There are a few points I would like to make as well though. Tane says:
David Farrar made the same fallacy the other day, the minimum wage isn’t there to make us all rich, it’s there to ensure that people on low incomes are able to live their lives with some basic dignity and security
Well, the minimum wage is a poor tool to do this. The best wage to ensure that people have a minimum income is from the state to provide it directly – which they do with the unemployment benefit. In this case everyone has a minimum living standard, but by joining the labour market they can improve on this. Although I believe there is a case for a minimum wage – the case for “increasing” it is much more debatable.
The next section is the bit David discusses:
But in a capitalist system any benefit from productivity increases goes directly into the pockets of business owners. You need a mechanism to translate that into wages. And that mechanism is decent employment protections and a unionised workforce that has the strength to bargain decent wage increases.
There is some truth in the fact that workers can get a larger pay rise when they increase their market power – after all, that is what the union is. However, strong employment laws are not the only way for rising productivity to influence wages.
Think about what increasing productivity does – it means we can make more stuff with the same inputs. Now, if the production process depends on labour (which it almost always does) this (often) implies that current firms receive a greater benefit from using labour. Now if this is the case competition between firms, and entrepreneurs, will ensure that wages get pushed up to some degree.
We only get the situation Tane describes when labour has no market power, and when no additional labour can be coxed into the market by lifting wage rates. This is a very very extreme set of assumptions.
I agree with Tane that the state does have an ability to improve outcomes in the labour market – by changing the structure of negotiations and adjusting bargaining power. But even in the absence of the state, the statements he put forward were too extreme – productivity improvements would go partially to labour.
This is important, as Tane is pushing for “more” government involvement in the labour market – and the justification for this is his extreme view of the way the labour market works. A view that I do not think matches current reality.