Minimum-wage rise: Cafe puts up prices
The measure was the ‘easy way out’ for the Government, says owner.
The minimum wage rise on April 1 was the ‘‘last straw’’ for Dunedin cafe owner and academic Paula O’Kane, who has just increased prices for the first time in two years. The minimum wage rose 5.8 per cent to $20 an hour from $18.90. Business groups and economists raised issues about the timing, amid the Covid-19 pandemic, and the amount.
‘‘My husband and I own a cafe and this is the last straw in terms of what we can afford,’’ said O’Kane, a senior lecturer in management at the University of Otago.
‘‘Our rates keep increasing, our rent increases, everything else. But the minimum wage is the thing that’s really broke the camel’s back.’’
They were concerned customers would react badly, ‘‘but to be honest most people are very understanding’’.
A rise in the minimum wage meant everybody’s wages had to rise to maintain a gap between skilled and unskilled workers, increasing the overall labour cost, she said.
It removed the flexibility for the employer, and did not necessarily improve productivity for the business, or wellbeing for the workers.
‘‘I would suggest that getting rewarded for not doing anything just by the Government doesn’t in and of itself help people’s physical and mental wellbeing.’’
In addition, it was questionable how much it increased take-home pay.
‘‘Housing affordability, the cost of living here, all of those are things the Government needs to work on – it feels as if this is the easy way out,’’ she said.
Matt Roskruge (Te Atiawa, Nga¯ ti Tama), Associate Professor at Massey University school of economics and finance, said minimum wage rises did not appear to have as big an impact on employment or poverty as other policies.
‘‘It would be great to have a more targeted way of addressing poverty, but minimum wages are simple, it’s not ineffective, it’s an easy way for the Government to do something that’s seen as addressing poverty.’’
According to MBIE, about 175,500 people were earning between the old minimum wage of $18.90 an hour and $20 an hour. That compared with the total 2.7 million people in employment.
‘‘There aren’t too many people on minimum wage in firms, and for a lot of firms it doesn’t really increase their wages bill. A lot of companies were planning to increase their prices anyway,’’ Roskruge said.
Society had some tolerance for higher prices if it was supporting people in poverty, he said.
‘‘Business owners seem to assume people are terrified of higher prices, it may be that sometimes people are willing to accept higher prices if it creates a social good.’’
The minimum wage appeared to help force companies to be more innovative and productive, using technological solutions instead of throwing cheap labour at a problem, he said.
Employers and Manufacturers Association head of advocacy and strategy Alan McDonald said minimum wage rises were not a single factor in price increases.
However, with a 27 per cent increase since 2017, compared with an 11 per cent rise in average ordinary hourly earnings, ‘‘then that is a singular factor because it’s not just the minimum wage that goes up, and I’m not quite sure that’s well understood’’.
Employers were pressured to increase pay for people earning above the minimum wage.
BNZ chief economist Paul Conway said conventional wisdom showed that small increases in the minimum wage at reasonable levels were unlikely to cause substantial job losses.
In New Zealand, the minimum wage was ‘‘on the high side’’ compared to average wages, but the average wage was on the low side, Conway said.
‘‘I think wages in New Zealand overall are too low, I think there’s lots of working poor in New Zealand, I think having a job in this country is not necessarily a guarantee against relative poverty, so we need things like Working for Families to subsidise people who are in employment, and that’s unusual.
‘‘If we can increase our productivity and create more value from an hour of work, then wages can go up,’’ Conway said.
‘‘That’s the key to finding balance, where work is well remunerated in New Zealand and that’s positive for wellbeing and people won’t need to run three jobs just to get by.’’