Minimum Wage increases will cost consumers

Today’s announcement of the new minimum wage rate increases until 2021 at least allow businesses to plan ahead, but the increases will impose significant costs with no apparent upside in productivity gains, says the Employers and Manufacturers Association (EMA).

The EMA's Chief Executive Kim Campbell says, "When you take into account the current rate of $16.50 (up from $15.75 per hour ) that came in on April 1 this year, you are looking at a 27 per cent increase in the minimum wage over a four-year period.

"That change was 4.8 per cent (75 cents), to be followed a year later by another 7.3 per cent ($1.20) increase on April 1, 2019. New Zealand already has the highest minimum wage in the OECD relative to the average wage.

"These are significant costs for business to swallow, particularly for those in the small-to-medium [SME] sector or for those large employers with significant numbers of young and entry level staff on the minimum wage.

"But at least businesses now have certainty which is what we asked for during MBIE’s consultation round on the steps to take the minimum wage from the current $16.50 to the target of $20 per hour by 2021.

"For those in sectors such as tourism, that certainty is very important in pricing their packages for international clients. That pricing structure is often put in place several years in advance."

Mr Campbell said it was uncertain what impact such a large increase might have on the hiring intentions of employers but he expected such a large wage increase to be passed on in charges to customers and consumers.

"We do know that large increases in minimum wage structures in Canada and the United States led to large increases in unemployment numbers, but we are in an already very tight labour market in New Zealand where employers simply cannot find the staff they need.

"I think we are more likely to see increases in costs to consumers as a result, as many employers are already working to very skinny margins.

"Minimum wage increases also tend to flow through an organisation as other, higher-paid employees want to retain their pay relativity levels and seek adjustments to their own wage rates.

"That puts additional payroll pressure on employers who may also opt out of offering additional benefits to new employees to maintain differentials with existing staff."

Mr Campbell says the main concern is that while additional costs and conditions were being heaped on employers through multiple changes in employment legislation, there was no focus on measures to boost productivity.

"There is no research anywhere in the world that shows simply boosting wages (and therefore costs) leads to an increase in productivity," Mr Campbell says.

NB: The scheduled increase are:

April 1 2018 $15.75 to $16.50 75 cents 4.8%

April 1 2019 $16.50 to $17.70 $1.20 7.3%

April 1 2020 $17.70 to $18.90 $1.20 6.8%

April 1, 2021 $18.90 to $20 $1.10 5.8%

Overall change $15.75 to $20 is a 27% increase.

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