Why is this wrong?

By Matt Nolan 05/03/2013

When the minimum wage change was being debated, I saw this tweet pop up from Duncan Garner.

Simon Bridges admits WINZ is there as a backstop if wages are too low. Can you believe it?

After the tweet follows a range of comments about corporate welfare etc etc.

This is all well and good, however I’m not sure I agree.  As I have said previously, I don’t agree with the minimum wage being used as a way of ensuring income adequacy (*,*,*).  If our true goal is to help those that are the “worst off” in society, than a direct minimum income – something that would be provided by WINZ – is the most direct means of doing this.  It sounds to me that Simon Bridges may have also been making that point (although we can argue about the degree and level of any said minimum income).

Now here is the kicker, people want to differentiate between the deserving and “undeserving” poor by using a minimum wage instead of transfering across a minimum income.  If we have to admit that transparently, does that seem fair, does that seem just?  These are the sort of question we should be asking ourselves, and society more generally, but they seem to have been missed in this situation – with people just looking for a reason to attack Simon Bridges.  Disappointing.

Note:  Via Economist’s View, Christina Romer on minimum wages.  The favoured solution over there tends to focus a lot more on the labour supply response than a strict minimum income/negative income tax would – and this is because it involves a broader set of redistributionary policies, rather than just the existence of a security net.  As you know, my focus tends to be on the security net issues with a pointer towards broader restribution given the rising potential for labour saving technolgy (*,*,*) – something that the Economist had a good piece on recently.  Remember, “potential parteo improvements” require redistribution for no-one to be worse off, there is no mystical tendency.

0 Responses to “Why is this wrong?”

  • ” differentiate between the deserving and “undeserving” poor by using a minimum wage instead of transfering across a minimum income. ”

    I thought the argument for minimum wage as opposed to a minimum income was to encourage people into work? Does this work? A Randomised Controlled Trial may tell us the answer – select a cohort of those currently receiving the unemployment benefit and randomly give one an allowance at the same rate as the minimum wage for 40h a week and the other receive current WINZ benefits. The outcome would be a difference in the mean time to employment of the two groups.

  • There’s a third option that preserves work incentives while being more efficient: wage subsidies. The US’s EITC and NZ’s WFF, at least in principle, better methods of supporting low income workers than are minimum wages. Lots of finicky details, like how abatement rates in combination with other means tested support programs can effect really high effective marginal tax rates that can wind up being as nasty as minimum wages. But, in principle, you could set one up that wasn’t as bad on that margin.