Our minimum wage ‘should be $26’
The minimum wage increased this month, but there’s a warning that it will be a big step backwards for workers once inflation is taken into account.
The minimum wage lifted from $22.70 to $23.15 from April 1, a 2% increase.
The Ministry of Business, Innovation and Employment had warned the Government that an increase that did not keep up with the rate of inflation could make it hard for minimum wage workers to cover the rising cost of living.
In the year to December, inflation was running at a rate of 4.7%.
NZ Council of Trade Unions policy director Craig Renney said it was the largest reduction in real terms in the minimum wage on record.
Once adjusted for inflation, the earning power of those on the minimum wage was dropping by $25 a week, he said.
“These are often households that have the least ability to sustain real terms cuts in their wages.”
He said it would also affect people earning just over the minimum wage, who would have experienced a pay increase had the lift been in line with inflation.
There would be a spending effect because people earning minimum wage did not usually save money but spent most of it on local goods and services.
“You withdraw money from local communities on that basis.”
He said every employer should be paying at least the living wage of $26 an hour, which is designed to give people enough money to cover everyday expenses.
But he said it was unlikely there would be large increases for the lowest paid in the absence of minimum wage changes, particularly because the labour market was slowing.
A small minimum wage increase would also cost the Government money, he said, because things such as rents had been rising quickly. That would mean people needed more in the accommodation supplement and other income support.
Kiwibank chief economist Jarrod Kerr said households still faced significant cost pressure and were being forced to swap their spending to cheaper goods. “There is still significant pain out there.”
Earlier, economists pointed out that, while this increase does not keep up with inflation, other recent minimum wage rises had been by a larger margin.
Infometrics chief forecaster Gareth Kiernan said the increase between 2017/2018 and the 2023 year was 44%, about 17 or 18 percentage points higher than the consumer price index or living cost price index for the lowest income quintile through that time.