Former Prime Minister Helen Clark’s thinktank calls for a ‘significant’ increase to minimum wage, to ensure nobody is left behind in the economic recovery from Covid-19

Te Haua Taua is the first person in his whānau to both graduate from high school and attend university, he says. “Administration, cleaning, trades, warehousing and labouring are the jobs most of my immediate and wider whānau do.”

Taua is one of the faces of a new thinktank report calling for a sharp increase to the minimum wage, to help ensure New Zealand’s young and more disadvantaged communities are included in the economic recovery from Covid-19.

“My mother was made redundant prior to lockdown and was unable to find suitable employment for a while,” he tells the report’s author. “In order to do the basics like pay the bills and put food on the table she found temporary work stocking food parcel orders. This is reality for many Kiwis. Inequality is still a big challenge in our country.”

Which is more important to an inclusive economic recovery – better-paid jobs, or more jobs? Click here to comment.

Taua, who is from Tainui and Ngāpuhi, says both his parents left school early – but they encouraged him to make the most of his educational opportunities. He went to school on Waiheke and then in Pakuranga, and now he’s studying business at AUT University.

“Māori continue to earn on average less income compared to non-Māori. Māori communities know we are the first fired and last hired.”

The report, by NZ  Institute of Economic Research deputy chief executive Todd Krieble, is published by the Helen Clark Foundation and NZIER. It recommends that minimum wage reviews should place less emphasis on the short-term potential for employers to hire fewer workers, and more on a longer term view of higher wages to encourage investment in upskilling and productivity gains.

It says many low-paid jobs in hospitality, retail, aged care, and food-processing industries will disappear, never to return, as a result of the Covid-19 downturn.

“With border controls to prevent importing Covid-19 limiting the inflow of migrants, labour will become relatively scarce and costly. Capital has never been cheaper. This is an unheard of combination of factors and should allow for a more equitable economic model.”
– Todd Krieble

But Michael Barnett, the chief executive of the Auckland Chamber of Commerce, said there were too few firms paying minimum wage to make the difference they suggest.

“Raising the minimum wage does have one benefit in that those who receive it, spend it, which is stimulatory,” he said. “But there are many new enterprises that have started and are in the phase of proving a concept or growing an idea and at that early stage of development can only pay the minimum wage but will grow that as they grow.

“A concern I would have is that it could determine who stays in the market – for example some of the larger firms in the hospitality sector could push up the minimum wage and force the smaller or new entrants out of the sector- or worse still prevent their innovation being explored.”

The minimum wage is $18.90 an hour, this financial year – not far behind the $22.10 Living Wage. Already, the Government has promised to increase the minimum wage to $20 an hour from April 2021.

Ministry of Business, Innovation and Employment data calculates that increasing the minimum wage to $20.55 an hour would displace about 39,000 workers, who are more likely to be young people aged 18-24.

In the election campaign, Andrew Little said: “Investing in our people needs to be a key part of our economic recovery from Covid-19. We want a productive and highly-skilled workforce where everyone shares in the benefits of economic growth.”

The report acknowledges employers’ concerns that if they are forced to raise minimum wages, they will be able to offer fewer people work. “The short-term costs of a minimum wage boost appear significant, but are minor in the context of a $20 billion reduction in GDP following the March-April 2020 lockdown and a 12 percent annual GDP reduction for 2020 [in the June quarter],” the report argues.

“Yet, with Aotearoa New Zealand’s relatively low rates of productivity increase, an increase in the minimum wage can help increase productivity. That could begin immediately as limited migration forces the dedication of the highest skilled workers to a focus on their specific talents.

“Firms become more productive, and/ or new firms provide high-wage roles by replacing less-productive firms over time.”

“Lockdown brought home to many of us that the essential workers who keep us alive are not paid at a level which recognises their value to society.”
– Kathy Errington

Again, it admits that some companies may not make it if they’re required to hike wages – but it says these are the country’s least productive companies already.

“While there may be adverse company-level impacts, the overall economy and workforce is better off,” the report says. “With Aotearoa New Zealand experiencing low productivity growth, a higher minimum wage is worth considering as a way to reboot productivity growth and to do so in an inclusive way.”

Todd Krieble, the report’s author, says: “With border controls to prevent importing Covid-19 limiting the inflow of migrants, labour will become relatively scarce and costly. Capital has never been cheaper. This is an unheard of combination of factors and should allow for a more equitable economic model. The recovery gives us an opportunity to build a more inclusive economy that shares the gains.”

Kathy Errington, the executive director of the Helen Clark Foundation, said Taua’s comments made it clear that New Zealanders needed to create a country where the incomes of low income people grew more quickly than those of wealthy people.

“Lockdown brought home to many of us that the essential workers who keep us alive are not paid at a level which recognises their value to society. Cleaners, supermarket workers and other essential workers need more than applause at 7pm – many of them urgently need more money.” 

But Business NZ chief executive Kirk Hope said the report’s argument that businesses that pay better would be more productive, was too simplistic.

“Many of the jobs that are low skilled and low paid exist in service based sectors that aren’t that compatible with productivity enhancing measures such as automation,” he said.

An example was the tourism sector, which was predominantly a service-based, people-based offering that would be difficult to automate away. “A plus factor for these jobs is that there are low barriers to entry which means those with less skills can get a job, including many young people. If capital and productivity enhancing automation did in the end remove these jobs the question remains what replaces them.

“The issues arise if people become stuck in minimum or low wage jobs – this is often a function of lack of training or lack of availability of training or a lack of skills recognition. Our skills recognition system is poor as is our so-called lifelong learning system so the focus of the current Government on creating a more responsive and reflective skills system is likely a much more important contributor to productivity and higher wages than minimum wage increases.”

“It is likely that large minimum wage increases without productivity enhancement simply raises prices. There is also some international literature that indicates that higher minimum wages have a disproportionate impact on low skilled workers (young people new to the workforce or older low skilled or unskilled workers) by locking them out of the labour market in parts of the economic cycle.

“Many New Zealand companies operate internationally where they are part of larger supply chains – so any changes to labour costs without a reflection of this reality will affect their international competitiveness. This will be especially important as the world emerges from Covid.”

Earlier this year, a Productivity Commission report warned that people who lose their jobs were more financially vulnerable in New Zealand than in other countries. “As a result, some New Zealanders can face large falls in income upon displacement,” it found. 

“There are several options that could be pursued to offer greater income smoothing, including changes to existing benefits and tax credits, introduction of an unemployment insurance scheme, and portable individual redundancy accounts.”

Newsroom Pro managing editor Jonathan Milne covers business, politics and the economy.

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