Call to roll back minimum wage increases

New Zealand should not increase the minimum wage further – and should consider winding back the 2020 rise, a new report says.

The New Zealand Initiative report, Minimum wages to the maximum: The risks of lifting the minimum wage, is a response to a paper released by the Helen Clark Foundation and the New Zealand Institute of Economic Research.

That paper suggested, among other things, that more investment should be made in New Zealand’s workforce, and the minimum wage should be increased to the level of the living wage.

NZIER deputy chief executive Todd Krieble said the focus should shift to ‘‘predistribution’’ – backing people from the outset with good wages and investment in them, rather than the current benefit system of redistribution to those who fell behind. He said higher wages could lead to a productivity boost.

The minimum wage is currently $18.90 but is to rise to $20 next year. The living wage – a rate that is said to allow the recipient to participate fully in society – is $22.10 an hour.

New Zealand Initiative senior fellow Dr David Law said it was wishful thinking to hope that a minimum wage increase would reduce inequality.

‘‘This country already has one of the highest rates in the OECD. If this rises to a ‘living wage’ of $22.10, that would take it to 82 per cent of the median wage. Only Colombia would have a higher rate than us. Such a high minimum wage would put jobs at risk,’’ he said.

Law’s paper said minimum wages had advantages and disadvantages: They could improve equity by lifting the incomes of lower-paid workers and encourage people to seek work.

‘‘If set too low, it loses this usefulness. If set too high, the minimum wage will stop employers from hiring low-skilled workers and may end up protecting the ‘insiders’ who already have the jobs. For some firms, the cost of hiring staff can be a hurdle, even at the minimum wage.’’

Law said people who were young and lower-skilled were hardest hit by minimum wage increases.

He said a study using New Zealand data and previous increases estimated a 10 per cent increase in the minimum wage, without a loss in employment or work hours, would lower relative poverty by a 10th of a percentage point.

‘‘For this reason, in-work transfers are likely to be a better way to reduce poverty.’’

Law said, given the economic climate, it would be ‘‘terrible timing’’ to consider lifting the minimum wage now. ‘‘Chasing, at best, marginal reductions in inequality or increases in productivity with a minimum wage rate increase would likely lead to significantly fewer Kiwis employed than would otherwise be the case. Job growth and keeping people employed should be of primary policy concern, rather than differences between those who are lucky enough to be employed at this time.’’

The New Zealand Initiative report advised scrapping any plans to further lift the minimum wage and suggested winding back the 2020 increase.

Gareth Kiernan, chief forecaster at Infometrics, said minimum wage rises could mean more job cuts.

‘‘As the NZ Initiative report states, there is already clearly significant pressure on these businesses that is only likely to be exacerbated by legislated increased wage costs.’’

He took issue with NZIER’S claim that a minimum wage rise would lead to better productivity.

‘‘The causality is generally the other way around. I can envisage a situation where increasing the minimum wage makes it more costeffective for businesses to utilise capital and machinery rather than labour, leading to job losses,’’ Kiernan said.

‘‘For some firms, the cost of hiring staff can be a hurdle, even at the minimum wage.’’

Dr David Law

New Zealand Initiative senior fellow