Productivity

Rodney Hide has written a much better columns for the NBR than the silly one in the Herald about trains. He begins with the prescription for ending poverty:

Ending poverty is easy: abolish income tax, remove all controls on foreign investment, eliminate welfare, get rid of the minimum wage and make employing someone simple contract law, i.e. no employment legislation, no Employment Court and no personal grievances.

The country would boom and there would be jobs for Africa.

Productivity would go through the roof.

Wages would skyrocket.

The majority of Parliamentarians know that’s true.

But they don’t do anything positive to assist the poor or to reverse New Zealand’s relative economic decline. Aaah, they explain, politics.

I could never figure out what that meant.  I was missing something. And I spent a great deal of time finding out what it was.

It’s this: there’s no cause-and-effect thinking in politics.

Deducing policy consequences requires a chain of reasoning that political reporters and most voters can’t be bothered with.  It’s requires thought and it’s hard.  I forgive the voters.  Their vote won’t make a difference to the world.  So why waste time thinking about policy impacts?

ᔥ Conversable Economist

Orley Ashenfelter extends the Big Mac index to look at Wages…or as he calls it McWages…the wage rates of people in the same jobs across the globe. His conclusions are interesting, particularly the skewing effect of a minimum wage law:

Here is an illustrative figure. The horizontal axis shows the “McWage ratio”: that is, the U.S. McWage is equal to 1.00, and the McWages in all other countries are expressed in proportion. The vertical axis is “Hourly Output Ratio.” This is measuring output per hour worked in the economy, again with the U.S. level set equal to 1.00, and the output per hour worked in all other countries expressed in proportion. The straight line at a 45-degree angle plots the points in which a country with, say, a McWage at 20% of the U.S. level also has output per hour worked at 20% of the U.S. level, a country with a McWage at 50% of the U.S. level also has output per hour worked at 50% of the U.S. level, and so on.

The key lesson of the figure is that the differences in McWages across countries line up with the overall productivity differences across countries. The main exceptions, in the upper right-hand part of the diagram, are countries where the McWage is above U.S. levels but output-per-hour for the economy as a whole is below U.S. levels: New Zealand, Japan, Italy, Germany. These are countries with minimum wage laws that push up the McWage.