New Zealand’s minimum wage might have increased substantially over the past five years, but it hasn’t helped lift the wages of the population overall.
As a result, the median wage has drawn significantly closer to the minimum, and commentators say it will take a big productivity boost to boost incomes more generally.
We should focus on lifting the median wage through productivity, and tie the minimum wage to the median wage so that it gets automatically lifted as productivity increases.
The increase in the minimum was particularly noticeable during the period of 2020 to 2023, when it rose sharply and in 2023 was 72 percent of the median.
Infometrics chief forecaster Gareth Kiernan said New Zealand’s minimum wage was high relative to average wages when compared with other countries.
In 2023, it was fifth-highest in the OECD compared to the median wage of fulltime workers.
“I think it’s partly a function of the last Labour government’s belief that by putting up the minimum wage, they could make those people who were at the lower end of the income spectrum better off without necessarily thinking through the process or the logic around what does that actually do to costs?
I think setting the minimum wage at two thirds, or 67% of the median wage would be a great policy. It is generous – higher than most OECD countries. But it would stop a bidding war for unsustainable further increases, and would focus governments on increasing wages through productivity gains, not through statute.
“If you’re not able to sort of grow your productivity and get more output per hour of labour that you’re putting in… then there’s no way that you can lift incomes on a sustained basis, whether that’s at the bottom end of the spectrum or further up as well.
There was almost no productivity growth in the world until 1600. We are fortunate to live in an era where innovation has allowed us to lift our standard of living so much.
David Farrar runs Curia Market Research, a specialist opinion polling and research agency, and the popular Kiwiblog where this article was sourced. He previously worked in the Parliament for eight years, serving two National Party Prime Ministers and three Opposition Leaders
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