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Insights 46: 4 December 2020
NZ Herald: Bryce Wilkinson on why Kiwis are facing a double horror story on housing
Freely Speaking podcast: What went wrong with our education system?
Policy Point: Minimum wages to the maximum - The risks of lifting the minimum wage

Minimum wages to the max
Dr David Law | Senior Fellow |
Last week, the Helen Clark Foundation and the New Zealand Institute of Economic Research released a joint report (the HCF&NZIER report) calling for a higher minimum wage to reduce inequality and lift productivity.
The minimum wage increased from $17.70 to $18.90 in April of this year. With 22,000 jobs lost in the September quarter, the report suggests New Zealand shift to a “living wage” instead – that’s $22.10 per hour. This can be done without losing more jobs, it claims.
But even if that’s true, would lifting the minimum wage reduce inequality? Not really.
Minimum wages are a blunt tool for tackling poverty and inequality. For instance, a study using New Zealand data estimated that a 10% increase in minimum wages would only lower the relative poverty rate by less than one‐tenth of a percentage point.
So, would hiking the rate fix this country’s flagging productivity? Of course not.
If it could, firms would have already raised wages on other own. Most workers are paid above the minimum wage because their productivity warrants it. Even if the argument had some merit, why is the optimal level $22.10?
And is it really clear that lifting the minimum wage would not hurt employment? Not at all.
The report acknowledges that the literature on this point varies widely but suggests New Zealand need not be concerned because the most frequent finding suggests that there is little adverse effect on employment. The trouble is that minimum wage rates and economic conditions vary widely across countries too.
The OECD helpfully warns that the initial level of, and expected increase in, the minimum wage when thinking about effects on employment are of critical importance. The key question is how binding the minimum wage is and will be, and on whom.
So, how does New Zealand’s minimum wage compare to other countries?
In 2019, the minimum wage in New Zealand was among the highest in the OECD, at 66% of the median wage for full-time workers. The OECD average was 54%. The Kiwi minimum wage is now at 70% of the median and would rise to 82% on a “living wage.” Only Colombia’s rate would be higher.
High minimum wages hurt the vulnerable – the young, low-skilled and inexperienced. These groups can expect to lose at least 33,500 jobs if minimum wages rise significantly, according to MBIE. For that reason, the Government should not lift the minimum wage.
Read David Law's Policy Point: “Minimum wages to the maximum: The risks of lifting the minimum wage

Grassroots rebellions
Joel Hernandez | Policy Analyst |
Kiwi students are not learning the literacy skills they need and now some schools are paying from their own pocket in a desperate attempt to reverse the dismal trend.

Both domestic and international data show a major problem in New Zealand's literacy levels. Back in 2000, Kiwi 15-year-olds ranked third out of 32 peer countries in reading competency, according to the OECD’s Programme for International Student Assessment (PISA). By 2018, New Zealand had dropped to sixth.

Another study by New Zealand’s Tertiary Education Commission in 2014 found 40% of teens holding a NCEA Level 2 qualification were functionally illiterate and innumerate.

And Year 5 primary school students ranked last for reading across English-speaking countries in the most recent Progress in International Literacy Study (PIRLS).

Schools are noticing the breakdown. But the Ministry of Education still refuses to fund alternate teaching programmes.

So now some schools are paying consultants tens of thousands of dollars from their own funds to upskill their teachers in structured literacy, which includes the explicit, systematic teaching of phonics.

Last week, RNZ reported that Wanaka-based principal Jo McKay was frustrated by the reading recovery programme because it waited for children to fail before doing something about it.

McKay said students who returned to structured literacy had already improved their reading abilities since it had been implemented. Those with dyslexia benefitted the most.

This grassroots rebellion could not come at a better time and will be crucial to fix New Zealand’s dismal literacy rates.

But to get there, the Ministry of Education must be willing to recognise that its “whole language” approach may not be working for all students and allow schools to choose which programmes are most effective.

Improving the literacy outcomes will require national testing data from all primary schools. The Ministry should be talking with concerned schools and watching the results of alternative teaching approaches to discover which ones work.

After all, a major reason these schools had to dip into their own pockets is because the Ministry refuses to gather any data that might cast its “whole literacy” approach in a negative light.

Such behaviour is intolerable. Rather than hinder testing, the Ministry should pay attention to these grassroots movements and look for ways to help. Until then, New Zealand’s literacy decline will continue.

The curse of scarce money
Dr Bryce Wilkinson | Senior Fellow |
As Mark Twain once quipped: “Lack of money is the root of all evil.”

And so entered the governor of the Reserve Bank of Transformable. “Suffer all those short of cash to come unto me,” quoth he. “For I have the key to the mother of all ATMs.”

Forsooth, he was being a little bit insular. The US Federal Reserve controls the mother of all ATM, not he. But his flock was forgiving because his intentions were pure and his ATM sufficiently cavernous.

Thus the banks and other worthies were pleased to come forward. They exchanged their government bonds for cash at the Bank’s ATM for a tidy profit. By June 2020, the profit was $3.3 billion, according to the nit-picking bean counters at Transformable’s Treasury.

The population’s wellbeing was surely enhanced by the bean counters’ estimate that the same arrangement would mean taxpayers lose a further $6.1b in 2020/21 and $1.7b the next year.

The Government of Transformable was mildly pleased. Redistributing wellbeing is at the centre of everything it does, so a few billion here and there is trivial.

Winners think big. Societal transformation is big. Winners can save the rest of us from ourselves. The Government of Transformable and the Bank governor are as one on transformation. What the bean counters thought, they kept to themselves.

The governor continued to huff and puff beyond June 2020. In a mere eight months he had borrowed enough money to more than double the Bank’s liabilities and assets.

But he was just warming up. Much more is in train. After all, if some credit creation is good, surely more is better. Why not use, the Bank’s ATM to buy Facebook. Facebook needs help to sort out its social responsibility problems and the Bank could help it on climate change.

Along the way, the governor doubled the money base relative to nominal gross domestic product. And he saw that this was good. Money represents command over resources. More money makes you feel richer and more secure.

More cash means the citizens of Transformable can pay more for the same house. Rocketing house prices are redistributing wealth and wellbeing marvellously. They are truly transformational.

Only an ageist, racist and sexist system would keep people’s pockets empty. Those disbelievers who ask: “if money is not scarce, what is it worth?” have obviously not taken Mark Twain’s words to heart.

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