Minimum wages

No-one should deny that living on the minimum wage is difficult.

A total of $500 for a 40-hour week, rising to $510, will not go particularly far, especially in places like Auckland or Queenstown.

On the other hand, $510 remains substantially ahead of the single unemployment benefit of $217.59 for those over the age of 25 (also gross before tax) and the single living alone national superannuation of $364.50.

Of course, it would be nice if the minium could be raised further, but New Zealand does not have sufficient economic strength.

This is not a high-wage nation, and money earned must come from sound foundations if any prosperity is to be real and sustainable.

The cry from unions and the Opposition parties, without the responsibility of Government, has been to raise the minimum to $15 an hour.

But why $15? Why not $20 or more?

Obviously, much, much higher minimum wages are totally unrealistic and would wreck the economy.

The same principles apply to $15 even if the impact is not as severe.

Struggling businesses, and many are still on the brink, would have to employ fewer people, more firms would go bankrupt, costs for goods and services would rise (including for beneficiaries and the poor) and, in the long run, the most vulnerable groups and those without jobs would be the worst affected.

There is, unfortunately, no magic wand to defy realism.

There are no shortcuts to the hard slog needed for national efficiency, competitiveness and effectiveness.

Minimum wages, although anathema to those on the farthest right because they interfere with labour market forces, are a fact of life. They were first introduced in New Zealand in 1894 and are to be found in most of the developed world.

In the modern Western market and regulation mix, and when unemployment is significant, some wage floor is required to sustain a minimum standard of living and to prevent the worst exploitation.

A minimum wage also encourages employers to use staff and technology more efficiently so as to minimise numbers needed on the payroll.

While there are disputes among economists about the effect of minimum wages on employment, it is clear, especially in financially strained times, that the cost of labour will play a role in job creation and retention. The Minister of Labour quotes figures of 5400 to 8100 jobs lost if the rate had been raised to $15.

Kate Wilkinson also says the 25c increase will cost employers $52 million and notably affect the retail and hospitality industries.

As it is, the minimum wage, in percentage terms, has been increasing much faster than the vast majority of wages and salaries, many of which have not increased this past year.

The minimum wage was $7 an hour in 1999 and has risen 82%.

The rise in costs of good and services over a similar period is about 31%.

In Australia, the minimum wage is now $A14.31 an hour.

This is about 30% higher than New Zealand, where wages across the Tasman are generally about a third higher.

That makes the New Zealand minimum wage in step or a little ahead.

Just decreeing a higher minimum wage will not help close the gap in the living standards and cannot alter economic reality.

The extra costs have to be passed on one way or another, a point made clear by McDonald's at the time the rate was raised to $12.

About 25% of the company's costs are in wages and only so many increases can be absorbed.

About 100,000 people are directly affected by the minimum wage increase, and relativities flow from these.

Margins for responsibility, seniority and skills will be squeezed, hence one reason for the vociferousness of various unions.

They will, naturally, look for increases to preserve margins.

From an economic point of view, the minimum wage has risen more than enough over the past decade, with detrimental impacts so far cushioned by growth and relatively low unemployment.

The Government, in the current climate, has taken a cautious, sensible and pragmatic approach by withstanding pressure to hike the rate, while tweaking it in line with inflation.