Minimum Wage Debate

20 November 2017

With the new Government in place unions are on a high, super confident that all the Coalition's policies will be implemented as promised.  Increasing the minimum wage is a case in point and in current bargaining situations we find that the minimum wage discussion (and/or the living wage discussion) is front and centre.

The first point here is that there is confusion about the Government's policy and in particular whether the minimum rate will reach $20 by 2020 or 2021. The answer to that question makes a very big difference. 

Labour’s published policy is, within the first 100 days, “to increase the minimum wage to $16.50 an hour and base future increases on the real cost of living for people on low incomes.  This includes working towards a minimum wage equal to two thirds of the average wage as economic conditions allow”. The current average wage is around $30.50 per hour.

The Coalition Agreement which sets out the “NZ First policies that Labour will support alongside its policy programme” includes a goal of:

 “Progressively increasing the minimum wage to $20 per hour by 2020, with the final increase to take effect in April 2021”.

There can be little doubt the minimum wage will increase to $16.50 on or about 2 April next year and based on the Coalition Agreement it seems reasonable to conclude the rate will be $20 on or about 1 April 2021 (ie not 2020).

The difference is illustrated below, assuming straight line increases: 





















Increases of 6-7% or more will have a very significant effect.  When the minimum moves by such a significant amount there will be pressure to increase all the rates above.  One thing is for certain, everyone is not going to get increases of that magnitude.  That will create a lot of compression because most organisations are projecting increases of only 2.5-3.0% for the year ahead.  That is likely to lead to friction because we know that people who have done the hard yards to get where they are, don’t like to see their margin over people below them being eroded.  

Of course all the above assumes the Government will do what it has said it will do……  The best solution for now is to err on the conservative side, especially when you reflect on the other cost increases which could possibly be incurred through overtime rates, night rates, shift rates, allowances and legislated redundancy compensation.