Friday 23 January 2015: To Raise or Not To Raise; The Minimum Wage

To Raise or Not To Raise: The Minimum Wage
I did a scholarship eco thing on this a while back. The basic gist of my argument shall follow. Basically, having a minimum wage stops ‘nasty’ employers from paying their staff unreasonably low wages for doing stuff (their jobs). When you’re an adult, this is important. Like, really important. Because of all the boring shit like bills and mortgage and food (okay that last one isn’t really boring but it still costs heaps). But as a teenage worker, the amount of money you get paid doesn’t matter as much because you don’t rely on that money to provide the necessities of living. That’s what parents are for. So, accordingly, in this country, there are three minimum wages (source: http://www.dol.govt.nz/er/pay/minimumwage/). The ‘adult’ minimum wage, the ‘starting-out’ minimum wage and the ‘training minimum wage. All of these have different rates and apply to different groups of people.

The ‘starting out wage’ applies to starting-out workers. Starting-out workers are either; A) 16- and 17-year-old employees who have not yet completed six months of continuous employment with their current employer. B) 18- and 19-year-old employees who have been paid a specified social security benefit for six months or more, and who have not yet completed six months continuous employment with any employer since they started being paid a benefit. Once they have completed six months continuous employment with a single employer, they will no longer be a starting-out worker, and must be paid at least the adult minimum wage rate. Or C) 16- to 19-year-old employees who are required by their employment agreement to undertake industry training for at least 40 credits a year in order to become qualified.

This means that a starting out worker is any person between 16 and 19 who hasn’t worked at a place for 6 months and/or is doing training. That’s the simplified version.

The training minimum wage applies to “employees aged 20 years or over who are doing recognised industry training involving at least 60 credits a year as part of their employment agreement, in order to become qualified.” This would mostly apply to people in Trades required to meet industry standards that do not have other recognised qualifications. This is why it isn’t as widely known as the other two forms of minimum.

These two above rates are $11.40/hr before tax.

The ‘adult’ minimum wage applies to “all employees aged 16 and over who are not starting-out workers or trainees, and all employees who are involved in supervising or training other employees.” This applies to pretty much every other worker that isn’t a high-school student or recently-ex-beneficiary that is paid minimum wage in the workforce. This rate is currently $14.25/hr BEFORE tax.

Okay, that was a long introduction, but now we all know what a minimum wage is, what it does, what workers get it, why workers need it, and what the rates are.

So, there is an argument oft posed about raising said minimum wage to a more acceptable amount (as $14.25/hr is not enough to live on due to inflation rates and Growth increasing prices (most noticeable in the CPI (source: http://www.stats.govt.nz/browse_for_stats/economic_indicators/CPI_inflation/ConsumersPriceIndex_HOTPDec14qtr.aspx). These graphs show that both Inflation and the CPI are at relatively low levels. Because an inflation of 0 would be bad for the economy because it wouldn’t be growing (Growth and inflation are inextricably linked, shown by the AD/AS model). The current monetary policy is to keep inflation between 1-3%.

But counterarguments to this act as though individual firms will be hurt if the Government raises the minimum wage through legislation. While this isn’t strictly true, it does have some base. Because McDonalds wouldn’t make a loss (as in entirely negative profit for the year) if the wage were raised. But they would hire less workers. This is because they would be spending the same amount of money on wages. But therefore having less staff. Which, if anything is bad for the workers. Because they would be worked harder, stress would increase, and the standard of living would decrease. Because McDonalds has less workers to provide the same service because it is forced to pay them more.

A solution to this problem is a thing called a Living Wage. This means the Government suggests a wage that companies feel they should provide because it creates goodwill, as opposed to a higher minimum wage that has been legislated and costs some people their jobs, or tightens up the labour market because firms demand less labour. So, basically firms need to come to the decision of raising the minimum wage themselves, as opposed to being forced to do so, and then this would happen with a minimum increase in unemployment. An example of this is The Warehouse (apparently – there isn’t much you can find on exactly what rates companies pay online). But the theory of this stacks up; if workers are paid more by firms, and jobs aren’t lost as a result of that pay increase, workers have more money to buy more things and unemployment doesn’t increase. Henry Ford (source: http://www.thedailybeast.com/articles/2014/01/06/henry-ford-understood-that-raising-wages-would-bring-him-more-profit.html, and http://www.forbes.com/sites/timworstall/2012/03/04/the-story-of-henry-fords-5-a-day-wages-its-not-what-you-think/) also did a similar thing around the time of World War One. Ford’s theory was: Companies had an interest in ensuring that their employees could afford the products they produced. Put another way, employers had a role to play in boosting consumption. While paying higher wages than you absolutely needed to might lower profits temporarily, it would lead to a more sustainable business and economy over time. If the motorcar was going to be a mass-produced product for typical Americans, not a plaything for the rich, Ford would strive to pay his workers enough so they could afford the products they worked on ll day.

So, raising the minimum wage by legislation may appear to make consumers better off – and for thoise who still have jobs after the increase this is true. But if firms raise wages of their own accord, then customers will better be able to afford their products and increase their profits, and there would be no increase in unemployment. Employment may, in fact, go up.
That will be all.