Wellington, 3 December 2020 - Calls to lift the minimum wage will not fix inequality and could end up hurting the most vulnerable – particularly during a recession, according to a new report by the New Zealand Initiative.

The report is a response to a joint paper released last week by the Helen Clark Foundation and the New Zealand Institute of Economic Research which suggested lifting the minimum wage (presently set at $18.90) to a “living wage” of $22.10, among other proposals.

The minimum wage received a boost earlier this year and the Government may lift it even higher during 2021.

But New Zealand Initiative senior fellow Dr David Law says while international evidence on minimum wage increases is complex, it is wishful thinking that it might fix inequality or enhance productivity.

“This country already has one of the highest rates in the OECD. If this rises to a ‘living wage’ of $22.10, that would take it to 82% of the median wage. Only Colombia would have a higher rate than us.

“Such a high minimum wage would put jobs at risk,” Dr Law says.

The joint paper also justified its ideas by downplaying the negative effects on employment.

But Dr Law says international studies do not nest well with New Zealand’s economic realities and where they do, the positive effect on employment or productivity is vanishingly small.

“Even MBIE’s predictions suggest at least 33,500 jobs would go if the minimum wage rate rose to the proposed ‘living wage.’

“While the authors of the joint paper say such a rate would help the most vulnerable, the evidence actually shows the work prospects of the young and low-skilled are hit the hardest by rate increases,” Dr Law says.

The New Zealand Initiative report advises scrapping any plans to further lift the minimum wage and suggests winding back the 2020 increase as well.

Read more:
Minimum wages to the maximum: The risks of lifting the minimum wage is available here.

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