Minimum wage increase: a double-edged sword

Prime Minister Chris Hipkins recently announced an increase to the minimum wage, effective 1 April 2023. This increase is the result of the Government “refocusing its priorities to put the cost-of-living front and centre”.

The current adult minimum wage is $21.20, set to rise to $22.70. The $1.50 per hour increase is aligned with the 7.2% rate of Consumer Price Index inflation in the year ended December 2022. The training and starting-out minimum wages will both also increase to $18.12 to match 80% of the adult minimum. These changes will affect approximately 222,900 workers.

Wage increases often serve as a double-edged sword, generally embraced by vulnerable employees with the brunt taken by those employers who have a substantial number of employees at or close to the minimum wage.

Workplace productivity can be affected both positively and negatively by a wage increase and employers should be aware of these impacts. This can take form in improved morale, motivation, and the ability for businesses to attract and retain talent.

Although the increase in the minimum wage provides much needed financial assistance for lower paid employees in the interim, the long-term systemic cost of living impacts are not being addressed. Retail experts assert that the costs will simply be passed onto consumers, continuing the “knock on effect”.

However, the impact on inflation may be less than forecasted by economic doomsayers. The Ministry of Business, Innovation and Employment (MBIE) estimated that the increase in the minimum wage will only have a “minor inflationary impact of 0.1% on the wage portion of GDP”.

What does this mean for employees?

This rise offers an extra $60 per week (before tax) for people earning the adult minimum wage on a 40 hour working week.

What does this mean for businesses?

Small to medium businesses are those most at risk of negative impacts. A 20% increase in the adult minimum wage since 2020 places high pressure on businesses still overcoming the aftermath of COVID-19. According to the general business community, 73% of businesses expect economic deterioration over the next few months. New Zealand Institute of Economic Research (NZIER) has reported this as the weakest survey since June 2020.

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