'Why is it $1.20? It just seems to be plucked out of thin air?'
When Labour took power in 2017, the minimum wage was $15.75. On Friday, New Zealand’s minimum wage will increase, for the eighth consecutive year, from $20.00 to $21.20.
Minimum wage effects have been studied around the world with most studies finding that modest increases in the minimum wage had minimal impact on employment, but with a more than $5 increase in 5 years, a statutory requirement to review the minimum wage rate every year and no criteria around setting the rate, what impact is it having on New Zealand’s employers?
Jon Ives, CEO at recruitment agency Onestaff is optimistic about April 1s minimum wage hike. “It’s not something new, we’ve seen substantial jumps for the last three years in a row and wage inflation over the last two years, has shown that increase was happening anyway”.
One Staff’s ‘What’s My Rate’ survey found that the average wage has increased from $25 to $27, “which is roughly the 6% increase that people have received through the minimum wage increase anyway”, Ives told HRD. Ives believes businesses that are paying minimum wage aren’t being competitive in a tight labour market and says OneStaff tries to stay away from minimum wage paying clients saying, “Paying minimum wage is not the best way to get the best applicants for your role in a talent shortage”. One of Onestaff’s biggest sectors are the trades so Ives’ optimism may come from the survey data also revealing that people that hold trade certificates now have the highest average pay, with a graduate’s average pay trending down for the last couple of years.
Over in the hospitality sector, there is a lot less optimism. Hospitality NZ is currently lobbying for a moratorium on the increase for the sector. In the country’s worst hit region, tourist resort Queenstown, some venues have closed operations until tourists return, some have simply closed. Venues that are open, in some cases are operating on 10-20% of the revenue they were making pre-covid and talent shortages are forcing them to operate with severely reduced hours.
Darelle Jenkins, General Manager from Hospitality NZ’s (HNZ) Queenstown branch is still hoping the government sees sense and agrees to the moratorium. “It couldn’t have come at a worse time”, she told HRD. Jenkins believes it’s the flow-on affect from raising the minimum wage that’s crippling for hospitality businesses. “All the staff that were earning more than the minimum wage, can’t all of a sudden be earning the same as minimum wage so all of the other wages have to go up too”.
Anne Wilson, employment lawyer and partner at Anthony Harper’s Christchurch firm understands the struggle faced by HNZ, “Some businesses are already on the brink of closure and now they have to sustain a $1.20 per hour increase on minimum wage staff, that might actually push them over the edge,” Wilson told HRD.
Businesses who can sustain the hit are telling Wilson, “It’s crazy to have these increases in minimum wage when there’s not necessarily an increase in productivity on the other side from the employees.”
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Wilson also queries the process for determining the amount of the increase. “Why is it $1.20, it just seems to be plucked out of thin air”, said Wilson. Globally, other countries have clear rules around minimum wage increases and triggers that would result in an increase, such as the rate of inflation. “There needs to be a clearer concept between the amount of the increase, so businesses have more transparency on what to expect in terms of what the increase is going to be,” Wilson told HRD
That concern is also shared by kiwi economists, Peter Wilson and Julie Fry who are calling for more transparency around how the minimum wage is set.
Wilson and Fry released a paper entitled ‘Goldilocks and the three fears’ stating that the minimum wage is a ‘goldilocks’ policy – set it too low and employee wellbeing plummets, set it to high and it could cause economic harm.
The pair would like to see more transparency around what the governments objectives are when setting the minimum wage. He said in a podcast hosted by the Helen Clark Foundation, “All they [the government] have to do is review it once a year, and then they can do what they like.” During the podcast Wilson suggested putting bipartisan guidance around the consideration’s government take into account when setting the minimum wage and having annual reporting on the impact of minimum wage decisions rather than leaving it to a minister’s discretion.