Minimum wage increase: results may surprise

David Clark.
David Clark.
Dunedin North MP David Clark makes the case for a rise in the minimum wage to $15 an hour.

By some quirk of fate, I've had two member's Bills drawn in my name this year. My second member's Bill aims to lift the minimum wage to $15 an hour. It is proving more controversial than the first.

Supposed effects of minimum wage increases have exercised a few regular Otago Daily Times correspondents. Some comment is misguided, but I'm glad the conversation has started. It shows the need for an informed debate.

Public uncertainty about the effect of a minimum wage increase mirrors uncertainty among economists and other experts. For many economists, demonstrating a direct link between minimum wage and employment is the Holy Grail.

Expect a Nobel Prize for whoever explains it first. Some say a high minimum wage will cost jobs. At some point, this is undoubtedly true. If the minimum wage was $30 an hour, many employers would struggle to cope.

But the relationship between minimum wage and unemployment is not clear cut. Let me give an example. Over nine years between 1990 and 1999, the National government increased the minimum wage by a total of just 70c.

Unemployment soared. By contrast, when Labour increased the minimum wage $5 over the following nine years, unemployment plummeted to the lowest levels in the OECD.

Australia has benefited from a minerals boom. But to attribute all of its success to that would be a mistake. An aggressive savings policy means $A1 trillion in investment capital is constantly searching for a home. Australia has also valued its labour market.

Australia's higher minimum wage has proven a boon for attracting ambitious young Kiwis. Its minimum wage equates to nearly $NZ20. No wonder 40% of a record 158,000 New Zealanders who have left for Australia under the Key Government were aged 18-30.

Young talent knows it will get paid better in Oz.

Top New Zealand taxpayers have one of the lowest tax wedges in the OECD. If we don't distribute the proceeds of our economy fairly, we'll continue to hollow out our workforce as young folk head across the Tasman. They are calling it Generation Oz.

What about the effect on business?

Perhaps a surprise to many, but a sober assessment of the facts suggests that many SMEs may actually be advantaged by a minimum wage rise. This is because many smaller businesses already pay above the minimum wage.

Employers in these businesses know their employees, understand how hard it is for them to make ends meet, and value their services. Often these SMEs struggle to compete against larger firms who operate on a lowest common denominator principle. A minimum wage rise levels the playing field in favour of these SMEs.

Inequality has grown dramatically in New Zealand over the last three decades. The last Labour government began to address this imbalance by ensuring the 25% real growth in the economy was shared more fairly. Working for Families resulted in 100,000 kids brought out of poverty. Income-related rents and better hospital services attacked drivers of poverty. But much more needs to be done.

When more than half of a minimum wage earner's income is spent putting a healthy meal on the table for the family every night, it is not possible to pay rent, buy school uniforms, meet incidental expenses and heat the house.

We taxpayers effectively subsidise low wages through the health system. All of us contribute monies that are spent treating the preventable diseases of poverty.

It is not good for our social fabric to have kids with empty stomachs developing respiratory illnesses through living in damp cold houses. It is not good for our economy, either.

Unfortunately, the Government has put our country in reverse. Economically, we are going backwards. Only population growth props up numbers in our stagnant economy. GDP per capita has dropped. Real wages are now lower than when John Key took office. Kiwis are leaving permanently for Australia at a rate of 1000 per week.

And, sadly, the Government's 2010 tax package has ensured that the fruits of our economy are shared even less fairly than they were before. The top 10% of earners captured 44% of the value of the tax cuts. The bottom 20% of earners got just 2%. For the vast majority, any personal benefit of the 2010 tax package was quickly swallowed up by GST increases, inflation and sundry others. Things such as increased prescription charges.

Poverty, illness and underachievement will not be addressed until we ensure the conditions are right for all Kiwis to succeed. We need to start by ensuring every New Zealander can afford food, clothing and shelter for themselves and any family they support. A $15 minimum wage brings us closer to achieving this.

 

 

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