EMPLOYMENT

Is $13 an hour OK by you?

Tuesday 31 May 2011, 8:30AM
By Pete Hodgson
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The minimum wage is $13 an hour. That’s about $26,000 a year.

Enough?

Prime Minister John Key seems to think so. When Labour leader Phil Goff announced that a Labour government would increase the minimum wage to $15 an hour, next year, Mr Key said it was too much.

So did lots of other people. The ACT party said it was too much. So did the Business Round Table. Many employer groups chimed in their agreement. There were commentators everywhere.

And they all give the same reason; they all said unemployment would go up. Are they right?

As some point, yes they are. If the minimum wage was $30 an hour a whole lot of business would not be able to meet their wage bills. They would go bust. Or as least they would cut their staff numbers.

But the same argument clearly doesn’t apply at $13 an hour. Indeed the opposite argument cuts in at some point. That argument says that low wages depress economic activity because workers have less money to spend at the shops and so the shops go bust.

Then there is history to consult. Between 1990 and 1999 the then National government lifted the minimum wage from $6.12 an hour to $7.00 an hour. That’s right, only $0.88 an hour in 9 years! With such a small increase, well below inflation, you might expect unemployment to fall. It didn’t. It rose. Mr Key’s argument didn’t work.

But between 1999 and 2008 the then Labour government lifted the minimum wage from, $7.00 an hour to $12.00 an hour. That’s right, $5.00 an hour (compared with $0.88 an hour) in 9 years. With such a large increase, well above inflation you might expect unemployment to rise. It didn’t. It fell to the lowest level in the developed world. Mr Key’s argument didn’t work then either.

So what is the ideal level for the minimum wage?

Labour says $15 an hour next year. We will also increase it moderately, just a bit faster than inflation, every year after that. That is what Labour governments always do.

And we will always be criticised for it. And our critics will always be people who themselves earn more than the minimum wage.

A lot more.