The minimum we can do

MATT RILKOFF
Last updated 05:00 01/03/2014

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After five weeks working a minimum wage cafe job 20-year-old Inglewood mother Tayla Drought threw in the towel.

She had little other choice unless she wanted to keep going backwards.

"I was averaging about 35 hours but if I was rostered on for less hours I still had to pay a full week of daycare. Working was actually costing me more than I was being paid," she says.

Particularly galling was for all those hours away from home making $13.75 an hour, she was making only a fraction more than she was eligible to receive in welfare benefits without lifting a finger.

In part to address such issues and to share the wealth of New Zealand's purported recovering "rock star" economy, the minimum wage is going up by 50 cents next month.

The increase brings a groan from employers and has been met with general incredulity from some of the 100,000 retail workers, cleaners, caregivers and hospitality staff on the bottom pay rate who know only too well what difference 50 cents an hour will make to their income.

"I definitely think the Government is out of touch," says Ms Drought.

"They wonder why people don't like working and are staying on the benefit when they just raise it by 50 cents."

For a person in her situation, Ms Drought says a $17 minimum wage is needed to make working viable. However, with jobs already hard to find she acknowledges such an increase would not make it any easier.

Therein lies the minimum wage conundrum, says Professor Christoph Schumacher, Professor of Innovation and Economics at Massey University School of Economics and Finance.

Minimum wage, he says, tends to punish those it tries to protect.

"We believe in economics that companies pay workers the amount of their productivity. If you are forced to pay somebody more than what you think they contribute to your business you start to lay off these people because you believe they don't contribute as much as you now have to pay."

A minimum wage is introduced purely for social purposes, he says, a sacrifice in economic efficiency we make because we believe social equity is important to us.

Prof Schumacher says an example of the inefficiencies artificial income levels can create played out when a law was passed that forced employers to pay hospitality workers time and a half if they worked public holidays.

Cafes, bars and restaurants responded in different ways. Some rostered fewer staff on during holidays, some imposed a surcharge to customers. Some closed for the day.

The net result from a well-intended and arguably socially popular change is hospitality workers have fewer possible days to work and getting a coffee on Labour Day will often cost you 60 cents more.

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Grant McQuoid of the Taranaki Chamber of Commerce envisions a number of possible outcomes from the 50-cent increase, none of which are palatable to everyone.

"Those businesses that have a number of employees on the minimum wage tend to express concern over the movement in the minimum wage, with their concerns being affordability from a business perspective," he says.

"In short they have a high labour component to their business costs and therefore have to pass this cost directly on to customers through an increase in price."

And it may be much more than 50 cents. An increase to the minimum wage is likely to see those working above it put their hand up for a raise too. Bumping up the bottom wage could see all wages across all industries increase. Prices of goods and services then increase accordingly and before long the gains made in income are eroded by inflation.

Other potential impacts are that employers start feeling as though it is becoming too expensive to risk taking on and training new employees, he says.

"The likelihood of choosing an already experienced individual increases, thereby removing opportunities for the young or unskilled to enter the workforce."

New Plymouth National MP Jonathan Young acknowledges tinkering with the minimum wage is a balancing act between ensuring people get a fair wage and businesses are making the money to cover it.

"Total dollar value of retail sales increased by 3.9 per cent in the December 2013 quarter compared to the same time as last year, so generally there are increases in spending happening, which would support a rise in the minimum wage by 50 cents an hour," he says.

To those who say the increase isn't enough and does little to stop the country's issues with inequality he points out New Zealand's minimum wage is already more than those in Canada, Britain and the United States. Australia does enforce a higher rate, currently $16.37, but at 45 per cent of the average hourly wage of $35.90 it is arguable that it is relatively lower than here.

By comparison New Zealand's $14.25 will be 55 per cent of the average 2013 hourly rate of $25.99.

"The true picture is that inequality is not increasing. Household incomes on average have been rising faster than the cost of living and income inequality has declined.

"Despite what our political opponents try to claim, it is simply not true that the rich are getting richer and the poor are getting poorer."

Income mobility is more important than income inequality, he says, and the Government is relentlessly focusing on improving income mobility through education and skill training so people can access higher paid jobs.

"That is more enduring than taxation adjustments."

No one is disputing the truth of that but a Labour government has promised workers more immediate financial relief. Should it win this year's election the minimum wage will go up to $15 an hour within 100 days.

"There will be another rise in the first year and at the same time we will develop a two to three-year pathway so people know what is coming," says Labour's New Plymouth candidate in-waiting and high-ranking list MP Andrew Little.

Flagging the increases to the minimum wage will help businesses prepare and help reduce the potential for job losses. But like everyone else, the National Party included, he knows the minimum wage is a blunt instrument that only partially helps share the wealth of economic growth.

One of the challenges Labour has is figuring out how to make sure wages rise steadily on the back of economic growth, he says.

"Because we do need to lift incomes. To some extent that will reflect what we do in terms of broader economic activity. We've got to move away from low-value activities to high-value ones. That has been a challenge for a long time.

"The bottom line is we have to do better at lifting wages because what we are doing at the moment ain't much good."

Minimum wages in other countries

Australia: $16.37 ($NZ17.53)
USA: $7.25 ($NZ8.65)
Britain: £6.31 ($NZ12.57)
Canada: $10 ($NZ10.72)

- Taranaki Daily News

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