Minimum wages. Again. [Update 3]
Phil Goff has gone where common sense has feared to tread. Desperate for the attention of anyone, even Matt McCarten’s union, he told Labour delegates over the weekend that if he somehow found his way into Premier House in November, the first thing he would be doing is to price unskilled labour out of the employment market.
Which is exactly what raising the minimum wage to $15/hour would do. In fact, that’s what having a government-imposed minimum wage does. It sets a floor below which freely-agreed wage rates between employer and employee are made illegal, and would-be marginal employees are instead made depressingly unemployed.
It’s like kicking out the bottom rungs of the employment ladder, and telling the unemployed you’re doing it for their own good.
Now I doubt that Phil Goff disagrees with any of the analysis suggesting his move would cost young and unskilled jobs. Like Paul Bennett, he cares more about his job than theirs. But if you really think that raising the minimum wage by one-sixth (by $2/hour, from $13 to $15) won’t affect the number of folk to whom employers can offer paying work, then I suggest you buy just as much when the price of beer goes up by one-sixth; just as much milk and cheese when the price of milk and cheese goes up by one-sixth; just as much petrol, as many hamburgers, as much on your mortgage.
If you think that putting up the costs of a thing won’t affect how much of the thing can be bought, then I have a large number of overpriced things right here to sell you.
It’s no different for jobs than it is for milk and cheese.
The only way that raising the minimum wage rate won’t affect any jobs at all is if raising the rate is simply a ratification of wage rises that have already occurred due to increases in productivity and investment. And if you think you’ve seen any of those, I suggest you head to the nearest optometrist to get your eyes looked at.
John Key reckons he knows all this. He reckons Phil Goff’s wrong. Mind you, if he did know it and if he did care about it enough, then his party wouldn’t have raised the minimum wage rate in February. But they did, so he clearly doesn’t .
And if he did know about, and care about its effect on marginal employees, his party would have voted for Roger Douglas’s bill to abolish the ban on youth rates and so allow employers to pay youth rates again to young unskilled employees (the abandonment of which has seen youth unemployment soar).
But they didn’t. So I doubt he does.
PS: Just as ignorant as the claim that raising minimum-wages by fiat doesn’t cause unemployment is that claim that it does cause price inflation. That it sets off a so-called “wage-price spiral.” The proponents of this argument reveal an ignorance even greater than Phil Goff’s.
Price inflation is a phenomenon in which we see universally rising prices right across the board. But if the price of Product A goes up because the wages of the those producing it have gone up, then that leaves less in consumers’ pockets to buy Product B, C and D—in which case the reduced demand for these products will lead to lower incomes for these producers and unsold stocks of goods.
The only way the prices of all products can go up right across the board is if the government expands the money supply so that all products can be bought at the new higher prices. In other words, if the increase in money wages is accompanied by a commensurate increase in monetary inflation.
Which is, I suggest, what Phil Goff is counting on when he talks about raising money wages. At root, he’s just another inflationist.
UPDATE 1: Higher wages do not create price inflation. Don’t just believe me. After all, I don’t even wear a tie:
UPDATE 2: “Could someone please ask Phil Goff [asks Eric Crampton]why, if a fall in unemployment following a small increase in the minimum wage during a boom period is post hoc ergo propter hoc evidence that a large increase during a recession would not reduce employment, why he isn't promising to raise the minimum wage to $20?”
UPDATE 3: Danyl at Dim Post drops this dangerous graphic into the conversation and concludes “more research is needed.”