Denise Roche

Government stuck in the ‘80s on the minimum wage

by Denise Roche

Sometime around now, Cabinet will be undertaking its annual review of the minimum wage, which currently stands at a lowly $13 an hour. My bet is that we will see another effective nil increase, with the minimum wage being adjusted upwards no more than the level of inflation over the past year. That would be consistent with what John Key’s government has done since it came to power.

I also expect that the Government’s excuse for consigning workers to live on a wage that is completely inadequate to support their families will be the same as it has been over the last three years – a claim that increasing the minimum wage to a liveable level will cost jobs.  Last year, John Key claimed increasing it to $15 an hour would cost 6000 jobs. That claim appears to be an exaggeration of Department of Labour advice.  The Department  provided no methodology for its calculations, but suggested that a minimum wage increase to $15 an hour could slow job growth by between 4100 and 5890 jobs.

I find the purported Government concern about a decline in job growth completely hypocritical, given the number of jobs the Government is itself shedding in the state sector.

What’s more, John Key failed to mention that Government also had advice from Treasury that countered that from the Department of Labour – advice that suggested increasing the minimum wage would most probably not cost any jobs at all.

(It) has not been true in the past, so without new evidence the balance of probabilities is that a higher minimum wage does not generally lead to higher unemployment.

I’m with Treasury on this one.  There has been extensive research into the employment impacts of increases in the minimum wage over the past thirty years, starting with the landmark 1992 paper by US economists David Card and Alan Krueger. The NZ Council of Trade Unions’ submission to the current minimum wage review contains a literature review of that research (Appendix 1, pages 56-73).  What is clear is that things are much more complex than John Key asserts. There is no clear evidence, either internationally or in New Zealand, of a causal relationship between moderate increases in the minimum wage and employment or unemployment levels, and this has become increasingly evident over the last 30 years.

Increasing the minimum wage, first to $15 an hour and eventually to two thirds of the average wage, will help both reduce inequality and poverty and reduce the reliance of many low-income New Zealanders on taxpayer-funded financial support. It’s time for Government to listen to the Green Party on this issue, rather than submitters like Federated Farmers and the NZ Retailers’ Association who lobby for low minimum wages out of their own members’ self-interest.

Published in Economy, Work, & Welfare by Denise Roche on Tue, January 31st, 2012   

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