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Key's figures dodgy on minimum wage - blog

Friday 11 Nov 2011 10:13 a.m.

John Key visits a McDonalds

John Key visits a McDonalds

By Patrick Gower

Everyone knows it’s got bloody hard to live on the minimum wage - even John Key admits that.

His defence is that a rise from $13 to $15 an hour will cost jobs.

Key has used this defence in a televised debate, and he's used it to workers on the shop floor as seen in my story last night.

But what Key doesn't want to admit, is that this claim is not the full picture and may just be fear-mongering - a rise may not cost jobs at all.

That's what Treasury says in this advice from March 2010 obtained by 3 News under the Official Information Act.

Yes, that's right - the Treasury.

The Treasury are the big guns - Government's quasi-independent economic advisers.

And the Treasury says the "claim" (yes Treasury calls it a "claim") a minimum wage rise may cost jobs - "has not been true in the past".

In fact, it says "we have evidence" this is not the case at all.

It’s talking about "empirical" stuff - what's known as hard evidence.

The March 5, 2010 email from Treasury to the Department of Labour, obtained by my colleague Brook Sabin under the OIA, says of the claim: "(It) has not been true in the past, so without new evidence the balance of probabilities is that a higher minimum wage does not generally lead to higher unemployment."

Uh oh. Where does that leave Key's "15 bucks an hour will cost 6000 jobs" figure?

Well, that came out of the Department of Labour minimum wage review done later in 2010.

It says under a $15 an hour minimum wage "employment growth" could be reduced by 4100 and 5890 jobs.

It’s an estimate - and it’s about potential new jobs.

So for starters it’s not about 6000 people being sacked because the bosses can't afford them.

So the Department of Labour report actually mentions about 6000 forecast new jobs that might not happen under a theory that the Treasury doesn't believe.

And one more thing: the Department of Labour report also says: "research from the United Kingdom suggests minimum wages may have no effect on employment, or that minimum wage effects may still exist, but they may be too difficult to detect and/or very small".

So let’s sum this up.

- John Key says the minimum wage rise could cost 6000 jobs according to a Department of Labour report.

- But the Treasury has advised the Government it doesn't believe the assumption this was based on has any credence - we don't hear Key saying that.

- The Department of Labour report is actually a "forecast on forecast" of jobs-that-might-be-created-not-being-created. Confused? Exactly. (The crucial point is it’s not saying bosses will have to sack people.)

- The Department of Labour report even contradicts itself and says minimum wage rises might make no difference.

- The Department of Labour report doesn't mention that Treasury has a counter view (Treasury sent the March 5, 2010 email to the Department of Labour as a submission on the youth minimum wage so they can't say they didn't have it).

So it’s clear that the "cost 6000 jobs" line Key is using is a little bit dodgy.

That's politics I guess - you play the most powerful hand you have. You don't issue footnotes with your claims.

There's equally powerful arguments that the minimum wage could even help things by putting a bit more cash into the economy.

And with the unions estimating there's 100,000 people on the minimum wage and 300,000 on close to, low pay should be a big political issue.

For some reason, like asset sales, it isn't the festering issue you'd think it would be.

Labour is losing an argument with Key over the minimum wage - an argument that on paper it should be winning. Whose fault is that? Not Key's.

The minimum is $13 an hour - somewhere around $430 - $450 bucks in the hand a week.

You do the math based on market rents, food, petrol, power bills - for the average family, it really is a shocker.

There's a coalition of the willing who want to do something about it: Labour, Mana and the Greens want $15 an hour. The Maori Party want $16 an hour.

And a final note - interesting issue for the Maori Party this one.

Will they make a substantial rise in the minimum wage a condition of their support for National after the election?

If they pulled that off - that really would be Mana-enhancing.

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