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Wishful thinking does not grow productivity

Paul Goldsmith - Economic and Regional Development

12 September 2018

The Government’s notion that a 27 per cent rise in the minimum wage will seamlessly translate to productivity gains is wishful thinking and shows a government out of touch with business realities, National’s Economic Development spokesperson Paul Goldsmith says.

“When asked today in the House how increasing the minimum wage 27 per cent in three years would increase our international competitiveness, Finance Minister Grant Robertson burbled that it would lead to more productive businesses and workers.

“That is fantasy.

“A more productive business may be able to generate higher earnings so that it can afford to pay a 27 per cent increase in wages, but the reverse doesn’t automatically hold true.

“If our Finance Minister doesn’t understand that, it’s no wonder business confidence is so low.

“Scrambling for an answer, the Minister suggested a lift in wages would lead to more spending in the economy. That might be the case, but it doesn’t improve our productivity or our international competitiveness.

“Finally, when asked what he would say to an exporter whose products require a lot of labour and who doesn’t believe he or she can remain in business while increasing wages by 27 per cent, he said that was a hypothetical situation.

‘Well, it isn’t hypothetical, Mr Robertson, this is reality. Most businesses run on tight margins, and for many, labour is a major cost. A massive increase in labour costs, when not matched by productivity gains, will mean that some will go out of business.

“If governments could really legislate for massively higher wages, we’d all be earning $200,000 a year.”

ends

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