Matt Nolan

Minimum wage: International comparisons

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Via a Timothy Taylor blog post, the following couple of graphs:

And an important priviso:

Moreover, minimum wages across countries should also evaluated in the context of other government spending programs or tax provisions that benefit low-wage families.

None of this is to say what minimum wage is right or wrong, or what set of social and economic policies are right and wrong.  It is instead to note that, relative to mean and median income, NZ’s minimum wage is very high by international standards.  Make of that whatever you will – and do so in the comments if you like.

My views on the minimum wage will appear at another time – far in the future.  For now all I want to share are graphs.

Will Taylor

Crowd funding, Trade Me and Network Externalities

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Very exciting news last week that New Zealand’s first two equity crowd funding platforms have been licensed. See PledgeMe’s (henceforth PM) blog announcement here and Snowball Effect’s (henceforth SE) FB announcement here and the FMA’s announcement here.

Exactly what role crowd funded equity will play in NZ is going to be very interesting to watch:

  • Will it fill a gap in the market and mean businesses get funding that they otherwise wouldn’t have? or
  • Will it merely substitute existing funding channels but provide a ready made army of brand ambassadors for the companies that receive funding?

I imagine it will be some combination of the two, but that’s not what I want to talk about. I wanted to briefly touch on how the market structure for crowd funding platforms might evolve.

We’ve had two licensees accepted and I have read somewhere that there are another two before the FMA (plus one combined peer-to-peer lending/equity crowdfunding platform). The question I have heard a few times is whether we can sustain 5 platforms and if one will rise to the top. In this regard, I have heard TradeMe given as an example that one platform will win out.

I’m not sure this is right.

Read more

Matt Nolan

On participation and wages

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Last week the Reserve Bank released their official cash rate review.  As always, it was a good review laying out the important trends that are influencing their thinking when it comes to setting the official cash rate.

However, there is no fun in leaving it there.  There is one part of the statement I want to be pedantic about:

Wage inflation is subdued, reflecting recent low inflation outcomes, increased labour force participation, and strong net immigration.

There are two parts I want to discuss here:

  1. Increased labour force participation:  The Bank is essentially saying that wage inflation is subdued, relative to what we would expect given the increase in employment, due to the fact that labour force participation rose.  They are right, totally and completely – labour demand shifted right, and the supply curve was such that most of the change came in quantity not price, neat!  However, this can give a misleading impression of the future if we don’t read it carefully – let us not forget that labour force participation rates are at a record high at the moment.  As a result, the “capacity” in the economy is more limited – and future lifts in labour demand are likely to lead to nominal wage pressures (note this isn’t the same as higher real wages per se – but more like an increase in inflation expectations) than lifts in employment.  This is indeed what the Bank was hinting at with the statement prior “Inflation remains moderate, but strong growth in output has been absorbing spare capacity. This is expected to add to non-tradables inflation.”
  2. Strong net migration:  Hold on a second.  We keep being told that strong net migration is pushing up inflationary pressures.  Now we are being told that net migration reduced inflationary pressures (note that “wage inflation”, again not real wage growth, is a lot closer to real inflation, and real inflation expectations, than a point in times annual increase in the CPI).  Higher population growth does indeed increase “demand” and “supply” so the relevance to monetary policy itself is indeterminate.
Matt Nolan

Anti-Dismal is back live!

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Hi all, I am a month slow on noting this as I haven’t been reading blogs over the past couple of months – so just pointing out now that Paul Walker is back blogging over at Anti-Dismal again.  I’d suggest heading off and reading this recent post.

Truly, the link between factors such as agglomeration, scale, productivity, and dispersion of income is a pretty danged important issue – and one that keeps being looked past when discussing inequality trends IMO.

Matt Nolan

Tweeting the curse of distance

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Via Owen Williams on Twitter came this gem:

This is true, shipping is a pretty big deal.  However, Aaron Schiff pointed out another common cost of being in NZ:

This is of course the curse of distance – both from the “production” of goods and from large centres of “consumption” (where the fixed cost of transporting can be spread over more customers).  The OECD has discussed this cost before, and NZ’s Productivity Commission also mentions it when discussing why productivity in New Zealand is relatively low.

Nice to see Amazon giving us some concrete examples we can use to discuss the phenomenon though – well nice until you want to buy anything 😉

Matt Nolan

A response to Danyl on data and inequality

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Over at Dim Post I see Danyl is discussing the latest (2014) Household Income Report and Piketty’s book Capital in the 21st Century.  Excellent – there are lots of important and interesting issues to discussing look at these sources.

However, in this instance the data he is using and his interpretation is sadly a bit off.  I thought I’d discuss why this is here. Read more