The 50c increase in the miminum wage is:
The Government will lift the minimum wage from $13.75 to $14.25 an hour from April 1, Prime Minister John Key says.
The decision to lift the rate was made against the background of an improving economy, with a fall in unemployment to 6 per cent, he said.
But the Government was also mindful of the impact a rise would have on jobs.
Labour Minister Simon Bridges said the starting-out and training minimum wages would also increase, from $11 an hour to $11.40 an hour, which is 80 per cent of the adult minimum wage.
"Setting these wage rates represents a careful balance between protecting low-paid workers and ensuring jobs are not lost," Bridges said.
"The increase announced today balances the needs of both businesses and workers and will have minimal impact on the wider labour market and inflationary pressures.
"This increase will keep the minimum wage at around 50 per cent of the average hourly rate, which is the highest rate in the OECD."
The Government was firmly focused on growing the economy and boosting incomes, Bridges said.
Labour has promised to increase the minimum wage to $15 an hour.
Council of Trade Unions economist Bill Rosenberg said the increase in the minimum wage was unfair given several years of stagnating wages, an economy that was starting to grow, and widespread concerns about how that growth will be shared.
"The minimum wage is the only way, other than through the tax and benefit system, that the Government has to ensure wage and salary earners, and particularly people on low incomes, benefit from a growing economy," he said.
A more effective system of collective bargaining would be a much fairer way to spread the economic benefits to the majority of the workforce while reflecting the situation that each industry was in.
"Instead almost half of employees are getting no wage or salary increases at all. This minimum wage increase goes little distance to addressing the inequalities in society."
More than 100,000 people were on or close to the new minimum wage and well over 200,000 would have benefited from an increase to $15 according to official figures from 2012, Rosenberg said.
The first step should be an increase to $15.50 this year, he said.