Facts about the minimum wage

I notice this morning already much of the advocacy for increasing the minimum wage focusses on  being able to feed children. Yet most minimum wage earners are single and childless. When they do have children they are often part of a couple with the other earning considerably more.

Assuming Treasury deals in accurate statistics here are some about the minimum wage:

 "The minimum wage has grown much faster than average wages over the last decade...

 In 2011 our minimum wage was 60% of the median earnings for full-time workers. This was amongst the highest ratios in the OECD, and well above the level found in most countries which is typically around 45%.   For instance, the ratio was 45% in Australia, 38% in the United Kingdom, 40% in Canada, and 28% in the United States.[1] Increasing the rate still higher to 88% of the median wage would take the minimum wage well outside the normal range. This is likely to make employment for people with low skills difficult in an internationally focused economy.

---

[1]           2011 was the most recent date on which comparisons were available from the OECD.

... the minimum wage applies to a smaller proportion of the workforce (less than 4%) ...

63 percent of households earning below $18.40 are single adults without dependants.

The current objective of the minimum wage is to protect the real incomes of low wage earners, while minimising job losses. It is not an effective mechanism for reducing poverty on its own, nor is it intended to be. Instead, there are other measures, like income transfers, subsidised access to health and education services, and childcare assistance, to improve the wellbeing of families with low incomes.

 Raising the floor on wages will... always provide greatest benefit to younger people, and especially to those in the teens and early 20s."

Matt McCarten's claims in HOS

In today's Herald on Sunday Matt McCarten refers to

"...130,000 unemployed Kiwis who now get no assistance."

FACTS

At the end of September 2013 there were 150,000 officially unemployed

At the end of September 2013 there were 126,470 people receiving Jobseeker Support

McCarten is quoting Mike Treen, Unite union director leader, who produced the graph below to make a claim that the unemployed are being denied benefits.

The purple line represents the number unemployed; the green line the number of people on the unemployment benefit.

But what does it look like if I add the line representing people receiving a sickness or invalid benefit?

There it is. The blueish line. (Apologies for the crude scan and manually added line but I don't want to spend any more time trying to make this point than I have to.)

The sickness and invalid benefits have increasingly become de facto unemployment benefits. The OECD refers to this phenomena as "medicalisation" of labour market problems. Being long-term unemployed can and does make people ill. It's a problem all developed countries are grappling with.
 

Treen however claims:

 There was also no significant increase in other working age benefits like sickness, invalid or sole parent benefits to account for the missing number of those receiving the unemployment benefit.

I'll leave you to draw your own conclusions as to why he would say that.

Getting back to the last three years, National's welfare reforms increasingly applied work-testing to the DPB and Sickness benefits starting with Future Focus which kicked in in September 2010. That means people who hadn't previously described themselves as unemployed for the purposes of the Household Labour Force Survey (the source of unemployment statistics) began to. This artificially boosts the number unemployed but is also beginning the very necessary correction to a true relationship between unemployment and welfare dependency.

Matt McCarten is dog-whistling. Most unemployed people - at least 85% - are still receiving state assistance. There are valid (though possibly unfair) reasons why some are not which I cover here. 

Finally, note the irony of McCarten objecting to "Labour's dishonourable record" in this matter.

On another day you can fully expect to find him applauding Labour's wonderful achievement of record low unemployment.

How times change

Sent by a reader, bizarre adverts by today standards. But almost a relief from the 21st century health-Nazi's deeply oppressive negativity:

Robbed of "billions of dollars"?

I don't have the time to make a new chart in Excel so apologies for the effort below which adds the Jobseeker line missing from Daily Blog/ Mike Treen's post that claimed the unemployed (purple line) were being robbed of "billions of dollars"  in being denied unemployment benefits (blue line). He was quite explicit that other working age benefits hadn't risen, so where had the 100,000 entitled to an unemployment benefit disappeared to?

For many years the sickness benefit and DPB acted as de facto unemployment benefits. Now that the reforms have partially prevented that by putting work expectations on more people this is the result. But there are not 100,000 people unemployed without any support from the benefit system - what the Daily Blog would have us believe.

Daily Blog: dishonesty or ignorance?

Mike Treen has written a post at the Daily Blog and called it  

Exclusive: Billions of dollars stolen from the unemployed.

The graph he uses shows the numbers of unemployed (purple line) versus numbers on the unemployment benefit (green line).He claims,

The combined efforts of both National and Labour governments’ punitive policies towards the unemployed seems to have removed over 100,000 people from rightful access to an unemployment benefit.

Is he right?

Let's explore the possible reasons for this picture.

The point at which the lines cross is around 2005 (note he wasn't complaining about the period prior when more people were receiving an unemployment benefit than were apparently unemployed.)

Treen says:

There was also no significant increase in other working age benefits like sickness, invalid or sole parent benefits to account for the missing number of those receiving the unemployment benefit.

In June 2005 there were 120,442 people on a sickness or invalid benefit. By June 2012 the number had grown to 147,548 - an increase of 22.5% or 27,106. I would call that a significant increase.


Who are the unemployed not receiving benefits?

Between 2005 and 2012 (June data) females Living as Married - Unemployed in the Labour Force grew from 14.9 percent to 27.2 percent. Males Living as Married - Unemployed in the Labour Force grew from 12.6 percent to 24.3 percent. People don't usually qualify for unemployment benefits if their partner is still employed (it could be argued they should and I have some sympathy with that view.)

People unemployed short term won't qualify. Taking just those unemployed for 9-13 weeks, the point at which eligibility for UB might kick in - the percentage of all unemployed climbed from 7.7 percent in 2005 to 16.1 in 2012. Percentages unemployed for even shorter periods all increased (StatsNZ Infoshare).

People with savings and investments won't qualify. I can't quantify that possibility but it is quite likely that people who lost employment as a result of the recession may be in this boat.

Lastly though, and probably the most important reason for this development is work-testing (of both beneficiaries and their partners). It's much more extensive now and many more people will have been describing themselves as unemployed while on either a sickness or domestic purposes benefit. They are required to look for and be available for work so are technically unemployed. That was not the case before the reforms. That's the purple line rising since 2010.


In fact, Treen's post shows 148,300 unemployed at September 2013.

What he omits is 126,470 were also on Jobseeker Support at September 2013.

Not such a huge discrepancy after all.

Update Professor Susan St John jumps on the band wagon with:

The growing divergence between the numbers officially unemployed and those getting a benefit are highlighted in Mike Treen’s blog Billions of Dollars Stolen From The Unemployed .   Worryingly the evidence around us suggests that a high price is being paid by those who have been excluded from or pushed out of the benefit system, but are not finding work.

The growing divergence between the numbers officially unemployed and those getting a benefit are highlighted in Mike Treen’s blog - See more at: http://thedailyblog.co.nz/2014/01/31/so-much-for-the-success-of-welfare-reform/#sthash.OoBWrBsI.dpuf

The growing divergence between the numbers officially unemployed and those getting a benefit are highlighted in Mike Treen’s blog Billions of Dollars Stolen From The Unemployed .   Worryingly the evidence around us suggests that a high price is being paid by those who have been excluded from or pushed out of the benefit system, but are not finding work. - See more at: http://thedailyblog.co.nz/2014/01/31/so-much-for-the-success-of-welfare-reform/#sthash.OoBWrBsI.dpuf

The growing divergence between the numbers officially unemployed and those getting a benefit are highlighted in Mike Treen’s blog Billions of Dollars Stolen From The Unemployed .   Worryingly the evidence around us suggests that a high price is being paid by those who have been excluded from or pushed out of the benefit system, but are not finding work. - See more at: http://thedailyblog.co.nz/2014/01/31/so-much-for-the-success-of-welfare-reform/#sthash.OoBWrBsI.dpuf

The growing divergence between the numbers officially unemployed and those getting a benefit are highlighted in Mike Treen’s blog Billions of Dollars Stolen From The Unemployed .   Worryingly the evidence around us suggests that a high price is being paid by those who have been excluded from or pushed out of the benefit system, but are not finding work. - See more at: http://thedailyblog.co.nz/2014/01/31/so-much-for-the-success-of-welfare-reform/#sthash.OoBWrBsI.dpuf

Cause or effect of welfare?

Published in yesterday's Dominion Post:

"Facts about inequality"

I have been arguing that income equality has not worsened over the past few years, albeit over a longer period, it has. Those are the facts based on MSD research.

Now committed leftist Brian Easton has appeared in the DomPost saying the same stuff. He has summarised Bryan Perry's extensive work, Household Incomes in NZ. He's also heavily criticised Max Rashbrooke's work which is apparently like a NZ version of the Spirit Level. With similarly dubious findings it would seem.


When asking the reader to accept the facts about inequality Patrick Smellie writes:

Don't even take the word of the team of researchers put together by journalist Max Rashbrooke for his book Inequality: A New Zealand Crisis, which has been extensively toured since publication last year to raise awareness of the issue.
Instead, take the word of Brian Easton, one of neo-liberal economics' most long-standing critics, who has penned a handy compendium of the available data, titled: Inequality in New Zealand - A User's Guide.
Easton appears to have been miffed that, after a lifetime's work in this area, he was not approached to contribute to the Rashbrooke tome. He sniffily dismisses its analysis as being reminiscent of "the drunk who uses a lamp-post for support rather than illumination", unlike the "marvellously detailed" work by Perry.
The user's guide effectively reduces Perry's 242-page work to digestible size, while stopping short of "tediously correcting or elaborating a plethora of statements" in the Rashbrooke book.

....Clearly, New Zealand has income inequality that has got worse and then stabilised. Political parties of all stripes know that and are responding in various ways, to varying extents.
National's social housing foray and its retention of benefits and family assistance through the post-GFC recession are proof that Tories worry about inequality, albeit with less hand-wringing than the Left and with greater willingness to reward wealth creators disproportionately. How we respond as a nation is one of the most important things our politics can do.
But let's start with the facts about inequality, which are not as clear-cut as many have thought.

John Banks on child poverty

Keeping Stock has posted  John Bank's parliamentary speech about child poverty. I hesitated, wasn't going to bother and then thought better of it. I recommend you give it a few minutes of your time. Banks seems to be the only politician left standing who is saying you cannot solve child poverty by taking from the rich to give to the poor. We've tried it and it's failed. Miserably. It's an impassioned speech in parts addressed to Hone Harawira who constantly tries to shout him down. Good for you Banks. And thanks Keeping Stock for drawing my attention to it. This ACT on message. May they stay there.

Plucking numbers out the air?

In Australia where the government plans to abolish the Baby Bonus here's the evidence about the actual costs of raising a child:

The budget measure was a recommendation of the Henry Tax Review. The review noted that government-funded research had found that the actual direct costs of children for low-income families were closer to $2,000 for a first child and $1,000 for a second child and that the current Baby Bonus rates covers much more than these costs.[4]

In New Zealand where Labour wants to introduce a Baby Bonus heres the evidence about the actual costs of raising a child:

 A recent study commissioned by the IRD estimated that it costs about $14,000 a year to raise a child until the age of twelve (Claus,Leggett and Wang, Costs of raising children, 2009). Costs ranged from 15% of weekly household income for a high-income household through to 21% for a low-income household.

Single parent children lack upward mobility

Thanks to the reader who sent a link to this New Scientist article. Inequality is the big subject worldwide. Contributing to inequality is a lack of upward social mobility:

 The study, Where is the Land of Opportunity?: The geography of intergenerational mobility in the United States, authored by Harvard economist Raj Chetty and colleagues from Harvard and Berkeley, explores the community characteristics most likely to predict mobility for lower-income children. It specifically focuses on two outcomes: absolute mobility for lower-income children – how far up the income ladder they move as adults &ndash and relative mobility – how far apart children who grew up rich and poor in the same community end up on the economic ladder as adults. When it comes to these measures, the Harvard study asks which factors are the strongest predictors of upward mobility.

1. Family structure. Of all the factors most predictive of economic mobility in America, one factor clearly stands out in their study: family structure. By their reckoning, when it comes to mobility, "the strongest and most robust predictor is the fraction of children with single parents". They find that children raised in communities with high percentages of single mothers are significantly less likely to experience absolute and relative mobility. Moreover, "children of married parents also have higher rates of upward mobility if they live in communities with fewer single parents". In other words it looks like a married village is more likely to raise the economic prospects of a poor child.

What makes this finding particularly significant is that this is the first major study showing that rates of single parenthood at the community level are linked to children's economic opportunities over the course of their lives. A lot of research – including new research from the Brookings Institution – has shown us that kids are more likely to climb the income ladder when they are raised by two, married parents. But this is the first study to show that lower-income kids from both single and married-parent families are more likely to succeed if they hail from a community with lots of two-parent families.

The growth in single parent families (NZ just trails the US statistically) has substantially contributed to income inequality and  child poverty. Now, according to this research, it's also responsible for a lack of upward mobility for children.

It isn't single parent families period though. Post-war single parent families would, I am sure, still exhibit ample upward mobility for their children. It's the advent of welfare-created sole parent families that has trapped offspring. Too often their mothers - and fathers - only role-model lifestyles that lead to inter-generational dependence.

Have you ever heard David Cunliffe mention inequality and single parent families in the same sentence? For that matter, I've never heard Key draw the link either though to be fair he isn't beating the inequality drum.

Making babies on a benefit

Kiwiblog has pointed out that someone adding another child to a benefit under Labour's baby bribe scheme will be $128 better off. I make it $124. Below are the existing Family Tax Credit payments made to beneficiaries with children. The baby bribe is on top of these.

Age/number of children	Weekly rate from 1 April 2012 to 31 March 2013
First child if under 16	$92
First child if 16 or over	$101
Subsequent child if under 13	$64
Subsequent child if 13 to 15	$73
Subsequent child if 16 or over	$91

So you are young, unskilled and uneducated. Having a baby will get you a benefit ($295 weekly) and accommodation supplement (up to $225 weekly in Auckland) plus $152 a week the first time. Add another baby and you'll get a further $124. It's not bad money.

(Just ball park figures for anyone who weants to nitpick. Quite possibly AS will be abated if other income rises but that's unknown at this stage.)

Poll reaction to the baby bribe

From Stuff

Rate Labour's Best Start plan:

It's great

280 votes, 23.4%

It's OK - some good bits, some not so good

100 votes, 8.3%

We'll see

132 votes, 11.0%

It's bad

687 votes, 57.3%

Total 1199 votes

Australia to abolish baby bonus

As commented yesterday, there is no rational reason for Labour's new baby bribe policy. Interestingly it also flies in the face of what Labor in Australia were proposing before their defeat late last year. The abolition of the baby bonus. Why? Because they can't afford it.

In its 2013–14 Budget, the Labor Government has again looked to tighten access and levels of family assistance to find some significant savings. One of the standout measures is the abolition of the Baby Bonus. The Government proposes to replace the Baby Bonus with a smaller supplementary payment added to a families’ Family Tax Benefit Part A (FTB-A) entitlement. The measure is expected to save $1.1 billion over five years and will be implemented from 1 March 2014.[1]

more

And the proposed changes have been kept by the Coalition government (albeit they are making PPL much more generous from July 1, 2015):

Changes to Baby Bonus from 1 March 2014

Baby Bonus will no longer be available for children who are born or adopted on or after 1 March 2014. You may be eligible for Parental Leave Pay or the Newborn Upfront Payment and Newborn Supplement paid with your Family Tax Benefit Part A payments.

This gives me a steer on what National will now do to counteract Cunliffe's plan.
And Bill English has already hinted at it. Agree to Sue Moroney's bill to extend Paid Parental Leave to 26 weeks.

Labour's new bribe

Child poverty is declining by every measure

The most commonly used measurement which counts children in households below 60 percent of the median household after-housing-costs income, has fallen from 37 percent in 2001 to 21 percent in 2012.

Yet Labour continues to claim that "more than ever families are struggling to make ends meet."

They manufacture a crisis in order to find a solution. That's the business of politicians. That's what keeps them in well-paid, prestigious, jobs.

Back in 2004 Steve Maharey described Working for Families as "...the biggest offensive on child poverty NZ has seen for decades." From 2005 the Family Tax Credit and In Work Tax Credits were steadily increased and inflation-proofed. When National came the policy was retained.

But now it's not enough? Not if you need to win an election.

A new scheme is devised with its own name, BEST START (just promising to increase WFF payments wouldn't have been as sexy). So it all smells like a bribe.

It worked in 2005 and Labour are hoping like hell it will work in 2014.

Half a billion of extra welfare spending. If they need an extra 200,000 votes that's $2,500 per vote.

RISKS

The main reason for child poverty is between a fifth and a quarter of babies born every year will be benefit-dependent by the end of the year. Effectively increasing the Sole Parent Support (ex DPB) by $3,000 a year isn't going to discourage that pattern of behaviour. This policy risks growing the number of benefit-dependent children which will achieve the very opposite of what Cunliffe claims to want.

Money for nothing always reduces work effort. At a time when we need more people working to support the ageing population this will reduce female labour force participation.

It will undermine the welfare reforms aimed at reducing long-term dependency by making benefits more attractive. Of course there is no guarantee the new work-testing will be retained if the government changes anyway.

It will cost employers as females stay away from work for longer. Employers have opposed extending PPL.

There is no guarantee the money will be spent on the children. There is already clear evidence that many low income parents budget well and manage as a consequence. They are officially defined as being in poverty but not in hardship. Others don't manage their money well. Providing more won't  change that behaviour.




Update: After an interview with Larry Williams (starts 2:52) NewstalkZB  reports my comment here.

Greens would raise benefits

The Greens want to raise benefits. No surprise but always worth noting when they spell it out.

From Metiria Turei's State of the Planet speech today:

Poorer kids have three times the rate of hospital admissions for preventable illnesses. They are one and a half times as likely to die in infancy, and have an up to 50 per cent chance of becoming a poor adult, when, inevitably, the poverty cycle begins again for their kids.
 Are you angry yet?
Turning away, not even engaging with inequality, as we saw the Prime Minsiter do last week, is a betrayal of those children.
The answer is, of course to eradicate poverty itself, by lifting the minimum wage, creating a smarter greener economy, ensuring that families live in affordable, warm, dry homes, and raising benefits. 

If I took anything from my Asian trip it was the new reality in China - now NZ's biggest trading partner. Low tax incentives are the rule for growth.

New Zealand cannot afford to increase taxation on individuals or companies. That is what implementation of the Green policies would require. As well, it's research-proven that when governments redistribute more wealth to low income families with children, the percentage of workless households increases.

Greens are la-la dreamers. I wasn't going to make comment but then thought better. Their idealism is naive but it's not harmless. It's dangerous. So this year it needs to be exposed as regularly as it appears.