to low income workers.

Keith’s also commented more briefly, but along the same lines, at The Standard.

I’d be interested to see his response to my proposal.

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11 thoughts on “Keith Ng on the minimum wage

  1. I don’t think your basic premise is true – that big businesses are somehow an entirely different breed of business, which makes too much profit at the expense of workers. They’re just bigger, that’s all. Their margins are not necessarily higher. They might make more money, but they also have more staff. They’re just as likely to lay off people or cut back on hours as anyone else.

    In fact, they’re probably more likely, since they’re bigger. Say, a supermarket which employs 100 staff can cut 10, closed down a checkout line or two, and jiggle the shifts among the other workers. Whereas a corner store with 2 hired staff can’t – even when their sales are falling. And of course, if the minimum wage increases, a supermarket with a hundred staff is going to have to pay it a hundred times over.

    The underlying question here is, if we want low-income workers to have more money, do we want the government to pay or businesses to pay? It’s a constant negotiation, and of course businesses always want to pay less. But my point is that squeezing more money out of businesses now is going to push businesses into cutting hours and laying off staff, which is seriously counterproductive.

    What you’re suggesting for small businesses don’t make sense, because you’re trying to get the government to pay businesses to pay workers more – when it could just pay workers themselves, through WFF. And singling out big businesses because they can pay?

    Well, if, as you say, “no-one will convince [you] that the big players among low-wage employers can’t afford to pay their workers more”, then I guess I can’t. But do you actually have any evidence to back that up?

    Most of these big businesses are big because they’re cheap. They’re cheap because they are big organisations which can absorb a constant turnover of low-wage workers. They can’t sustain themselves if they have to pay significantly more. Now, you might have no love for them or their way of doing business – and that’s fine – but if you break them, and all their staff lose their jobs, that’s hardly helping anyone.

  2. Keith, the businesses to whom I refer have very little competition – in the case of the supermarkets, there is an effective duopoly. So their customers are not going to go somewhere else, because there is nowhere else to go. And everyone needs to by groceries.

    Yous suggest that a supermarket which employs 100 staff can cut 10, closed down a checkout line or two, and jiggle the shifts among the other workers. My reply is that they do anyway already. They don’t make commercial out of altruism to employ as many people as possible; they make them to maximise their profits. So the supermarkets that can reduce staff and still maintain a level of service that satisfies their customers will already have done so.

    Same goes for home care workers – there is no competition there – ACC and the DHBs are effectively monopoly providers. And it is more transparent if the cost of paying the workers who do this work comes out of the Health budget or from ACC levies, rather than IRD and MSD subsidies on top of their wages.

    Sure, not everyone needs to buy KFC and McD, and there may be some job losses there, but a downturn in that market may not be a bad thing even if it does cost some jobs, because it may lead to a healthier nation.

    What you are saying is that it is better for the taxpayer to pay subsidies (WFF and Work and Income suplementary entitlements) to people in work because employers are not required to pay them a wage that is sufficient to live on.

    Sorry, I don’t buy that. Families should, as a general rule, be able to meet their living expenses from their earned income. Sure, there will always be exceptions, such as families with a very large number of children, those with special needs children, and those with very young children where one parent cannot work.

    But wages should not be so low that a family with, say two children, and both parents in full time employment, still need to be subsidised by the State.

  3. Keith- I’m inclined to agree with you to an extent, but for very different reasons. I would trust a left-leaning government to generally to take all of the precautions they need. (although the last Labour government is an important counter-example in an important area)

    As long as there are sufficient amounts of people in work through comprehensive employment programs, you can effect a real* raise the minimum wage during a recession, and the likely result is that luxury goods will get more expensive, but also that cheaper goods will sell more easily as wage increases increases in confidence. Granted, it’s to some degree a gamble that employers will favour price rises over economising on labour, especially when demand is very sensitive like in a recession. This is why I’m hesitant to suggest national increase the minimum wage by more than $12.50: they tend to identify with employers more than employees and that’s going to make winning the gamble a lot harder for them.

    Of course, my other concern is that unless the National Party really is now just the Labour Party in blue, I doubt that they will ever be caught raising benefits, which is one of the big things necessary to ensure that real increases to the minimum wage actually help dig us out of the hole rather than dig us deeper in. The last Labour government didn’t do this either, but they got away with it because they weren’t in a recession and were dramatically reducing unemployment.

    *In the monetary sense of “normalised for inflation”.

  4. Ari, Keith –

    The only reason that employers have got away with such low wages (while continuing to return profits to their shareholders, which is the bottom line, not their overheads, Keith!), is because the government has been bailing out employers with the various top-up subsidies for low-income households – “Working for Families” tops-up low income families who cannot live on the minimum wage regime that their employers insist ‘has no alternative’.

    Ditto the accommodation allowance. Bailing out landlords.

    Both of which have allowed artificially low wages to be combined with artificially high rents, in a bizarre cognitive dissonance where the ‘market’ deems this to be a perfectly natural outcome.

    The current market ‘corrections’ are the result of these two pieces of tautology to have finally impacted and imploded upon themselves, along with the fallacy that merely increasing the net worth of a property on paper allows someone to the further indebt themselves on the basis of the paper value, in order to leverage ownership of a series of dubiously valued properties.

    Some of these financial instruments have already failed in this country, notably around 1992-3, when Marac Finance went under de to lack of equity in it’s mortgage securities (due to over-valuation of properties for mortgage leveraging).

    Toad:
    Keith spent so much time pre-election working on spin for the Labour party, I wouldn’t worry too much …

  5. Yeah, anarkaytie, but things have moved on. Trevor Mallard has now advocated a minimum wage of $15 an hour – the position the Greens took before the election when Labour would not commit itself to any figure.

    Funny how things change when Labour’s in Opposition, but Keith doesn’t seem to have kept up.

  6. Katie: I don’t disagree with you on the effects of government subsidies, I just think that with a National government firing employees is going to seem much more viable than normal, both because of the symbolic effect of who’s in charge, (and the perception that the government is likely to “let them got away with it” thanks to the Fire At Will bill) and because of other anti-worker policy that depresses employee confidence and output.

  7. toad:
    If the supermarket industry is a duopoly, and raising wages will just be passed on to consumers, then wouldn’t everyone pay more for groceries? On the most basic level, it’s the most regressive way to “tax”, since everyone spends similar amounts on food (e.g. You’d be taxing the poor $10/week, and the rich $10/week – so it’s not a fair way to redistribute).

    Under your suggestion, the people getting $13/hour would be hurt the most, because they get nothing from the minimum wage going from $12 to $13, and yet they have to pay more for their groceries.

    toad said:
    “Yous suggest that a supermarket which employs 100 staff can cut 10, closed down a checkout line or two, and jiggle the shifts among the other workers. My reply is that they do anyway already… So the supermarkets that can reduce staff and still maintain a level of service that satisfies their customers will already have done so.”

    *EXACTLY*! They are already at a level where they’re hiring the minimum number of staff required to get the maximum profit. So, if you raise the minimum wage, and make them less profitable, they will need to fire people or cut back hours to get back to the point where they maximise profit.

    anarkaytie:

    One of the main effects of WFF has been to allow mothers to return to work, because the in-work benefits has allowed them to bear the extra costs (transport, childcare, etc.) and still come out ahead.

    If, instead of WFF, the government just raised the minimum wage to an equivalent level, then many of those jobs wouldn’t have existed.

    I can’t see how allowing those low-pay jobs to exist and subsidising the people who work in them is worse than making those jobs illegal and paying those people the dole.

  8. Keith Ng said: Under your suggestion, the people getting $13/hour would be hurt the most, because they get nothing from the minimum wage going from $12 to $13

    Not correct, Keith. This would be correct only if WFF and Work and Income supplementary assistance abated on account of additional income on a dollar for dollar basis (ie if there were a 100% effective marginal tax rate). Apart from Temporary Additional Support, which very few minimum wage workers will get – the vast majority of recipients of this assistance are beneficiaries, they do not.

    They abate at a lesser rate, so the workers will be better off.

  9. Keith –

    Define which mothers this works out for, so that they come out ahead; because unless someone earning a higher salary existed in her household, this did not equal a ‘better’ outcome for most of mothers I knew; only women who earned significantly more then the average wage were advantaged by the ‘family friendly’ policies. (I’m including the extended paid parental leave in here, for the purposes of policy discussion)
    [and yes, I do still know women my age with young children, who were working and paying for nannies, without touching WFF.]

    WFF was targeted at getting mothers off the DPB, and only incidentally wiped up some low-income married couples; working low-hourly-rate, casual-roster jobs, which many mothers re-enter the workforce through, doesn’t materially advantage the household in the majority of cases.
    It just shifts the load around a few differently-named subsidies so that employers get cheap workers.

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