Minimum Wage Increase Less Than MBIE Recommended - Again

Monday, 23 December 2024, 8:34 pm
Article: RNZ

Susan Edmunds, Money Correspondent

A planned increase to the minimum wage next year is a smaller jump than the Ministry of Business, Innovation and Employment (MBIE) recommended, for the second year in a row.

It was revealed last week that the minimum wage will rise to $23.50 an hour from 1 April, a 1.5 percent increase.

As part of its review, MBIE looked at six options, from leaving the rate at $23.15 to increasing it to $23.75 an hour, a 2.5 percent increase.

It looked at the impact on wages, employment, minimum wage employees and low-earning households, industries and the public sector.

It said a 2 percent increase, to $23.60, would best balance the government's objective to keep increasing the minimum wage over time to protect the real income of low-paid workers while minimising job losses.

The coalition agreement between National and New Zealand First committed to moderate increases each year.

MBIE said a large proportion of minimum wage earners lived in high-income households, which made the minimum wage a poor tool for poverty reduction.

"However, a fall in real incomes for minimum wage earners in low-income households would have a negative impact for them.

"With annual inflation currently at 2.2 per cent and expected to stay at about that level until the March quarter, a rate of between 2 and 2.5 percent would appear to meet the first part of the objective."

In relation to minimising job losses, MBIE said it was using a new model to estimate the impact on labour demand from an increase in the minimum wage.

"MBIE's estimates of employment restraint for each of the options show less than 1000 people would be affected by any increase. Because of the small numbers involved, our estimation approach doesn't allow more detail to be disclosed.

"MBIE recommends a 2 percent increase in the minimum wage for 2025. Although, on the surface, the employment restraint estimates do not provide strong support for favouring any particular option within the 2 percent to 2.5 percent range, MBIE considers that the potential for any employment restraint to affect groups already disadvantaged in the current labour market, youth in particular, weighs in favour of a conservative approach.

"The employment restraint will be smaller for the 2 percent option than the 2.5 percent option; this is an economic reality. Youth unemployment has been increasing over the past two years, and given the high proportion of youth at or below the minimum wage and downside risks for youth employment stemming from minimum wage increases, particularly in recessionary contexts, a 2 percent increase best balances the objectives of the minimum wage review."

It said most of the workers aged 16 to 64 earning minimum wage were younger - 55 percent were under 24. Part-time workers were 50 percent of the group. Women were 56 percent.

Retail, and food and accommodation had the largest number of workers earning at or below the minimum wage.

Workplace Relations Minister Brooke Van Velden said a 1.5 percent increase reflected the current economic environment and labour conditions.

"Cabinet agreed that a 1.5 percent increase to the minimum wage would continue to protect incomes over the medium term, based on expected future inflation rates. Cabinet considered a higher rate would be more likely to negatively impact the labour market.

"It is MBIE's role to ensure that I am provided with analysis on options for the minimum wage rate. Ultimately, Cabinet makes the decision based on the current economic climate and labour market conditions," Van Velden said.

"The New Zealand economy is still recovering from a sustained period of high interest rates and recessionary conditions. In that context, delivering a modest increase in the minimum wage strikes the right balance between supporting workers and limiting further costs on business."

The NZCTU had argued for increasing the minimum wage to the living wage, currently $27.80 an hour.

Policy director Craig Renney said it was not uncommon for ministers to go against MBIE advice on the minimum wage.

"There are plenty of times that minimum wage recommendations have been ignored by both sides.

"What appears to be a concern here is they're putting it up by much less than the recommendation, essentially 25 percent less than the recommended amount. And it's the second year in a row they've put it up by less. And it's less than inflation. It's the second year of real-terms cuts."

The starting-out and training minimum wage rates will be set at $18.80, to remain at 80 per cent of the adult minimum wage.

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