Consultation

Feedback from submitters

From September to October 2009, the Minister of Labour invited written submissions from Business New Zealand, New Zealand Council of Trade Unions (NZCTU), the Small Business Advisory Group (SBAG), New Zealand Chambers of Commerce and other stakeholders. The Minister received 15 written submissions in total. Officials met with representatives from Business New Zealand, NZCTU, New Zealand Chambers of Commerce, SBAG, New Zealand Hospitality Association and New Zealand Retailers Association to discuss their submissions.

Business New Zealand, the Chambers of Commerce, New Zealand Retailers Association, the Federated Farmers of New Zealand, the National Association of Retail Grocers and Supermarkets of New Zealand (Incorporated) (NARGON) and the Hospitality Association of New Zealand recommended no increase to the minimum wage (option 1).

The Unite Union and Piki te Ora ki Te Awakairangi Primary Health Organisation recommended an increase to $15.00 (option 4).

The NZCTU, with support from the National Distribution Union, the New Zealand Nurses Organisation and the Service and Food Workers Union, recommended increasing the minimum wage to $16.87 an hour^[52].

The National Advisory Council on the Employment of Women and the Mayors Taskforce for Jobs recommended an increase in the minimum wage but they did not recommend a specific figure.

SBAG did not express a preferred option. Members submitted that when considering any increase to the minimum wage the Government should take account of the current economic environment.

Agency feedback

The Treasury, Ministry of Economic Development, Ministry of Pacific Island Affairs, Ministry of Women's Affairs, Te Puni Kokiri, Ministry of Youth Development, the Office for Disability Issues, Ministry of Social Development, Ministry of Health, Tertiary Education Commission, Ministry of Education, Accident Compensation Corporation, Inland Revenue and the Department of the Prime Minister and Cabinet have been consulted in this review.

Ministry of Pacific Island Affairs

The Ministry of Pacific Island Affairs (MPIA) endorses an increase of the minimum wage to $13.10 (option 3). This increase will be in line with average wage increases. Pacific peoples earn less than other groups and experience slower income growth. Increasing the minimum wage will help ensure income equity for Pacific peoples in work. A rise in the minimum wage will have positive economic and social impacts. We also note that the impacts of employment effects will be minimal.

The MPIA considers that proposed changes to the social welfare system are work focused. For benefits system changes to succeed, they must be considered alongside minimum wage increases to ensure that there are strong work incentives.

Of the options presented, option 3 is more likely to be of maximal benefit to Pacific peoples working in areas of low wage employment.

Option 1 - $12.50 (status quo) - is not preferred as it provides no real positive impact for Pacific peoples affected by this review. Option 2 - $12.75 - is also not preferred as the increase offers minimal positive impact for Pacific peoples affected by this review.

Ministry of Women's Affairs

The Ministry of Women's Affairs (MWA) notes that despite the recession and a weakening labour market, average hourly earnings and median hourly earnings have increased by 3.2 percent and 4.1 percent respectively over the past year (New Zealand Income Survey). So, in spite of concerns surrounding the affordability of wage increases during a recession, this indicates wages have increased for those workers around the middle of the wage distribution. MWA's view is that it would be unfair on minimum wage workers, the majority of whom are women, not to receive a similar increase in their earnings. Based on the information provided, MWA's preferred option would be for the minimum wage to maintain its relative position to the average worker, in other words an increase in the minimum wage to $13.10 (option 3). In the analysis of option 3 the Department of Labour notes that around 124,900 workers^[53], of which 55.6 percent are women, are likely to see an increase in their wage if the minimum was increased to $13.10, but that this increase may constrain job growth by 400 to 900 jobs. Given there is no clear consensus in the literature surrounding the impact of the minimum wage on job growth, MWA is confident that the benefit to women from option 3 would far outweigh any potential costs.

Ministry of Social Development

The Ministry of Social Development (MSD) recommends a cautious approach to reviewing the minimum wage. A balance needs to be struck between providing strong financial incentives for people to leave benefit and move into work and ensuring that minimum wage levels do not constrain the creation of jobs. The government is considering changes to the social welfare system that are work focused. For these changes to succeed, the welfare system must provide strong financial incentives for people to enter work as well as not deterring employers from creating jobs. Beneficiaries, especially Maori, Pacific and youth, are only able to benefit from a higher minimum wage if there are jobs that they can move into. If Cabinet agrees to raise the minimum wage then MSD recommends that the increase be limited to $12.75 to reduce the possibility of the increased minimum wage resulting in fewer jobs being created.

Another factor to consider is that if the minimum wage is not increased but living costs increase then there is a risk that further hardship assistance may be required (for example, an increase in demand for Special Needs Grants).

Ministry of Youth Development

The Ministry of Youth Development's preferred options are either option 2 ($12.75) or option 3 ($13.10), as these options maintain existing levels of fairness, protection, and incentives to work for young people.

Te Puni Kokiri

As advised in our analysis to the Department of Labour, Te Puni Kokiri considers that the minimum wage should be increased to $15.00 an hour over two years, with the first step of $13.85 an hour in the first year 2010, rising to $15.00 an hour in 2011, subject to favourable economic conditions^[54].

Te Puni Kokiri suggests a stepped approach to increasing the minimum rate to $15.00 an hour over two years as this would mitigate the initial impact on employers.  Indications from previous increases in minimum wages are that the impact on employers is lessened if the intended direction of future reviews is announced within a timeframe that gives them an opportunity to prepare for the change.

Te Puni Kokiri notes that the Maori employment rates have not been significantly impacted by minimum wage increases between 1986 and 2006. 

While noting the Department of Labour's assessment that $13.10 would result in a potential constraint on employment growth of between 400 and 900 jobs, the empirical evidence assessed by Te Puni Kokiri indicates that there may have been positive effects from substantial youth minimum wage increases^[55].

It also suggests that the overall impact for Maori workers of a $13.85 an hour minimum wage is likely to be positive, and particularly significant for low paid Maori and Maori beneficiaries wishing to re-enter the work force, as this will strengthen their attachment to the labour market during the recessionary period and limit the growth in numbers of discouraged workers^[56].

The Treasury

Treasury supports taking a cautious approach to setting the minimum wage rate. Given New Zealand's currently weak labour market, minimum wage increases over the last decade, how high the minimum wage is as a proportion of the average wage relative to other OECD countries and the potential fiscal costs of an increase in the minimum wage, we consider that a cautious approach would lead to a zero increase in the minimum wage.

New Zealand's minimum wage has increased substantially in the last decade.  See figure 2. Between 1999 and 2008 the real minimum wage increased by 36.6% for adults and 127.6% for 16-19 year olds.

New Zealand's minimum wage is also high compared to other OECD countries.  In 2006 New Zealand's minimum wage as a proportion of the average wage was higher than competitor countries including Australia, the United Kingdom, United States, and Canada, and the second highest in the OECD.

Gross earnings of full-time minimum-wage earners as per cent of gross average wages (AW)

Table S.2. Relative minimum-wage levels, 2000-2006

	2000	2001	2002	2003	2004	2005	2006
Australia	50	51	50	49	48	48	47
Belgium	42	41	41	41	40	40	40
Canada	38	38	38	38	38	38	38
Czech Republic	30	36	38	40	40	41	41
France	43	43	44	44	45	47	47
Greece	43	43	43	43	41	39	39
Hungary	28	38	42	39	37	38	39
Ireland	53	51	49	51	50	53	52
Japan	27	27	28	28	28	28	28
Korea	22	22	23	24	23	25	26
Luxembourg	40	41	41	42	41	42	41
Mexico	27	25	25	24	24	24	24
Netherlands	46	45	45	45	43	42	43
New Zealand	45	44	45	46	47	48	50
Poland	33	34	33	34	34	36	37
Portugal	41	41	40	40	39	39	39
Slovak Republic	31	32	35	37	34	37	36
Spain	34	34	33	33	34	35	36
Turkey	18	16	19	21	27	27	27
United Kingdom	32	33	33	34	35	35	35
United States	39	38	37	36	35	34	33
OECD-21	36	37	37	38	38	38	38

Note: The available average wage figure for the US currently excludes supervisory and managerial workers. The ratios shown for the US would therefore be considerably lower if US average wages were available on the same basis as in other countries. Average wages for Ireland, Korea and Turkey refer to the Average Production Worker (manual workers in the manufacturing industry).

Source: Secretariat calculations based on the OECD Minimum Wage database.

Source: http://dx.doi.org/

The economic recovery is likely to be gradual, with any decrease in unemployment likely to come after a lag. Treasury considers that increasing the minimum wage in the current economic environment would create wage pressures for employers (both directly through increased wage costs and indirectly through pressure on wage relativities) who are retaining most of their workforce during the recession, and limit the opportunity of employers to expand their workforce as the recession eased. 

Increases in the minimum wage carry direct fiscal costs and flow on costs in terms of maintaining wage relativities.  Given the decline in the government's fiscal position over the last year, Treasury has concerns that the total fiscal costs have not been explicitly calculated in the minimum wage review. 

Treasury believes there is a risk that increasing the minimum wage would exacerbate New Zealand's youth unemployment rate.  Youth face barriers to entry into the labour market if the minimum wage is too high or set at the same rate as the adult minimum wage because of their lack of work experience and low skill level. Youth unemployment is of particular concern because it can have long-term consequences in terms of lower income and poor labour market outcomes.  Statistics New Zealand seasonally adjusted Household Labour Force Survey data for September 2009 recorded a youth unemployment rate of 25%.  Ministers may wish to ask the Department of Labour to analyse the impact of the minimum wage on youth unemployment.

Treasury suspect that the measure of average wage increases used in this report overstates the earnings of the majority of workers in the last year.  Option 3 in the paper is based on an average wage increase of 4.8% for the June 2009 year.  The September 2009 release of the Labour Cost Index, which measures changes in wage rates for a fixed quantity and quality of labour, measured an annual percentage change in salary and ordinary time wages of 2.1%.  The Labour cost index also showed that for 52% of workers, wages and salaries were no higher in September 2009 than in September 2008.

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