Seredipidously, when I was writing about Pensions-slash-Unemployment Benefits, Gareth Morgan popped up with a related article. But I am conflicted. While I applaud the attempt at re-imagining the problem, and think he raises some interesting points(particularly about a minimum income), I am going to quibble with a number of points. Sorry Gareth, can’t help myself – on the other hand you published and put it out there.
Live by the pen – die by it too G-man. 😉
By Gareth Morgan Tuesday Nov 15, 2011
The minimum wage comes with a whole range of added costs.
Let’s agree on what is a minimum income every adult should have in order to live a dignified life and then see what flows from that. One of the topics of debate during this election campaign has been whether the minimum wage should be $13 or $15 an hour. That number is both arbitrary and irrelevant to the well-being of those paid the rate.
One political reality of the minimum wage is that it is deemed inadequate for folk to live on.
Hence it is topped up with all manner of special payments – the accommodation supplement, subsidies for childcare, special needs grants for those deemed in hardship and the sizeable top-ups available from Working for Families. Looking at the extent of the top-ups now paid, even $15 an hour would be inadequate in isolation.
Welcome to the reality of 21st century wages. Well… 21st-c NZ wages – that is an important distinction
Apparently people cannot live on the minimum wage so taxpayers have to transfer to them increasingly larger top-ups. Nothing “apparent” about it
You may well ask whether [there exists] an exaggerated opinion of what should be a minimal level of income, but certainly the market cannot support a wage rate that [matches] all the top-ups, otherwise it already would be paying it. Even at $13 the supply of labour exceeds the demand. I wouldn’t get too carried away with theories of supply/demand in Labour markets, G-man
If we raised the wage rate to make such top-ups unnecessary, jobs would go and taxpayers would have to fork out for those who could no longer find work. If we raised the minimum wage to, say… $25 and hour, then that would kill a lot of jobs and put those previously employed out of work and onto the Dole? Hmmm… yes, probably. But lets not kid ourselves we REALLY know what would happpen. We are just guessing and extrapolating as to what the actual effects would be.
This is our dilemma – we have a minimum acceptable income in mind but it is higher than what the market can pay to support full employment. Yes, I would buy that argument. On the other hand, I don’t believe that full employment is achievable whatever scheme we cook up. Between Automation, Globalisation, and global arbitrage of work – full employment is a pipe dream and fading memory. It only ever existed for a brief particular period of history. That time ain’t coming back.
So we [can] either legislate a minimum wage that needs no top-ups, and put a whole lot more people out of work – or we decree a somewhat lower minimum wage and pay top-ups to those working at that rate. or… we could do something else entirely…? Did you just fall into the false dichotomy trap G-man?
Or, heaven forbid, we change our mind and say full employment is the most important goal so we’re going to allow the market to set whatever wage it likes. Now that would be a revolution. Ding Ding Ding – fallacy. You have just sets up a completely unsubstantiated claim that there is some wage level that would support full employment – if only wages were low enough, unemployment would go away. I agree there is plenty of work that needs doing, but there sure as eggs isn’t enough money to pay to have it done(not without completely restructuring everything we do), and in fact full “employment” without higher wages is a pointless exercise.
But for now just accept that the debate about a $13 or $15 minimum wage reduces to one about how much taxpayers should transfer to these folk versus how much of their requirements should be funded by employers through payment of a higher legislated minimum wage (with the consequence that we would have to accept greater numbers of unemployed requiring a full taxpayer provision). From now on we need to accept higher numbers of unemployed whatever we do. We have surplus labour. the only people who will have a job(and get paid decently for it) are that smaller and smaller elite who can command and demand it. The rest of us are just so much trash. And it will get worse…
Surely not many would argue that we can set the minimum wage at whatever level we like without employment levels being affected. Believe me, such thinking does exist. no I wouldn’t argue against that. But conversely, arguing like you know what the results would be is stupid and arrogant. But that aside, there are just so many other factors contributing to pay and employment rates that make this whole discussion so far, specious.
Let’s turn the whole puzzle around. Rather than decreeing a minimum wage and discovering the consequences for jobs and top-up payments, let’s agree on what is a minimum income every adult should have in order to live a dignified life and then see what flows from that. Cool – OK, lets try that.
We begin by specifying the income level below which we are not prepared to see anyone having to live. Phew, best of luck with that. That would be an ephemeral and moving target.
From there we must design a tax regime that doesn’t penalise people who work part time or in low-paid work – that means an end to the steep abatement rates of our current regime of targeted welfare, a feature which traps people in benefit dependency. OK, I am following you so far… keep talking.
We must finally admit that with all the paternalistic will in the world there is no chance that public servants can adequately identify and monitor eligibility for a needs-based benefit regime. Hahaha, OK, point taken. Although within the limitations and rules that exist, they actually do a better job than I might have previously credited to them.
We should save ourselves the torture of continuously getting it wrong and designing an endless stream of discriminatory “fixes” to cover our mistakes in finding targeted perfection. Bingo.
The reality is that people’s circumstances are dynamic and that they will change their behaviour to suit the design of the benefit regime making the chicken and egg nature of determining “needs” an exercise in futility. Certainly the way it is all set up currently, it is a bit of a losing proposition.
The important thing is to be fair and to have a consensus on the level of income that we all have an unconditional entitlement to in order to live a dignified life. Fair… hmmm, how long is a piece of string? Consensus… riiiggghht. While I applaud the sentiment(and even agree somewhat), “unconditional entitlement” to a “dignified life”… perhaps we should just stick with the art of the possible. Unconditional entitlements(particularly money) will kill you as a society (sooner rather than later). And Dignified, is right up there with Fair – and fairies, truth and justice (am I allowed to say Specious again).
In the book The Big Kahuna it was suggested that an unconditional basic income at $11,000 after tax would be a level that could be maintained in a fiscally neutral scenario. Ohh well, if it says so in a book then it must be the Truth.
If you think that’s too stingy then be prepared to have a higher level of tax than 30 cents in every dollar earned. No doubt
But at least if we decide on that as a human right we can then discuss what the role of the minimum wage might be. Let’s do that. OK, lead on McDuff.
Critics of the unconditional basic income suggest it will encourage legions of layabouts who will not work (either paid or unpaid) and just live an idle life, making no contribution to society whatsoever. (like universal Super you mean?) Hmmm… no, actually I would criticise it for completely different reasons. That would be the least of it’s possible drawbacks.
The logic of this argument goes that many of those who live on $23,000-plus now from their minimum wage full-time jobs will give up work altogether if they get a wage of half that. People say stupid things all the time. Probably best to learn to ignore that sort of thing G-man, it will help your stress. Yeah right. (well yeah, some – but no, not legions, I agree with you on that) Ironically if they did, we’d reduce unemployment. If the basic payment eradicated unemployment by destroying enough people’s will to earn, then of course you’d expect labour shortages to drive up wage rates. I’m not holding my breath. No, I’m not either. However that also rather contradicts the argument that lowering wages would help employment. Pay and labour-supply are only marginally connected, there is a lot else going on in that mix.
With the $11,000 basic income in place, the rationale for needing a legislated minimum wage at all needs to be revisited. Yes, or obviated…?
While we would still want legislation about working conditions (sick and annual leave, safety, rights of redress and so on) – with the burden of ensuring an adequate income for all resolved (resolved huh…?) there is no need to rely on a legislated wage rate for paid work to deliver income adequacy. Simple… </sarc>
I will give you that a legislated pay rate is kinda simple minded – but given the world we live in, it is also kinda like the parable about democracy… the worst possible system – except for all the rest.
As it happens the arithmetic tells us that a wage rate of $8 an hour would, in a world of a flat income tax rate of 30 per cent and an $11,000 basic income, deliver the same post-tax income as the $15 an hour minimum wage proposed by Labour. Actually G-man, that kinda smacks of “damn lies and statistics”.
There should be a lot more jobs if wage rates of $8 were kosher. Prove it!
(ohh, and… do we get to come back on you, and flog or shoot you if – by weird happenstance – you turn out to be wrong? )
We do shoot ourselves in the foot trying to ensure income adequacy by dictating what wage rates in the market should be. We shoot ourselves in the foot by trying to dictate what anything in the markets should be… interest rates, exchange rates, employment rates, blah blah blah blah blah…
What you win on the per hour payment, you can easily lose on the lack of jobs. Welcome to the real world – gets complicated doesn’t it. And that is only starting to scratch the problems. Have you got a couple of months to get into the real tough issues?
We needn’t fear a lower wage economy under a basic income regime, the money is already guaranteed. Ohh you poor simple fool. If it was that simple everyone would be doing it.
And imagine if we became more competitive(by cutting pay?), what that might do to overall incomes and the ability to pay an even higher basic income? What indeed? Btw, while we are in faery land… do the unicorns poop coloured candies too?
Oh it’s all too much. It’s all too much bullshit, that’s for sure.
Jeez Gareth… I expect better from you.
More competitive? Than what? China?
And my estimation is that it would lower incomes and there would be no ability to pay higher basic incomes.
But if you have got some convincing data and figures, then how about trotting them out for critique. Vague aspirational suggestions are frankly insulting. That is not a Plan, that is a Hope. There is more than enough Hopium wafting around already.
But hey, you did say “Imagine” didn’t you. Sure, let’s Imagine…
Rather than making paternalistic judgments on people’s needs (good so far…), the unconditional basic income frees us as a society to set one income for all and then allow the market to set wage rates consistent with full employment beyond that. And… he blew it.
I think that is what is called a logical fallicy G-man. (do I need to count the ways for you?)
The Kahuna revolution is not all bad is it? It is nonsense: but beyond that… sure, it’s great.
(and this from someone dead keen for a Revolution. I guess not all revolutions are created equal)
Thanks for the article though Gareth.
The debate has got to start somewhere, and I really am thankful that at least we are starting to get a debate on some of this. Errors can at least always be corrected. Failure to even try is beyond redemption.
Also, I did like what there was of a critique of the current system. You did plainly demonstrate the nonsense of a debate over a few dollars plus or minus. And you touched on the idea of a minimum wage in a manner that doesn’t utterly or instantly condemn. Kudos for that.
Lets keep working on this issue. It is shaping to be the most difficult (and urgent) one our society will face.