Living wage a chance to reset economy – report
New Zealand should increase the minimum wage to the level of the living wage, as part of a rethink of the way it boosts productivity and inclusion, a new report says.
The report from the Helen Clark Foundation and the New Zealand Institute of Economic Research highlights growing inequality, exacerbated by the pandemic.
NZIER deputy chief executive Todd Krieble said Covid-19 also created the opportunity for a system-wide reset.
He said the focus should shift to ‘‘predistribution’’ – backing people with good wages, rather than the current benefit system of redistribution to those who fell behind.
‘‘With border controls to prevent importing Covid-19 limiting the inflow of migrants, labour will become relatively scarce and costly. Capital has never been cheaper.
‘‘This is an unheard of combination of factors and should allow for a more equitable economic model.
‘‘The recovery gives us an opportunity to build a more inclusive economy that shares the gains.
‘‘The idea that minimum wage increases cause unemployment in advanced countries is not well supported by the evidence. In any case, it is a very short-term view if we want a fairer society.’’
When the minimum wage was increased to $18.90 an hour, it was predicted to create a restraint on employment of 6500 jobs. But many of the job losses that could be expected with a big increase in the minimum wage now had already happened, Krieble said.
‘‘These annual minimum wage reviews ... miss the long-term impact of restructuring to a highwage, high-productive economy.
‘‘The short-term costs of a minimum wage boost appear significant, but are minor in the context of a
$20 billion reduction in GDP [gross domestic product] following the March to April 2020 lockdown and a
12 per cent annual GDP reduction for 2020.’’
He said the economy would be expected to adjust. New Zealand’s current tax and transfer policies reduced inequality in the workingage population by 25 per cent, the paper said, similar to Australia but well below Denmark, France and Austria’s 33 per cent to 36 per cent.
The Government is on track to increase the minimum wage to $20 an hour from next year. Krieble said it should go further.
The living wage, which is currently $22.10, should be a guide, he said. ‘‘With Aotearoa New Zealand’s relatively low rates of productivity increase, an increase in the minimum wage can help increase productivity.
‘‘That could begin immediately as limited migration forces the dedication of the highest skilled workers to a focus on their specific talents.
‘‘Firms become more productive, and new firms provide high-wage roles by replacing less-productive firms over time.’’
Kathy Errington, the executive director of the Helen Clark Foundation, said New Zealand needed to become a country where the incomes of low-income people grew more quickly than the better off.
‘‘Lockdown brought home to many of us that the essential workers who keep us alive are not paid at a level which recognises their value to society. Cleaners, supermarket workers and other essential workers need more than applause at 7pm – many of them urgently need more money.’’
‘‘Essential workers need more than applause at 7pm – many of them urgently need more money.’’ Kathy Errington of the Helen Clark Foundation