Clark V. Woodhouse

Clark V. Woodhouse

On Minimum Wage

David Clark

Right-wing Governments always scare-monger and say that raising the minimum wage causes job losses.  History tells us otherwise.  

In fact, I hazard that there will be a Nobel Prize up for grabs for the economist that can demonstrate the real-world nature of the relationship between minimum wages and unemployment.

The minimum wage doesn’t drive New Zealand’s economy. Far more influential in our economy’s overall success is the development of intellectual property, proximity to markets, a distortional taxation regime, availability of capital and exchange rates.

But the minimum wage matters very much to those receiving it. Students know better than most that a more generous minimum wage would help make ends meet.  

It matters a lot when people are able to earn a decent income from work. It makes the difference between being able to save for a rainy day and having to fall back on Government support.

Low wages carry hidden costs.  About one in four kiwi kids grows up in poverty. Low wages contribute to kids having a lack of weatherproof clothing, appropriate footwear, healthy housing and food. This in turn leads to preventable illness.  Trips to the doctor are avoided for cost reasons, and can result in a lifetime of avoidable health costs, mostly borne by the taxpayer. Children raised in poverty are less likely to succeed in education and more likely to appear in the criminal justice system. Unrealised potential carries personal costs, but it makes society poorer too.  

Unfortunately I expect the Government will continue with minimum wage increases as small as they think they can get away with. It fits the pattern. When National was last in Government in the 1990s they only increased the minimum wage by 70 cents over nine years.  Unemployment bounced between seven and 11 percent.  Helen Clark’s Labour Government then raised the minimum wage by $5 over a similar period of time, meanwhile unemployment dropped to the lowest in the Western World. 

In 2012, I introduced a bill to Parliament that would increase the minimum wage to $15. At that time, the minimum wage was a bit over $13 in New Zealand. The National Government voted the Bill down.  In Australia at that time, where minimum wages are set by sector, the absolute minimum wage was equivalent to over $19 New Zealand.  

With higher wages, the average Australian only has to work four days a week to earn what the average Kiwi does. Truth is: higher minimum wages mean employers can’t get wealthy off low wages.  They have to be smarter. If employers and their businesses want to succeed, they have to provide higher value goods and services.  Businesses with low-value offerings don’t survive, and their failure ensures the people that work there are freed up to work in successful businesses. A virtuous circle is created.

The OECD says that the imbalance between rich and poor is holding New Zealand’s economy back.  Steady and consistent rises in the minimum wage are one proven mechanism to ensure that things don’t swing further out of balance.

Michael Woodhouse

Earlier this month, the Government announced a 50 cent increase to the minimum wage, taking the minimum wage to $15.25 per hour from 1 April this year.

$15.25 per hour represents a 3.4 percent increase and will directly benefit approximately 152,700 workers. It will increase wages throughout the economy by $75 million per year.

Living on the minimum wage can’t be easy and of course there are commentators who say we should be pushing the minimum wage up even more. The advice I received was that this would come at the expense of jobs – especially those part time jobs that many students have. There would be fewer of them around, because business would not be able to absorb the minimum wage increase. And as a result, jobs would be lost and part time jobs would be harder to find. 

That’s where the balancing act comes in. The Government has always taken a steady approach to increasing the minimum wage to ensure the right balance is struck between protecting our lowest paid workers and ensuring jobs are not lost. Since coming to office we have increased the minimum wage by 27 percent at a time when inflation increased just 10 percent.  So I think we’ve got that balance right but the last thing we want is for people to lose their jobs as a result of a minimum wage increase that can’t be absorbed by business. 

For students like you, a 50 cent per hour increase at a time of almost zero inflation means you are effectively getting the whole lot in your back pocket. That extra money will go a long way for students on very tight budgets. That’s an extra coffee a week to help you through those long study sessions, or more money towards the power bill during a cold Dunedin winter.

This article first appeared in Issue 5, 2016.
Posted 11:30am Sunday 3rd April 2016 by David Clark and Michael Woodhouse.