In April, New Zealands Labour-led government raised the minimum wage from $16.50 to $17.70 per hour. Basic economic theory, which I have perforce become acquainted with over seven years of taking undergraduate notes in a far-flung range of subjects, would predict that the unemployment rate must rise proportionally. Being also acquainted with the methods by which economists arrive at basic economic theory, I am therefore entirely unsurprised to read that
New Zealands unemployment rate fell to 3.9 percent in the second quarter of 2019 from 4.2 percent in the previous period, compared to market expectations of 4.3 percent. That was the lowest jobless rate since the second quarter of 2008, when it was 3.8 percent. Unemployment rate in New Zealand averaged 5.99 percent from 1985 until 2019, reaching an all-time high of 11.20 percent in the third quarter of 1991 and a record low of 3.30 percent in the fourth quarter of 2007.
In case youre wondering, yes, the second quarter of 2008 was towards the end of the Labour Partys previous term in government, as was that record low in 2007, and 1991 was in the first term of the National government before them. Trading Economics has a graph of the New Zealand unemployment rate for the last thirty-three years, which Ive taken the liberty of colour-coding rather crudely in Paint according to the leading party of government. (Note for Americans: in New Zealand as in most of the rest of the world, the left-leaning party is branded red and the conservative party blue.)
I dont want to read more into this than is warranted. National took the reins of government from Labour twice during this period, and both times came shortly after worldwide financial crises, so Id be cautious about blaming them for the big upticks in unemployment at those times. Crises aside, the longer-term trend is downward. What I do want to point out is that there is no sign of the upward drift that orthodox economic theory would lead us to expect during Labours tenures, despite the fact that they raise the minimum wage every year by much bigger increments than National does.
This semester Im taking a first-year economics class, again. Its struck me right from the start how much its re-treading ground Ive been over and over since the first time round, seven years ago. If that doesnt sound surprising, by contrast Ive been assigned to papers in various health professions each semester since 2013, and every year theres been a module on cancer, and every year theres new insights about how cancer happens and what healthcare providers can do to fight it. Thats what progress looks like. Thats how you know a discipline is open to learning new truths.
In fairness, this semesters lecturer has mentioned a few things which, in previous economics classes Ive been to, have been skated over completely. He did take care to point out, for example, that sometimes people dont buy certain goods or services not because they dont want to pay the market price but because they cant the first time Ive ever heard this distinction highlighted. (Unfortunately he seems to have missed some rather major implications of it, but well get to that.) Also hes promised an upcoming block of lectures on market failures, which up till now I havent heard economists talk about to students below third-year.
Still, as in previous years, the lecture material treats labour as just another good or service, which workers sell and employers buy. When you draw a supply-and-demand graph, the demand curve slopes downward, meaning that the more something costs, the fewer people will be willing to buy it and the less of it will get bought. Meanwhile the supply curve slopes upward, meaning the more it costs, the more people will be willing to sell it and the more of it will be available for sale. Where the two curves cross, the amount people are trying to buy equals the amount available for sale, and the price at which that happens is the market price or equilibrium price. Theyre called curves but theyre usually graphed as straight diagonal lines. The slope of each curve is called its elasticity.
Im not allowed to ask questions in lectures, and after any lecture theres usually a few students wanting to talk to the lecturer and their practical need for information obviously takes precedence over my idle curiosity. But after the lecture introducing the concept of a supply curve, I had a rare opportunity for conversation.