“It is not from the benevolence of the person that we expect them to work, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages.”

Recently over at Kiwiblog there has been a superb series of articles by one of the regular commentators there, PaulL, which looks at the problems created for beneficiaries by government.

His analysis focuses on our combinations of tax rates and various types of benefits – also called transfer systems – and how this creates barriers in moving people from welfare to work. The key phrase is Effective Marginal Tax Rates.

Admittedly it’s a problem common across the Western world, perhaps the entire world. I agree with his first point:

I would argue that at the lower end incentives matter even more than the top end.  For someone earning $180K per annum, working an extra hour isn’t a massive stretch.  For someone not working at all, working that first hour is a massive change.

I’m not going to list all the details and the graphs of his posts but merely some of the key conclusions from each post, which are regrettably often the same:

Working 10 hours per week,[Sole parent, 2 kids, impact of working additional hours] their income after expenses is $918 per week.  From there to 36 hours a week there’s no point in working those extra hours – the household income remains at basically $920-$930 per week… Nobody in their right mind would work 40 hours a week to get $170 more disposable income than they had when they weren’t working at all.  That’s $4 of disposable income for each hour of work.

For this household 83% of the increase in the minimum wage actually flows to the government in taxes and clawbacks. This household is a perfect example of the type of household we’d typically talk about when increasing the minimum wage – a single wage earner with two dependents. And yet, that minimum wage increase costs business a lot of money, most of that money flows to government. 

I’m increasingly of the opinion that leftists know this, and don’t care because their main cause in life now is not making the lives of the poor or the working class better, but to relentlessly increase the size of government.

EMTR Other Demographics: for people who are lowly paid and part time, there is relatively little incentive to increase hourly earnings – for every extra dollar per hour you earn the government claws back 70% or more.  This may reduce the likelihood people would invest in training or moving into more responsible / onerous positions.

Backing off my cynicism above, I wonder if any of the Labour Party people, or any Left-Wingers, have ever done such a calculation when they bellow about how the minimum wage can help people, save people? For that matter, has anybody from National or ACT ever made these arguments when confronted with the emotional blackmail surrounding the minimum wage?

I’ve never heard such arguments from such people, but they are desperately needed, for as PaulL observes:

The productivity of a country as a whole is really just the sum of the productivity of the people in that country. If significant chunks of our population have no incentive to invest in improving their productivity, because it makes no difference to their income, does that impact our national productivity and wealth?

Our productivity has been dreadful for decades, as documented by Michael Riddell, and although our lousy investment in capital (a strange failure for a “capitalist” economy) is the primary problem, it is made worse by the stupid barriers identified in the KB posts against people who would like to better themselves.