Combatting inequality, does minimum wage help or hinder?

Should low wages be forced to rise? Two economists disagree on the answer.
123RF

Should low wages be forced to rise? Two economists disagree on the answer.

Promises to combat inequality were big this election cycle, yet the reality of household income and wage inequality in New Zealand will not be a single-policy fix.

New Zealand Initiative chief economist Dr Eric Crampton says what drives wages is productivity, and that's something the entire employment ecosystem has a role in. 

The minimum wage starts to threaten jobs when it is high enough to be "severely binding".

Eric Crampton says crackdowns on below minimum wage work do more harm than good.
CAMERON BURNELL/STUFF

Eric Crampton says crackdowns on below minimum wage work do more harm than good.

"When you make it too expensive to hire people that are lower productivity, then they just don't get hired," he said.

 READ MORE:
Jump in the cost of living may spark higher wage demands
National feels the squeeze from low-paid packhouse staff
Shamubeel Eaqub: New Zealand has a productivity problem

 
New Zealand Council of Trade Unions director of policy Bill Rosenberg said the minimum wage increases were an important ...
WARWICK SMITH/FAIRFAX NZ

New Zealand Council of Trade Unions director of policy Bill Rosenberg said the minimum wage increases were an important component in wage growth.

But New Zealand Council of Trade Unions director of policy Bill Rosenberg said the minimum wage increases were an important component in wage growth for the lowest bracket of earners over the past 20 years.  

A study by the New Zealand Council of Trade Unions found there was a 40 per cent leaps in real wages (before tax and benefits) for the highest and lowest 10 per cent of earners.

But for those in the middle, wage growth between 1998 and 2015 was much less, lower-middle earners seeing increases in the range of 18 to 20 per cent.

The hourly wages of workers over a 17-year period show things are less rosy for those wanting raises in the middle.
Statistics NZ

The hourly wages of workers over a 17-year period show things are less rosy for those wanting raises in the middle.

"It is surprising that the minimum wage does not support a greater ripple effect up the wage scale."

Ad Feedback

The study also found lower incomes rose faster during a Labour-led government in the early 2000s than in previous or subsequent National-led governments, and there was a faster rise in hours worked under National. 

Wage inequality rose under both governments, though there was a suggestion of a pause towards the end of Labour-led government, according to the study. 

There was less inequality among weekly wages, but this was attributed to workers on lower wages working increasingly longer hours, and the highest 40 per cent of wage earners reducing the amount of hours they worked. 

The study also found many workers were being paid below the adult minimum wage. 

Rosenberg said this called for more labour inspectors to enforce minimum conditions. 

Crampton said he was nervous "crackdowns" like that did more harm then good. 

"Those are jobs that you'd be especially worried about disappearing or folks being thrown out of work that they need."

Crampton said minimum wage increases "poorly target" the lowest earners, and raise the cost of living, especially for poorer families. 

He said a lot of minimum wage jobs are held by second earners in a higher income family. 

"[Second earner] workers are less likely to be unemployed by minimum wage hikes because they're coming in with higher skills anyway."

Crampton said taxes and benefits were better at redistributing income to those that needed it most. 

New Zealand's minimum wage is 60 per cent of its median wage, the seventh highest ratio in the OECD. The living wage is currently 85 per cent of the median wage, at $20.20. 

The minimum wage has gone from $12 in 2008 to $15.75, a point Bill English was challenged on the campaign trail by Gisborne fruit worker Robin Lane this month. 

"You've raised it $3.75 over nine years," she said.

"Now, how would you like it if your hourly rate went up $3.75 over a period of nine years?" 

English said there was no doubt it was a challenge but "consistent moderate increases" was "how the floor rises".

 - Stuff

Comments

Ad Feedback
special offers
Ad Feedback