A chance to create a more equitable economic model

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Prime Minister Jacinda Ardern, flanked by Education Minister Chris Hipkins and Social Development Minister Carmel Sepuloni, spoke to media in Auckland on November 18 about a new trades program to tackle unemployment.

Ricky Wilson / Stuff

Prime Minister Jacinda Ardern, flanked by Education Minister Chris Hipkins and Social Development Minister Carmel Sepuloni, spoke to media in Auckland on November 18 about a new trades program to tackle unemployment.

OPINION: The global Covid-19 pandemic has created a major social and economic shock for Aotearoa in New Zealand. These impacts were not distributed evenly.

Those who already face systemic disadvantage – Maori, Pasifikas, people with disabilities, youth and women – have disproportionately borne the burden of job losses and economic uncertainty.

However, the paradigm-shifting nature of this truly global event also presents a unique opportunity to create a more equitable economic model, creating a post-pandemic New Zealand characterized by more inclusive growth for the next generation.

Focusing on inclusive growth means that everyone has a stake in progress. This includes thinking beyond current forms of redistribution (such as social security payments) to include concepts of “predistribution” (such as significantly higher wages) for a more inclusive future.

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In other words, we need to create a country where the incomes of low-income people are growing faster than those of rich people. The lockdown has made many of us realize that the essential workers who keep us alive are not being paid at a level that recognizes their value to society. Cleaners, supermarket workers and other essential workers need more than a 7 p.m. applause – many of them urgently need more money.

On Tuesday, NZIER and the Helen Clark Foundation jointly released a discussion paper that draws on the OECD Framework for Inclusive Growth to define an agenda that could work for Aotearoa New Zealand. It includes a discussion of a new approach to minimum wage increases, to encourage investment in skills and capital.

We want employers to invest in skills and capital that improve productivity for a more sustainable economy. Future minimum wage reviews need to focus on the long-term dynamics that arise when wages are higher and capital is low.

The body of evidence for high-income countries shows a wide range of effects of increasing the minimum wage, but the most common finding is that there is little or no negative effect on aggregate employment. . The current living wage is $ 22.10, compared to the minimum wage of $ 18.90.

A queue outside a Winz office in Auckland.  Todd Krieble writes that it is frequently found that raising the minimum wage has little or no negative effect on overall employment.  (File photo).

David White / Tips

A queue outside a Winz office in Auckland. Todd Krieble writes that it is frequently found that raising the minimum wage has little or no negative effect on overall employment. (File photo).

The short-term costs of an increase in the minimum wage appear significant, but are minor against the background of a $ 20 billion reduction in GDP after the March-April 2020 lockdown and a 12 billion GDP drop. 2% in the June 2020 quarter.

The lockdown cut 11,000 jobs in the June 2020 quarter, many of which were reportedly poorly paid. There is a strong argument that jobs that could have been lost in response to a minimum wage increase have in fact already disappeared.

In light of this, the productivity benefits of an increase in wages should not be overlooked. Higher wages increase the likelihood that workers are motivated and companies are more likely to invest in training.

Companies like TONZU – a company featured in our report – have seen this effect in action. If employers pay living wages, the state has less need to redistribute through taxes and transfers after employment income. This helps promote a sense of social and economic inclusion, belonging and participation. This kind of predistribution now makes sense as our economy is resetting itself.

In addition to raising wages, New Zealand must invest in developing local talent, retraining and upgrading the existing workforce, and removing barriers to labor market participation for individuals and households that are currently excluded.

There are opportunities for all New Zealanders if we build a program that makes our Covid-19 rebound inclusive. The article we published with the Helen Clark Foundation is a contribution to this kōrero.


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