Editorial: The fair minimum

Last updated 09:26 18/02/2013

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The launch of the campaign for a living wage last week followed the release of the quarterly employment survey, which showed average hourly wages rose 2.6 per cent last year (compared with inflation of around 0.9 per cent). The average wage is now above $53,000 a year before tax. A patsy question in Parliament prompted Economic Development Minister Steven Joyce to provide those figures and bray that wages are rising "considerably faster" than the cost of living.

OPINION: A follow-up question teased out figures showing the minimum hourly wage ($13.50) is half the average wage ($27). Mr Joyce referred to OECD data and said we have the most generous minimum wage in the developed world, as a proportion of the average hourly wage. It is 40 per cent in Canada, 38 per cent in the UK and 28 per cent in the US.

But let's look at the figures another way. In the nine years to 1999, the minimum wage was pared from 43 per cent to 40 per cent of the average wage. Labour lifted it in the next nine years by an average 8 per cent a year. The rate of increase has slowed under the Key Government, but it nevertheless amounts now to 50 per cent of the average wage. That's evidence of a worrisome slippage in the growth of our average wages (although Mr Joyce would counter that it's our after-tax incomes that matter, because they take into account factors like changes in income tax and GST).

The champions of a living wage maintain they have worked out the minimum rate - $18.40 an hour - required for people to "live with dignity" in New Zealand. But why not make it make it $20, say, and provide dignity-plus? From the other side of the argument, we are warned that raising minimum wages will reduce employment. But if that be so, we could increase employment by reducing wages, couldn't we?

Economists can't resolve such questions because they disagree about the employment effects of minimum wages, and the Government is not ideologically inclined to agree with the pleadings of living-wage campaigners. Workers on the minimum wage accordingly should budget for no more than a very modest increase in their pay after the next annual review, which has been the subject of consultations since November.

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- Waikato


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