Let’s focus on lifting the median wage

Only 4.2 per cent of working New Zealanders actually earn it, but that doesn’t stop a lot of attention being paid to the minimum wage. Currently set at $18.90, it is due to increase to $20 an hour next year.

A report from the New Zealand Institute of Economic Research and the Helen Clark Foundation called for a further lift, to match the living wage of $22.10 an hour. They said this would improve worker productivity.

Then the NZ Initiative hit back and said there was no evidence that better pay automatically meant more productive workers.

While there’s a lot of debate on what the ‘‘right’’ minimum level is, maybe we’re focusing on the wrong issue.

New Zealand’s minimum wage is about threequarters of the median wage, which Statistics NZ put at $27 an hour in June. That’s the sum where half of New Zealanders earn more and half earn less.

Our median income is relatively low by international standards, but the minimum is not – relatively speaking.

Big increases in the minimum wage year-onyear bring it closer to the median all the time. People earning lower rates of pay are experiencing much faster wage rises than others.

Instead of just pushing up the minimum, let’s focus on what we need to do to get the median up, too. You can’t argue that someone earning $56,000 a year is rolling in it, either.

There’s no clear effect on other wages as a result of minimum wage rises. The Ministry of Business, Innovation and Employment (MBIE) said ‘‘up to’’ 242,400 workers who were earning anything between $17.70 (the old minimum wage) and this year’s new $18.90 minimum were likely to get a pay bump as a result of 2020’s increase. But those earning more than a couple of dollars over the minimum wage don’t see a change.

In the June quarter, retail workers had a 1 per cent increase in pay, and accommodation and food services 1.7 per cent, but income growth was flat when the minimum wage increases were excluded.

There’s also a risk that an increase costs jobs. A growing labour market can absorb the impact, but to hike minimum wages in an environment where businesses are struggling with the effects of a pandemic seems risky. At $18.90, MBIE expected an employment effect of 6500 jobs either lost or not created. But it has said since that the pandemic means the effect could well be greater.

There can also be a negative effect on nonminimum wage-earners. If a business has only a certain budget for wages, and has to spend more of it on its minimum-wage staff, it may pay others less or not hire so many of them.

Minimum wage increases can also be easily swallowed up by increasing costs. If a shop pays its staff more, it may raise prices. Clawbacks on support such as Working for Families can also reduce the effect.

If we work towards boosting our wages overall, the minimum should also increase – and the proportion of people on it should fall.

We need to boost productivity and improve wages across the economy, not tinker with minimum wage rises that could just as easily benefit a 16-year-old living at home, as a parent supporting a family.

MBIE says minimum wage rises have a small impact on poverty rates overall and primarily help low-income households without children who are receiving the least Government support.

No one is arguing that people on lower incomes don’t need more help or that people don’t deserve to be paid more than they are.

If we want to help improve the lot of those who are struggling, we should target payments to them – a basic guaranteed income would be a simple way to do this without requiring people to navigate Work and Income systems.

This would also allow the Government to ensure it achieved its child poverty reduction and equality aims without leaving it up to the whims – and budgets – of businesses.