Regulating Wages

New Zealand Centre for Political Research

The New Zealand Centre for Political Research is a web-based think tank that takes a research-based approach to public policy matters and encourages the free and open debate of political issues.

The owner of the popular Ponsonby Chapel Bar and Bistro got into trouble recently for publishing an on-line ad for staff that said, “We need female bar & floor staff … drop us an email if you or a friend needs a job.”[1]

His sin was to mention that they needed female staff. According to the law, that is gender discrimination!

Chapel employs 54 staff, 65 percent of whom are male. The owner says he needs women bar staff to get the balance right. Instead of going through the farce of a general advertisement, wasting everyone’s time responding to the male applicants, he took the honest and efficient approach of advertising for the type of person he actually needed to fill the vacancy.

By not engaging in a PC charade the employer has put the business at risk of damages amounting to $200,000 for breaches of the Human Rights Act. The law is of course silly and needs changing, but unfortunately  there is nothing humorous about the stupidity of much of the regulatory legislation that is being imposed on business people.

In a speech given in 1976, Rupert Murdoch gave a chilling insight into the forces driving the incessant encroachment of government regulation:

“Socialism is not dead, but alive and well and living in the regulatory agencies. The classical definition of socialism, of course, is that contained in clause four of the old British Labour Party’s constitution: public ownership of the means of production, distribution, and exchange. Socialism in that sense is dead. No one talks about nationalizing industries any more. But then no one has to nationalize industries – because the extraordinary growth of regulation has given effective control of them to the government without its having to assume the hassle of ownership. Socialism has effectively reinvented itself. We can call it ‘Neosocialism’. And it’s right here.” [2]

We can see the reinvention of socialism in the minimum wage debate. By adopting a minimum wage, the government is dictating that no-one in the country over the age of 16 can enter into any voluntary arrangement to work for less than the designated hourly rate of $13.75 an hour.

The rate is lower for younger people, of course. In fact, New Zealand used to have a youth wage set at 80 percent of the adult rate for all workers under the age of 18. It was a simple system that worked well. However in 2007 Green Party MP Sue Bradford wanted it scrapped, claiming discrimination on the basis of age. The Labour Government of the day gave in to her demands and abolished the youth wage, replacing it with a 3-month training wage instead. The present complicated regime has grown out of that.

There is now a starting-out wage that is set at 80 percent of the adult minimum wage, for 16 and 17 year old workers who haven’t completed six months of continuous employment with an employer. It also applies to 18 and 19 year olds who have been unemployed for six months or more, and to 16 to 19 year olds who are training and doing at least 40 credits in a recognised industry course.

The training wage – also set at 80 percent of the adult minimum wage – applies to employees aged 20 years or over, who are doing recognised industry training involving at least 60 credits a year.

At 80 percent of the adult minimum wage, these youth rates are amongst the highest in the world. In comparison, in Britain 16-year-olds are paid 60 per cent of the adult minimum wage, and in Australia, 48 per cent.

As most employers know, first-time workers, and especially youngsters who have dropped out of school, are often quite unproductive and can cost a business money. That’s why young and unskilled people need every employment opportunity they can get – and if a job is available that is only worth, say, $10 an hour, shouldn’t they be allowed to take it? After all, the dole only pays the equivalent of $4.80 an hour for those aged up to 24 and $5.60 for those 25 and above – wouldn’t having a job at $10 an hour be preferable to doing nothing?

While increasing the minimum wage sounds compassionate, every universal wage increase prices more unskilled job seekers out of employment. Countries with high minimum wages invariably have higher unemployment rates – and with our minimum wage amongst the highest in the OECD, it is clear that we have a problem.

The Prime Minister tells us that the minimum wage is about to be increased to $14.25 on April 1st to protect the real income of low-paid workers while minimising job losses. He says the 50 cent an hour increase will result in a “relatively negligible” loss of jobs, but in reality every increase in the minimum wage relegates more and more people into permanent unemployment.

In an ideal world, a free labour market would allow anyone to work for any wage rate they agreed with an employer. While detractors say that the absence of a minimum wage would lead to worker exploitation, Switzerland, with no minimum wage laws, has one of the highest living standards and one of the lowest unemployment rates in the world.

However, this may be about to change as the country faces a referendum on whether or not to introduce a minimum wage. Not just any old minimum wage is being proposed though – in a measure pushed by the unions and the Swiss Socialist Party, on May 18 Swiss voters will decide whether to introduce the world’s highest minimum wage of 22 Swiss francs (NZ $29.84) an hour. That rate would be double Germany’s new rate of NZ$13.93, and is far more than the NZ$12.59 basic wage on offer in the UK. The minimum wage in America is currently NZ$8.70.

Of course the trade union movement is strongly in favour of raising the minimum wage.  In fact, they would like to see the minimum wage rise to 66 percent of the average ordinary time wage and have suggested moving to this rate over three years – $15.50 from 1 April 2014, $17.40 from 1 April 2015, and $19.60 from 1 April 2016.[3]

The trade unions have, of course, set themselves up to become a very powerful force in New Zealand politics. A union man, David Cunliffe, is leader of the Labour Party and he has just hired prominent union organiser Matt McCarten for his top job as chief of staff. The trade unions were instrumental in Mr Cunliffe winning the Labour Party leadership, since the new rules mean the Party Leader is determined by the total votes cast in an electoral college, with 40 percent of the votes coming from the parliamentary caucus, 40 percent from party members, and 20 percent from affiliated unions. David Cunliffe won 51 percent of the combined vote – 32 percent of the Caucus vote, 60 percent of the Members’ vote, and 71 percent of the Union vote.

As at 1 March 2013, there were 138 registered trade unions in New Zealand with a total membership of 371,613. This compares with 514,325 members in 66 unions in 1991. The biggest union is now the Public Service Association with 58,500 members, followed by the New Zealand Educational Institute with 50,972 members, and the Nurses Organisation with 46,628 members.

Both the trade union movement and the Labour Party support the Living Wage – which is the poster child of a world-wide campaign for social justice. They would like to see it become New Zealand’s minimum wage. David Cunliffe has already promised, if he becomes Prime Minister, to introduce the living wage for all of those working in the core public service. He would then roll it out to all crown entities and government contractors.

The living wage is based on “the income necessary to provide workers and their families with the basic necessities of life”. Campaigners say “A living wage will enable workers to live with dignity and to participate as active citizens in society.” The living wage calculations, which have been carried out by Peter King and Charles Waldegrave on behalf of Living Wage Aotearoa, are based on a family of two adults – one working full time and the other part time – and two children. Their widely promoted rate of $18.40 an hour has recently been updated to $18.80. But the assumptions on which their figures are based will surprise many.

This week’s NZCPR Guest Commentator Brian Scott has produced a comprehensive review of the way the living wage has been calculated, raising serious questions about its credibility. Concerns include double-counting some items of expenditure and categorising as basic necessities of life extravagant items such as “subscription TV packages, electronic video game systems, games of chance, pets, and overseas packaged holidays”!

Brian outlines some of the concerns about the living wage that have been raised by Treasury: “Treasury noted that only six percent of low income households fit the authors’ two adult and two children household assumption” and they “concluded that a living wage is poorly targeted, and would adversely affect employment opportunities for young adults, in particular”.

He also makes the crucial point that “because of government transfer abatements and increased income tax, most of the additional income would be reclaimed by the government.”  You can read Brian’s comprehensive report, A Review into the Basis for a Living Wage Rate in New Zealand by clicking HERE.

It is clear that the living wage campaign is nothing more than a tactic to advance the cause of socialists. It is being used as a bribe by left-wing politicians to find favour with their targeted voters.

The fact that some of our local authorities are buying into it is a disgrace. Late last year the Wellington City Council announced it was the first council in the country to adopt the living wage. They said it would cost ratepayers $750,000 to bring over 400 staff directly employed by the council up to $18.40 an hour.

However, Living Wage Aotearoa’s raising of the hourly rate to $18.80 has caused a budget blowout. The council will have to find a further $332,000 a year. And if the living wage is extended to council contractors and workers in council businesses – after relativity adjustments are made for other staff – the living wage bill could top $5 million a year.[4]

These increased costs will, of course, be born by ratepayers. What’s worse is that because the living wage is part of a political campaign, participating councils will effectively lose control of their budgets to the whim of activists who consider international travel is a basic necessity of life!

It’s productivity that should determine pay, not politicians. This is just another example of politicians interfering in free markets the market place to advance their own self-interests.

THIS WEEK’S POLL ASKS:

What do you believe should happen to the adult minimum wage?
– should it be raised to match the living wage at $18.80 an hour;
– should it stay at $14.25;
– should it be lowered to say $10; or
– should it be scrapped?

 

Click HERE to vote

 
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