Mary Mary Quite Contrary

How does your garden grow goes the rhyme and ignoring any issue Mary might have the garden at my house grows too much for my time or interest to keep under control. What I really need is a gardener but I don’t have one because.... potentially for a number of reasons but for now I want to look at the cost or put another way the wages I would have to pay.

New Zealand (as with a number of social reforms) was the first country in the world to introduce a minimum wage rate. This week has seen the government raise the adult minimum wage from $12.75 to $13.00. which produced the predictable claim and counter claim by the vested interest groups of unions and employers. My reflex response was to side with the employers who were running the standard supply and demand argument.

This is where my garden comes in, if I was allowed to pay someone $1 per hour and could find someone willing to work for such a paltry amount there is no doubt that I would employ a full time gardener (and likely as not a cook and housekeeper) but at $13.00 per hour I am not going to do that so there you go case proven. The artificially higher wage rate clearly limits employment opportunities and while the dollar example is not realistic somewhere along the line between $1 and $13 is the point at which I change my mind. Potentially before I reach that point someone may have been willing to do my garden but we will never know.

However I realised I was not well versed in the contrary point of view (the union commentator didn’t help he was operating strictly in sound bites and slogans) So I looked it up and here is a handy table I found on Wikipedia

Supporters of the minimum wage claim it has these effects:

1. Increases the standard of living for the poorest and most vulnerable class in society and raises average.

2. Motivates and encourages employees to work harder (unlike welfare programs and other transfer payments).

3. Stimulates consumption, by putting more money in the hands of low-income people who spend their entire paychecks.

4. Increases the work ethic of those who earn very little, as employers demand more return from the higher cost of hiring these employees.

5. Decreases the cost of government social welfare programs by increasing incomes for the lowest-paid.

6. Encourages the automation of industry.

7. Encourages people to join the workforce rather than pursuing money through illegal means, e.g., selling illegal drugs

So looking at each of these in turn

1 Seems doubtful to me as wages are a relativity exercise a 2% increase for the lowest paid is likely to trickle up to the best paid making the relative standard of living static. If you won’t buy that argument then you would have to agree that wage inflation feeds into general price inflation making the increase payment merely a compensation for inflation at best or the driver of inflation at worse.

2 Nope, not going to buy that one. People don’t work harder if you pay them more, time and time again studies have shown little correlation between pay and performance unless it is a direct system such as piece work.

3 OK I will accept this one as it is more or less my argument in rebutting number 1, but I am not sure this is a benefit for the low paid, it sounds more like a benefit for shopkeepers.

4 Err really? So every time you get a rise your boss finds ways to make you work harder (and in the process needing less of you presumably) Well I am not sure that is true for a start but this cycle between increased productivity and increased wages is the classic economic cycle and doesn’t need the government to intervene.

5 I have no real knowledge of this as a truth or otherwise but it sounds doubtful to me. Most welfare in this country is directed at non workers, not low paid workers.

6 This one I believe, as it is a substitution of labour for capital but it is really at odds with number 4. However regardless of all that how does that help the low paid, now they have no jobs, which if you recall is the argument put forward by the employers, finally it seems both sides are in agreement.

7 In the immortal words of the Tui campaign Yeah Right. People don’t sell drugs to earn $13 an hour, there are different reasons people get involved but I don’t believe for a second they are going to give it up for a $13 an hour job, especially with those nasty bosses in number 4 finding ways to make you work harder all the time.

So I remain unconvinced to say the least. While government intervention in the employment market may be useful for eliminating the worst employment practices, such as low paid child labour, it seems to become increasingly doubtful in its usefulness the closer it moves into the centre of the bell curve of employer behaviour and potentially an infringement on the "right to work" at some times.

As an aside here is the history of the Mary Mary rhyme, have a look.  http://www.rhymes.org.uk/mary_mary_quite_contrary.htm