sign uplog in
Want to go ad-free? Find out how, here.

Minimum wage to increase by 5.8% to $20 an hour in April, as per Labour's pre-Covid commitment

Minimum wage to increase by 5.8% to $20 an hour in April, as per Labour's pre-Covid commitment
Michael Wood

The Government has confirmed the minimum wage will increase to $20 an hour from April 1, 2021.

Labour campaigned ahead of the October election on making this change, further to it being stipulated in its coalition agreement with New Zealand First under the previous government.

The increase marks a 5.8% increase from the current rate of $18.90, and a 27% increase from the minimum wage in place when Labour came into government in 2017.

The starting-out and training minimum wages will also be raised to $16 an hour to remain at 80% of the adult minimum wage.

While the previous Labour-led government signalled changes to the minimum wage three years in advance, Minister for Workplace Relations and Safety Michael Wood said he'd only detail any future minimum wage moves after 2022 next year. 

“This minimum wage increase will lift the incomes of around 175,500 New Zealanders - which means $44 more each week before tax for Kiwis working 40 hours a week on the minimum wage,” Wood said. 

The country’s median rent increased by $25 a week from October 2019 to October 2020, while the country's median house price rose by $6000 a week from October 2020 to November 2020.

Wood said: “The rise in the minimum wage is estimated to boost wages across the economy by $216 million, giving New Zealanders more money to spend at local businesses. Increases to the minimum wage can also promote productivity, which is good for businesses.”

Wood said those who served New Zealand during lockdown - including supermarket workers, cleaners, and security guards - deserved a pay rise.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

101 Comments

12
up

I can smell the redundancies from here.

Ridiculous.

21
up

No full time job should stop you from living a modest life. $20 doesn't even come close.

18
up

If your business cannot afford $20 an hour..you do not have a business

12
up

So businesses that have automated away from unskilled workers are not businesses?
https://www.scottautomation.com/

15
up

The people that run the automation systems are paid well more than $20/hour.

If a job needs doing by a human, you need to pay them enough to live a modest life, stop expecting taxpayers to subsidise your workforce with transfer payments.

Problem is that as more of our world becomes automated, there will be less jobs available. If the world population continues to grow, there is going to be a serious labour supply and demand issue

Yeah, they said that about the automatic loom, the steam engine, the car/truck.....

So you disagree that automation technology will remove the need for many forms of human labour? Interesting, the combine harvester, outboard engine and online banking system would suggest otherwise

But are there less jobs available?

Yes e.g. Banks closing down regional branches in NZ

Now remember to click on the labour participation % tab. It has been dropping since 2017 - I wonder what happened in 2017?

I see the trend of 0.5 - 1.0% downwards. Could be anything really? What happened in 2017, or there are more 65 year olds retiring who knows?

65 years ago was 1955. Boomers = 1946 to 1964. Halfway point = 1955.

Agree ydb. Combine harvesters have reduced manual farm labour by the score on individual farms.

If automation removes the need for 10 people at $500k per year, and the overheads of this automation are $50k per year. What does the company do with the other $450k? Drop their prices or bank the cash? On the other side of the ledger, the tax payer picks up the bill for those 10 unemployed at $300k p.a.

Imagine if every task was automated, there would be no jobs. How would the companies that installed automated processes make money if nobody is employed? Does everyone who is displaced by Automation receive an equivalent UBI?

Obviously not everything will be automated, so there will still be some jobs. But to your UBI point, I think it's inevitable unless we just let all those displaced starve

Was not going to reply but thank you Prag for giving profile a step through.

JRSNZ,

So can you produce good evidence that raising the minimum wage has a measurable impact on employment numbers? Of course, there is always anecdtal evidence and it seems reasonable to think that there might some effect round the margins, but I have yet to see evidence of substantial job losses tied to minimum wage rises. Over to you.

"Second, since the late 1980s labour market activity of youth population has been declining. This is largely attributed to increasing emphasis on human capital development through education and training since the economic reform period of the mid 1980s. There is also some evidence that large increases in minimum wages for teenage workers during the 2000s have adversely youth employment since 2008 (Hyslop and Stillman 2011)."
https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Discussi...

"Perhaps the bigger surprise though (at least to me) is that only around 80 per cent of 20-24 year olds are in the labour force. You only need to have done one hour’s paid work in the reference week, or to have actively looked for work, to be included in this measure."
https://croakingcassandra.com/2019/11/11/participation-rates/

JRSNZ - I was in your camp in the past but now agree with the Government forcing up the min wage.
It certainly could force some redundancies and business closures but the reality is those businesses probably are soo marginal in surviving that the redeployment of those workers to profitable businesses is better all round.
I am happy to pay a little more to say the young coffee maker in the local cafe etc, everyone deserves at least $20/hr it would still be a very ordinary life at that rate !
It's part boosting productivity in our economy

Exactly especially when the coffee is now $5 bucks a pop...

Hilarious that you think this will "boost productivity". Has that worked for the previous increases to minimum wage? No? Productivity increases only come about by the economy moving up the industry chain, by making higher and higher quality primary goods, creating new industries (or adopting high paying ones, like the film industry) or some other method that earns us more per person. We won't improve our productivity simply by mandating it by law. All this will do is put more and more people on the minimum wage (suppressing real labour competition) and make us a more expensive country as everyone puts their prices up to maintain the same margins. As everyone has put their prices up, the wage increase is quickly eaten up by higher living costs. It's absolutely laughable to believe that a law to mandate a wage increase will increase productivity.

Hi Shoreman. The question will sound facetious but I’m not meaning it to. How would paying somebody more for the same thing boost productivity? I would be interested in the arguments around that. I am imagining it would be essentially a UBI redistribution kind of gist?

12
up

The rate of house price rises, minimum wage needs to just about quadruple.

17
up

Spare a thought for those currently earning $20p/h.
They have just been told that all the effort they put in to lift themselves above the minimum wage was worthless.

15
up

Yes, however those people will now expect a 5.8% pay increase and so on. Businesses will need to increase prices to cover costs and voila we have inflation.

If we get inflation the minimum wage increase is doing RBNZ's job for them.

Do tell us all how that conversation with your employer goes, Dan.
I know how it would go with mine. And it isn't "yes, Nymad, we will give you a commensurate 5.8% pay increase during a wage freeze which is over and above the arbitrary CPI level stated in your employment contract."

I've had no issue (except for this year) seeing pay increases every year in excess of "CPI". Last year was double digit %. But that's just my anecdote.

So why is that?
Is it because your employer deems you more productive, or because the government told them to?

Well, shucks, I don't want to blow my own trumpet, but because my employer deems me more productive.

Okay.
So tell us again why would employers increase wages of those currently earning $20p/h?
Are they suddenly more productive for some reason?

Why are those people earning $20 p/h to begin with? What were they earning when minimum wage was $15.75? Apart from minimum wage increases, why do employers even need to increase wages at all?

Employees on $20/h may decide that for the same pay and less effort/stress they can go pump gas or stock shelves. Employer advertises the replacement, but cannot fill the role because there are easier jobs out there for $20 per hour.

Also this:
https://www.stats.govt.nz/news/wage-growth-remains-at-10-year-high

Nymad, Were those previously on minimum wage now more productive to 'deserve' a 5.8% increase? Those currently earning $20p/h would be experienced and therefore should be more valuable to the business, so therefore deserve to keep their relativity. It's not about productivity its about fairness and value. Afterall, minimum wage increases have nothing to do with productivity.

Even more, the unions have been asking for a rateable increase in all salaries to match minimum wage movements, they're trying to keep the relativity to minimum wages, so someone previously on $25, will be looking for $32 now and so on........

None of my employees are anywhere near as low as the minimum wage level, but we can't pay such significantly increased wages without cutbacks. Of course, it won't cost that much to get it all made in China or Asia and shipped here, so how will that improve NZ productivity?

10
up

What a sad way to look at it. I don't want other people to be better off, I want to be x% better off than them. Disgusting.

13
up

It's not a sad way to look at it.
It's the fact. Arbitrary and frequent minimum wage increases disincentivises an individual from increasing their productivity. It also means that those on previous minimum wages must compete with relatively more productive labour at the same price.

Everyone is beeter off by raising productivity. Raising minimum wage does not do that.

So you are effective stating that increase productivity requires squeezing every last ounce of work out of a person in order for them to deserve higher pay, rather than being paid reflecting the profitability of the business. Productivity has increases significantly over the last 40 years, wages haven't kept up with this productivity. The average person is working more for less income comparatively. Great for business owners, bad for the rest of society.

The minimum wage is a tax on unskilled workers. People generally don't stay on the minimum wage. Why make it more difficult for unskilled people to get the skills they need to get ahead? "Thomas A. Hirschl of Cornell and I looked at 44 years of data regarding individuals from ages 25 to 60 to see what % of the US population would experience different levels of affluence during their lives.
It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution"
https://www.aei.org/carpe-diem/some-amazing-findings-on-income-mobility-...

Absolute bootlicker comment. Unbelievable.

10
up

So I'll have to put up my prices by a few % meaning that minum wage earner just uses that extra $ to pay a bit more for goods so I can pay my staff, so your no better off, in fact it just gets worse for low income really. Let's just pay $30 hr, why not a. So the staff that I have had for 12 months that just went to $20hr now deserve $21 as they have up skilled and know the business. Thanks Labour, screwing the poor more than the nats

I have already seen the price increases.
The local maccers have already put up the base price of coffee twice in the last 6 months.
I wont be surprised that they will increase further in the new year.
Makes me think, will i continue to buy or just get to work and drink the crappy stuff. May need to be the later..

Oh the humanity...

12
up

If you can’t afford to pay your staff a living wage, you really shouldn’t be in business.
Exploitation is exploitation.

What if the job they’re doing isn’t worth the living wage?

Which job isn't worth a living wage?

These jobs? "On average across the 29 countries covered, the share of jobs at potential high risk of automation is around 3% by the early 2020s, but this rises to almost 20% by the late 2020s, and 30% by the mid-2030s".
https://www.pwc.co.nz/insights-and-publications/2018-publications/how-wi...

Automation will come for pilot too. Are they not worth a living wage currently? AI was found to be more accurate at detecting cancer in X-Rays too. Are doctors not worth a living wage? The potential to be replaced by AI tomorrow doesn't impact the value of a job right now.

Don't worry your poor head Northman - the market it will sort it our for you. Are coopers not worth a living wage? "The potential to be replaced by AI tomorrow doesn't impact the value of a job right now." Yeah right. Those sort of calculations are done in businesses every day.Feel good governments fluffing around with unskilled worker tax will just increase the tempo of change.

Thereby encouraging an increase in technology / productivity?

The living wage is nonsense. It really depends on people’s life choices as to what income level they need to live.

Like cardboard box or dumpster?

Yeah, if only those bin men stopped driving around in Lamborghinis, maybe they'd be able to afford their rent increases. /s

The ones that don't get done and disappear?

Stop doing it for a few months.. You might suddenly realise it is worth it as the rubbish and rats collect in the corners.

Give us an example?

Our F&P manufacturing plants that used to exist in Auckland for example.

@ General HubHub .
Without doubt some business's will go out of business as peoples shopping or purchase behaviour changes due to large or more frequent prices increases.
Person/s will be without a job.

That argument is too simplistic, it is forgetting that when people get a wage increase they tend to spend it. Only exporters would be hurt as their customers aren't getting a wage increase, although even then inflation should make our dollar worth less (although in reality it will make it worth more as it will signal higher interest rates).
IMO the only other real downside to a minimum wage increase is inflation. In our current situation that is actually an upside.

What happened to the inflation that was supposed to generated by the last 5 years of wage increases? Could it be there is a different dynamic in play?

well we continue to close local manufacturing plants....that is why inflation has been low...because production and exporting companies have offshored production and continued to supply their customers with cheaper imports....we are importing chinese labour in effect

PMI is always reported as a measure of manufacturing now.But it is a survey of current manufacturers...obviously plants that close don't continue to do the survey so the results give a skewed impression on the industry...in mathematical terms its called a survival bias

Manufacturing used to be about 14% of our GDP in the mid 2000's, now it is close to 7%....manufacturing typically has provided well paid jobs in local communities

Jimbo. Your comment ' IMO the only other real downside to a minimum wage increase is inflation' reveals you have limited understanding of the reality for business owners who employ a large number of staff. Otherwise you'd be aware of the shunt effect on wages of other staff on the next wage bands up. Dislocating relativity arguments and resulting knock on hourly rate increases in other bands always occur whenever the minimum wage goes up. The wage bill impact goes well beyond the extra cost of min wage staff. Woods is well aware of this effect but imperiously dismisses any downside. He also knows that youth employment fell in the period following the previous pre covid minimum rate increase. This time the casualties will be hidden within wider C19 caused unemployment but they will nonetheless occur.

I introduced a living wage into an Auckland manufacturing business five years ago employing fifty odd staff.I was worried about this but it didn't have the negative outcome you have outlined.

In reality many staff who were doing a very basic role but had been there many years were already being paid up to 25% more than those just signing on because they had collected yearly wage & CPI increases that had compounded.Staff with more initiative and skills (setters, supervisors etc were normally getting 50-70% more anyway).

We introduced a lot of workplace improvements and lean manufacturing....the company was better for it.

It isn’t exploration.

Trying to make product cheap for people to buy is not"exploitation" however wages are the biggest overhead, you miss the point that this only impacts on low wage earners as they will simply pay more for essential items.

That's a fair call. Following that logic through though it would also be just as exploitative to purchase any products produced by someone earning less than the NZ equivalent of the "living wage". Or is it not exploitation if the wage earner (human) lives on the other side of a bit of water? Just spend your $20/hr to purchase things we can't afford to produce here, so its done with comparative slave labour overseas? Out of sight out of mind?

Why not? We have a magic money tree that we're currently using to hand billions to landowners. We can use the same tree to pass more to folk who are working.

“The starting-out and training minimum wages will also be raised to $16 an hour to remain at 80% of the adult minimum wage.”
Why are we paying people for how old they are rather than what we do?

Like when you turn 65?

Only the employers trying to pay the minimum are in that situation...

It's not about how productive you are......oh wait. Well no, it's just different.

Was introduced in 1994 by Boomers to compensate for the abolishing of gender based minimum wages back in the 70s. Legislative exploitation must exist to appease the "we worked hard" entitlement of a generation.

Where do you start.
There seems confusion that minimum wage means permanent wage.

Thomas Sowell’s comments illustrate an economic reality that is frequently overlooked: Workers compete against other workers (not employers) to find jobs and get the highest wages. Employers compete against other employers to find the best workers. In other words, low-skilled workers compete against high-skilled workers in the labor market. Low-skilled workers who would be employable at a low wage become unemployable at an artificially higher wage. And that explains the perverse cruelty of minimum wage laws: it inflicts the greatest harm on the very workers it is allegedly designed to help.

https://www.aei.org/economics/thomas-sowell-on-the-cruelty-of-minimum-wa...

Now, if reform was the intent, maybe look at the contract & labour hire "firms". For they were never the intent.

I think it is overlooked because that is not what happens in reality. I can't be bothered digging up any studies but I do know that Labour (Clark/Cullen and Ardern/Robertson) have increased minimum wage many times and unemployment rates have not gone up. Inflation is the only real outcome, we could do with some of that.

Inflation is a tax on wages that don't move with inflation. Not everyone gets a CPI adjustment in their salary every 12 months.

That sounds like a fault of the employer not the system. If they are putting up their prices but not giving you a pay rise maybe you need better bargaining power. A higher minimum wage should provide that for you.

Unemployment may not necessarily rise but quality of job and job compositions change. We’re working more “gig” jobs for example. Also and more worryingly, we have lost a lot of actual production due to overheads becoming higher relative to other countries. We need to produce things to sell at the end of the day and this raise just makes it harder.

Well, that's one way to create inflation

Let's hope the $44 before tax minimum wage increase does not get inflated away by rent increases too quickly.

Going by the current house price increase and expected increase the min wage will need to be $25 an hour by 2022, and then those that sit above that will want more, then the executives will want more as the margin will need to stay the same etc etc etc..., unsustainable, unless you work for the government that is.

That is just inflation. The RBNZ says we need more of it. I can't actually think of a better way to achieve it, low interest rates are not working.
In the 70's people were getting 20% pay rises for a period. That would be $28 an hour by 2022.

As long as the NZD drops then that's ok. But if not, margins are squeezed and we become less competitive.

When the NZD drops, consumer costs go up. They can't pass the extra transport or food prices they have to pay to anyone else.

Restaurants & Cafes are on the brink already.
They must put up their prices.
But... will people support $7 coffees, $26 eggs bene, $55 steak ??

It won't be millenials. Older folk with free money from property will need to fund that.

Seemingly people are ok with paying the cheapest price on their groceries at the big yellow sheds off the sweat of the lowest paid.

Why does minimum wage need to go up? Is it the cost of living or the cost of housing?

People are quick to point out businesses will struggle to wear these costs. If the cost of housing is the true reason minimum wage needs to go up, then why doesn't the business community lobby Government to address the distortions that manifest into inflated housing costs?

I 100% agree. The people who may be negatively affected by the minimum wages are likely small business, the larger businesses whose owners hold a significant amount of assets, will not be affected by this minimum wage increase at all. So they do not care to fix housing issues as they actively benefit from housing appreciation, which they can then use to leverage debt for wage costs. These larger business owners are not phased by minimum wage increases, although they will complain and complain whenever it is raised.

Because Nzdanthe four main regional business lobby groups created Business NZ to do their lobbying to Govt in Wellington...

and they hired their first CEO who was Phil OReilly who happened to come from Westpac...

And then after Phil had to be moved on because he set up the major companies group , went "broken arrow" and wouldn't lobby on anything except what he wanted...they hired Kirk Hope...who also came from Westpac....and we wonder why we have the vision and economy we have today.

If you look at the EMA you will find a revolving set of board chairs for the likes of Fletchers, the banks and the National party.

Currently got pickers picking here. 50/50 kiwis/visa holders. They are paid a per bucket rate but topped up to minimum wage where required. Almost all, little to no experience. Two weeks in and they are still very slow compared to pickers we had last year. Got chatting - some kiwis say the minimum wage is high so they don't feel inclined to pick faster to make more. Visa holders are mainly via hospitality and only way they could remain here is via hort/viticulture and say this is not where they want to be but had no choice. Ex hospo are used to minimum wage which they are happy with so no incentive to pick fast. The problem for us is that we have a time sensitive crop that needs to be picked before crop starts to degrade. With pickers preferring just to take their time to pick, this potentially puts our crop/business at risk. Pickers work an 8.5hr day (start 6.30am) and are not employed directly by us, but we are charged on a cost plus basis. One new young kiwi, is here to make as much $ as they can, has been picking and earning $36/hr with good quality. Roll on the 'professional' visa pickers coming down from Marlborough after Christmas. ;-)

At last, CO, some actual Data, rather than the usual blather and propaganda. Thanks.

Edit - the B&P is from other commentateraters, not from you, CO.

Which is why productivity actually decreases with higher mandated minimum wages. Believing it increases is fairy dust thinking, not backed up by evidence.

well that's going to be a big problem for you isn't it...the days of just giving someone a pair of overalls and hoping they turn out to be great employees has passed

great companies get great results from their staff by using great systems and training...is fisher and paykel healthcare complaining that their mostly pacifica factory floor staff are slow..no because they focus on operational excellence which is a subject that hasn't reached many orchards I would suggest

Im down in the hawkes bay and every time I drive past an orchard I see a few hopeless looking ladders and buckets....seriously is that as much as you have come up with in terms of tools to enhance productivity...

No - we grow UFO cherries - Upright Fruiting Offshoot system - because ladders aren't needed at all in the early production years, picking is 30-60% more efficient because they aren't climbing among trees but rather the growing system is a 'wall' - similar to espalier. Picking work is for 6 weeks of the year only - so unlike Fisher and Paykel which runs a factory fulltime, training opportunities are limited. Training from the contractor we use is excellent. Experienced pickers have earnt up to $50/hr picking on our UFO orchard, but clearly money doesn't incentivise everyone, where many commentators on this site believe you just have to 'pay them more'.
Interesting you call the ladders 'hopeless looking' we call our ladders operationally safe. There are some new bright minds entering the industry, in years to come they may devise technology that won't require pickers at all-just the buckets. ;-)

this is a good read of the forces at play ... which is why people / industries / govts are being squeezed (and the policy "fixes" proposed by UBI / minimum wages increases..)

https://surplusenergyeconomics.wordpress.com/2020/12/08/186-the-objectiv...

"past growth in prosperity has gone into reverse, which makes the average person poorer over time. We also know that, because of the hierarchy of calls on incomes, we’re witnessing a leveraged squeeze on the scope for discretionary purchasing, to the point where much, perhaps most, of the ‘discretionary economy’ has become hostage to the ultimately-finite process of credit expansion.

We can further note that, as consumer discretionary purchases contract, we will witness de-layering, product and process simplification, and the compounding effects of falling utilization rates and losses of critical mass"

'Medium' rent! $25!! "Yeah Right!!!"

Comparison of minimum wage increase v dairy payout:
Minimum wage 2017 $15.75 2021 $20 Diff = 26.9%
Dairy payout 2017/18 $6.69 2021 $7* Diff = 4.6%
*predicted midpoint

As a small piece of the zeitgeist, our local Bunnings has just installed automated check-outs. Staff reduction is from 8-10 at peak, to 1-2 supervisors/trainers/teachers to assist the poor souls who cannot figure out the process.

In Bunnings the staff who add the most value are the ones who can have the advisory conversations around DIY of various types, not the checkout staff who scan and take payment. Bunnings could actually have a good case for employing more older workers.

Employment is based on necessity, not value. If the people were not required to fill the role, then they would likely not have been employed anyway. The notion that this is will create redundancies is inaccurate, there is more money directed into the economy on aggregate, so any redundancies by one business will be picked up by other businesses due to the increase in money through aggregate consumption.

The NZ dairy industry exports over 98% of the NZ production. The NZ domestic market is basically irrelevant. The prices received are set by international buyers who have other sources of supply, which often have lower costs such as South America, few restrictions (which are also costs) and or get subsidies so the sell price is a bonus.
NZ farmers can't put their prices up, yet costs are rising year on year. This is another nail.
I have always paid more than minimum wage, but can no longer do that. My long term plan is change in zoning and sell the farm to a housing developer to be covered with McMansions.