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
4 comments:
A quick web search shows NZ has the fourth highest minimum wage in the world, after Luxembourg, Netherlands and Australia. But add to that the generous holidays and other entitlements. Yet people are still crying "poverty". This would be fair enough if we had a strong economy, but we don't. NZ has first world spending expectations on an economy, fast heading towards the third world.
Finally someone else sees this!
Here I thought nzers just weren’t capable of earning more than the minimum wage - when really it was the constant mandatory lift if the minimum wage till there was nearly no distinction and everyone was broke.
It’s called communism and it’s an evil system….similar to socialism which is just a slow form of communism. If you think I’m wrong then go to Russia and see how they live….read the gulag archipelago and understand how they are ruled - even today.
Funny how the pigs are better communists than everyone else.
The idea of a minimum wage is tied in with that of a 'living wage' i.e. a pay packet that will ensure a decent basic standard of living. A living wage covers accommodation costs and provides food security, clothing, etc, not just for the individual earning it but also a dependent or two. If wages do not cover these costs, then in a welfare-minded society, social security benefits have to. A high minimum wage thereby becomes a social welfare instrument to reduce poverty and hardship. Personally, I would rather my tax money subsidise a high minimum wage than go into cash benefits for the poor. At least that way, the beneficiaries appreciate what they get because they have to work for it.
Escalating the minimum wage over a short space of time with no corresponding increase in productivity, as Ardern’s govt did, is inflationary - and inflation hurts those at the bottom most. Go to Pak’nSav and watch those hovering by the sausages wondering what they can afford. It’s not a “kind”outcome.
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