Lifting the minimum wage on an annual basis inevitably divides those who say it is not enough from those who say it will cost jobs as employers struggle to pay their increased payrolls.
Workplace Relations and Safety Minister Michael Woodhouse announced this week the minimum wage would increase by 50c to $15.75 an hour on April 1. The starting-out and training hourly minimum wage rates will increase from $12.20 an hour to $12.60, remaining at 80%. According to Mr Woodhouse, the Government is committed to striking the right balance between protecting New Zealand’s lowest paid workers and ensuring jobs are not lost.
There appears to be no middle ground in the ongoing debate about the minimum wage. Trade unions welcome the news of the annual rise but say the minimum wage needs to be two-thirds of the average wage, taking it up to about $20 an hour. A 50c increase is seen as a small step in what will be a long process to achieve a fairer New Zealand, they say.
Business representatives called for the tax rate to be cut for the low-paid, instead of raising the minimum wage and thereby putting financial strain on employers. But dropping the tax rate would benefit everybody, not just the lower-waged. Currently, the bottom tax rate is 10.5% for the first $14,000 for every taxpayer and those on the minimum wage have an effective tax rate of 17.5%. Lifting the minimum wage reaches the target group; cutting the tax rate raises the disposable income of everyone.
About 119,500 people will have their incomes lifted on April 1 and, at a pay rise of 3.3%, the boost is well above the current inflation rate of 0.4%. Inflation is thought to have reached 1.1% or 1.2% in December, but even then the minimum wage increased is above the rate of annual inflation.
Also, the unions’ claims that housing costs have risen substantially, including rents in places other than Auckland, are true. A shortage of affordable housing has pushed up property and rental prices in places such as Dunedin. Queenstown, the most obvious place for minimum wage workers to be employed in the hospitality and service industries, faces accommodation shortages and people are being forced to pay high rent for shared bedrooms. However, accommodation shortages and high rents cannot be addressed through the minimum wage. Those are social issues of a much greater scale.
What the minimum wage arguments do not include, at this stage, is the amount of behind-the-scenes help people on low incomes can receive through Working for Families and other government programmes. There are low-paid families who actually pay no tax at all because their assistance credits work out to be more than the tax they would otherwise have paid.
There will be occasions when employers feel marginal pressure when the minimum wage is increased and some employers may balk at hiring an extra person. But in most cases, employers only hire the people they need. Service industries, particularly hospitality, corner dairies, fast-food outlets and even retail, operate with the least staff possible because of the intense competition. Dunedin business advisers say their clients rarely complain about the rise in the minimum wage as the extra costs can be either absorbed or eventually passed on through pricing.
A minimum wage increase to $20 an hour, right now, would place unnecessary pressure on the business sector and jobs would be lost. Not everyone remains on the minimum wage. Training and promotion usually come with a pay increase for the skills acquired or extra responsibility.
The current rate of increase of 50c an hour, above the rate of inflation, is a fair method of helping the lowest paid workers by putting more money in their pockets, without hindering job growth or imposing undue pressure on businesses.
