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Minimum Wage Review 2010

Executive summary

The minimum wage provides a floor for wages paid to employees. The Minister of Labour has a statutory obligation to review the level of the minimum wage by 31 December each year. For this year’s minimum wage review, the Department of Labour (the Department) has considered four options for minimum wage rates adjustment for 2011. The assessment of different options against a range of measures is summarised in the table below[1].

Table 1: Impact of different options for the minimum wage adjustment in 2011
Minimum wage impact measures Option 1
(no change)
Option 2 Option 3 Option 4
Minimum wage (per hour) Adults $12.75 $13.00 $13.50 $15.00
New entrants & trainees $10.20 $10.40 $10.80 $12.00
Percentage increase N/A 2.0%[2] 5.9% 17.6%[3]
Number of people impacted by minimum wage options 45,700 53,000 108,100 274,900
Number of people impacted above status quo N/A 7,300 62,400 229,200
Potential impact on job growth (absolute change) 1,360 – 1,960 760 – 1,080 -660 - -460 -5,890 –
-4,100
Economy-wide increase in wages ($m, annual) N/A 15 76 518
Inflationary impact
(percentage points, CPI)
N/A 0.01 0.04 0.26
Additional wage costs to Government[4] ($m, annual) N/A 6 30 119

The minimum wage review has to consider the Cabinet directed single overarching objective [POL Min(08) 16/21 refers]:

“to set a wage floor that balances the protection of the lowest paid with employment impacts, in the context of current and forecast labour market and economic conditions and impacts.”

The prudent and gradual increases in the minimum wage rate in the past two years have met this objective. The Department considers that a cautious approach to the minimum wage is still warranted. Retaining the status quo (option 1) or a modest increase in line with the CPI (option 2) could be considered given the current subdued economic recovery and labour market.


Footnotes

[1] Access to the data used in this report was provided by Statistics New Zealand under conditions designed to give effect to the security and confidentiality provisions of the Statisics Act 1975. The results presented are the work of the Department of Labour, not Statistics New Zealand.

[2] This increase is in line with the change in the Consumers Price Index (CPI) (June 2010) and average wage change from the Quarterly Employment Survey (QES) (June 2010).

[3] An option considered in the minimum wage review 2009.

[4] This is the additional costs to the Ministries of Health, Social Development and Education, and the Accident Compensation Corporation, from higher wage costs to service providers. It does not include any offset from additional taxes on higher minimum wages.