The Minister of Workplace Relations Iain Lees-Galloway is not taking much notice of a Westpac report which shows the Government’s minimum wage increase will add 0.2% to the unemployment rate

The Minister of Workplace Relations Iain Lees-Galloway has dismissed another report which details some of the adverse impacts of the minimum wage increase.

On Thursday morning, Westpac released its assessment on how the Government’s planned minimum wage increase to $20 an hour by 2021 will impact the labour market.

The bank’s data shows the 13% wage rise will affect a quarter of New Zealand’s workforce.

“[It] will increase total labour costs by 1%, add about 0.3% to consumer prices, eliminate or reduce the hours of 8,500 jobs, and raise the unemployment rate by 0.2%.”

Westpac Senior Economist Michael Gordon says New Zealand’s minimum wage is already high by world standards, and by the time it reaches $20/hr, it will capture a significant share of the workforce, either directly or indirectly.

“Initially, both consumers and employers may be willing to live with higher prices. But in the longer term, there is more scope for a shift in activity away from labour-intensive industries, and for firms to invest in labour-saving technology.

“A minimum wage hike may not obviously lead to layoffs, but over time there may be fewer jobs created than there would otherwise have been.”

Although the effects on wages, inflation and employment certainly won’t be trivial, Gordon says they are unlikely to be harmful to the economy as a whole.

Nothing new, Minister says

Speaking to media on his way to the House on Thursday, Lees-Galloway brushed off Westpac’s analysis on consumer prices, hours worked and the unemployment rate.

“Sounds like the kind of analysis we hear from banks and finance people every time the minimum wage goes up.”

He’s not wrong. Under the last Government, the minimum wage was put up every year and there was often an out cry from the business community. In 2015, EMA Chief Executive Kim Campbell called the $14.25-$14.75 minimum wage increase “nutty.”

“Every time it [the minimum wage] does go up, the sky does not fall, jobs keep growing, people do well,” Lees-Galloway says.

He adds that he cannot think of a single time over the last almost 20 years when the minimum wage has been increased and anything like what Westpac is suggesting came to fruition.

“I really don’t think any of these dire predictions are anything for anyone to seriously worry about.”

The Westpac report is not the first to suggest the Government’s minimum wage increase will have an adverse impact on the labour market.

In its regulatory impact statement, MBIE advised that the minimum wage could see the loss of 3000 jobs.  

But Lees-Galloway says this figure was its worst-case scenario and the 3000 job losses was in reference to there being 54,000 new jobs created, not 57,000.

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6 Comments

Sorry but the jump from $16.50 up to $20 is not 13%

Doesn't really affect the low wage businesses paying Indian rates, of course.

Give him a chance. If Labour keeps its word and kills low wage immigration probably by charging employers such as Richies for employing for foreigners then the low paid jobs will become higher paid jobs. That is how capitalism is supposed to operate with something in demand (workers) costing more (wages go up) and a Labour politician ought to be favour of that.
If Labour reneges on its election promise of eliminating corruption and rorts in our dealings with 3rd world immigrants then sadly what you say will be true.

It is not the unemployment rate (about one in 25) that should concern us but the under-employment rate (about 1 in 8). Plenty of low paid workers looking for more hours as well as a better pay rate.

Labour ministers don't seem too concerned about high unemployment rates. It brings more people under their welfare umbrella and makes them feel like they'ere being more generous.

We're at full employment anyway. Now it's just about ramping wages as rapidly as possible to generate some inflation and help RBNZ get on the path to a normalised OCR.