Rais­ing min­i­mum wage a ‘blunt’ tool

Is in­creas­ing min­i­mum wage all it’s cracked up to be in com­bat­ing in­come in­equal­ity? Julie Iles re­ports.

Sunday Star-Times - - BUSINESS / EQUALITY -

Prom­ises to com­bat in­equal­ity were big this elec­tion cy­cle, yet the re­al­ity of house­hold in­come and wage in­equal­ity in New Zealand will not be a sin­gle­pol­icy fix.

New Zealand Ini­tia­tive chief econ­o­mist Dr Eric Cramp­ton, says what drives wages is pro­duc­tiv­ity, and that’s some­thing the en­tire em­ploy­ment ecosys­tem has a role in.

The min­i­mum wage starts to threaten jobs when it is high enough to be ‘‘se­verely bind­ing’’, Cramp­ton said.

‘‘When you make it too ex­pen­sive to hire peo­ple that are lower pro­duc­tiv­ity, then they just don’t get hired,’’ he said.

But Coun­cil of Trade Unions direc­tor of pol­icy Bill Rosen­berg, said the min­i­mum wage in­creases were an im­por­tant force and ‘‘blunt in­stru­ment’’ in wage growth for the low­est earn­ers.

A new study by the New Zealand Coun­cil of Trade Unions found wages be­fore tax grew 40 per cent for the high­est and low­est 10 per cent of earn­ers from 1998 to 2015.

But for those in the mid­dle, wage growth was much less. Lower-mid­dle earn­ers saw in­creases in the range of 18 to 20 per cent.

‘‘It is sur­pris­ing that the min­i­mum wage does not sup­port a greater rip­ple ef­fect up the wage scale,’’ Rosen­berg said.

The study also found lower in­comes rose faster dur­ing a Labour-led gov­ern­ment in the early 2000s than in pre­vi­ous or sub­se­quent Na­tional-led gov­ern­ments, and there was a faster rise in hours worked un­der Na­tional.

Wage in­equal­ity rose un­der both gov­ern­ments, though there was a sug­ges­tion of a pause to­wards the end of Labour-led gov­ern­ment, Rosen­berg said.

There was less in­equal­ity among weekly wages, but this was at­trib­uted to work­ers on lower wages work­ing in­creas­ingly longer hours, and higher wage earn­ers work­ing less.

The study also found many work­ers were be­ing paid be­low the adult min­i­mum wage.

Rosen­berg said this called for more labour in­spec­tors to en­force min­i­mum con­di­tions.

Cramp­ton said he was ner­vous ‘‘crack­downs’’ like that did more harm then good. ’’Those are jobs that you’d be espe­cially wor­ried about dis­ap­pear­ing or folks be­ing thrown out of work that they need.’’

Cramp­ton said min­i­mum wage in­creases ‘‘poorly tar­get’’ the low­est earn­ers, and raise the cost of liv­ing, espe­cially for poorer fam­i­lies. He said a lot of min­i­mum wage jobs are held by sec­ond earn­ers in a higher in­come fam­ily.

‘‘[Sec­ond earner] work­ers are less likely to be un­em­ployed by min­i­mum wage hikes be­cause they’re com­ing in with higher skills any­way.’’

Cramp­ton said taxes and

When you make it too ex­pen­sive to hire peo­ple that are lower pro­duc­tiv­ity, then they just don't get hired. Econ­o­mist Dr Eric Cramp­ton

ben­e­fits were bet­ter at re­dis­tribut­ing in­come to those that needed it most.

New Zealand’s min­i­mum wage is 60 per cent of its me­dian wage, the sev­enth high­est ra­tio in the OECD. The liv­ing wage is cur­rently 85 per cent of the me­dian wage, at $20.20.

The min­i­mum wage has gone from $12 in 2008 to $15.75, a point Bill English was chal­lenged on the cam­paign trail by Gis­borne fruit worker Robin Lane.

‘‘You’ve raised it $3.75 over nine years,’’ she said. ‘‘Now, how would you like it if your hourly rate went up $3.75 over a pe­riod of nine years?’’

English said ‘‘con­sis­tent mod­er­ate in­creases’’ was ‘‘how the floor rises’’.


Should low wages be forced to rise? Two econ­o­mists dis­agree on the an­swer.

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