Raising minimum wage a complex issue, academics say

As the minimum wage reaches $20 an hour today, questions swirl about the timing of the increase and the benefit it will bring.

The Government lifted the minimum wage by $1.10 today, improving the pay of thousands in the South, and about 175,000 New Zealanders.

However, at the Otago Business School, concerns were raised about whether an extra $44 a week would significantly help the country’s lowest income earners — and that businesses still below pre-Covid-19 levels could struggle to afford the wage hike now.

If the country was in a boom, increasing the cost of business would be less problematic, University of Otago economics senior lecturer Dennis Wesselbaum said.

However, a lot of businesses had recently come off the wage subsidy scheme, and a minimum wage hike could lead to increased unemployment, he said.

"I think people are way too optimistic about the economy," Dr Wesselbaum said.

As a business owner, University of Otago management senior lecturer Paula O’Kane said she was giving staff at her cafe the same raise to compensate for the increase of the minimum wage though her staff were not minimum wage earners.

There would be a similar knock-on effect for other smaller employers as the gaps narrowed between the lowest-paid workers and others, Prof O’Kane said.

Further, the research showed rises in minimum wages did not have the impact on health or wellbeing some hoped, she said.

On the surface, a minimum wage increase seemed fine.

"But actually when you get down to it, there would be better ways to give people more disposable income, or to be able to have better lives," she said.

An increase from $756 a week to $800 a week, before tax, to help with the groceries, or rent, or new shoes for a child might help, but it would not radically change lives overnight, university department of accountancy and finance associate professor Helen Roberts said.

There would still be a significant gap between the pay of the top and bottom earners in a company.

In New Zealand, the median pay level was $56,000 a year, and the average was $67,000 a year.

The increase took the lowest earners to a level of just over $41,000 a year, Prof Roberts said.

"That’s not a lot of money, especially if you’re a renter.

"I would not like to be living on that amount of money per year."

Nevertheless, thousands of people in the lower South Island would be better off, Unite Union organiser Angus Wilson said.

People working in fast food, cinemas, restaurants, bars and cafes could use the money, he said.

An increase in earnings for the lowest earners should also improve the bargaining position for those with more responsibilities, he said.

hamish.maclean@odt.co.nz