Minimum Wage Increase Good, But We Need to Protect Margins for Skill And Service

Unite Union has welcomed the increase in the minimum wage from April of 75 cents an hour.

We see this as just a modest first step in improving the minimum wage to achieve the government's objective of $20 an hour by April 20121.

The next three years will require an increase of over $1 an hour each year to reach the target.

Employers and right-wing economists will claim that any increase in the minimum wage will increase unemployment.

Most serious academic studies internationally actually find the opposite is the case.

The same is true in New Zealand when the adult minimum wage increased by 33% from 2004 to 2008. The proposed increase over the next four years is less than that percentage increase.

Inflation during that period was 12.5 per cent, so there was an increase in the real value of the minimum wage. There was also an increase in its relative value: rising from 45.4 per cent to 50.6 per cent of the average wage.

During the 2004-2008 period the unemployment rate declined from 4.7 per cent to 4.2 per cent. The Labour force participation rate increased from 66.7 per cent to 67.7 per cent

Youth unemployment and participation rates were almost unchanged.
Inflation averaged 3 per cent a year while the minimum wage increase averaged over 8 per cent a year.

Some of the biggest increases in the minimum wage have occurred for young workers. In 2001, 18- and 19-year-olds were put on the adult rate. By 2005 their rate had more than doubled from $4.55 an hour to $9.50 an hour.

Were young people priced out of the labour market as the dogmatists assured us would happen? No, in fact, the opposite happened. Employment for this group increased overall and unemployment dropped.

The big challenge for unions how is maintaining margins for skill and service. The increases in the real value of the minimum wage has compressed margins for those above. This is part of the reason employers are complaining about a lack of skilled labour - they have removed incentives to increase skills and used immigrant labour instead.

Unite Union is committing to fight to restore those margins in bargaining next year.

ENDS

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