Wage inflation

Methinks your correspondent Susan Grimsdell’s calculator ran out of screen and decimal points. The correct figure for moving 120,000 people up from minimum ($16) to living wage ($20) is not $11 million, rather $1.1 billion. That, however, is not the final cost and there is indeed a valid reason such a move should not be made without delay as she suggests. It is to do with staff pay relativity, and has been pointed out already by your correspondent Robert Burrow.

Take a small company with 19 staff paid in bands of $16/hr, $20, $24, $28 and $32. If you jump the $16 to $20, pretty soon everybody on the payroll is up $4/hr. It can easily get worse if people, as they do, work on percentages. They say the $16s have gone up 25 per cent so my $20 should go up to $25, and my $32 should go up to $40. The $4 turns into $8 very easily.

Let’s say the average increase across all 19 staff turns out to be $6/hr. Then the annual increase in staff costs for that small business is close to a quarter of a million bucks. If it is in an industry where price increases are hard to get, then such an increase in cost could well put the business under.

That is why it is not easy, why increases in the minimum wage should be in small increments, and why politicians should keep their inexperienced noses out of wages and salaries in small business.

Geoff Levick, Kumeu.