Minimum wage to rise to $23.15, despite warning

Thursday, 1 February 2024

Minimum wage workers will get a 2% increase from April 1, when the minimum wage rises from $22.70 to $23.15.

That is despite a warning from the Ministry of Business, Innovation and Employment that an increase below the rate of inflation could make it hard for minimum wage workers to keep up with the cost of living.

Inflation was running at a rate of 4.7% a year in the 12 months to December.

Workplace Relations and Safety Minister Brooke van Velden described the increase as “cautious”.

“This Government is committed to striking the right balance between protecting the incomes of our lowest paid workers and maintaining labour market settings that encourage employment.

“The economic context has changed significantly over the past year. While unemployment is currently low, the labour market is softening due to high net migration rates, constrained consumer spending and subdued economic growth. Given these economic headwinds, a cautious approach to the minimum wage is required this year.”

She said the minimum wage was one of the most generous in the OECD, in comparison to the median wage, and had increased from 62% of the median wage in June 2017 to 72% in June 2023.

“This has made it harder for businesses to issue pay rises or take on more staff.

“An increase to $23.15 will benefit between 80,000 and 145,000 workers and will give our lowest-paid workers more money in their pockets, without hindering job growth or imposing unreasonable costs on businesses.

“Increases to the minimum wage under Labour far outstripped CPI. Between June 2016 and June 2023, overall, the minimum wage increased at nearly twice the rate of inflation, with a 48.8% increase in the minimum wage and a 25.1% increase in CPI. This Government’s approach sets the balance right.”

She had originally proposed a 1.3% increase to $23 an hour, but suggested $23.15 and $23.30 as alternatives.

She wrote in a cabinet paper that because the proposed increase was less than recent average and median wage growth figures that the change was not likely to create unforeseen costs or restraint on employment for businesses.

But the Ministry of Business, Innovation and Employment had recommended the minimum wage be set at $23.60, a 4% increase, to preserve its real value against inflation.

It wrote in its review: “In the past two years, the minimum wage has increased by about the rate of inflation. Prior to that, there was a period of significant increases in the real value of the minimum wage.

“Options for a minimum wage increase below the rate of current inflation could be consistent with the Cabinet objective if measured over the longer term. However, such an outcome would make it difficult for minimum wage workers to keep up with the current cost of living, particularly since these workers will be less likely to have savings from previous years to support them.”

Infometrics chief executive Brad Olsen said the ministry’s recommendation seemed an arbitrary number, because a 5% increase would have been required to keep close to inflation.

“As much as 2% is below inflation, so too is 4%.”

He said it would be hard for business owners to understand how the minimum wage was set when it seemed that numbers were selected without a clear rationale.

But Retail NZ said the latest change was a relief.

“During these challenging economic times, every cost increase has to be passed on to consumers. So it is a relief that the Government has announced the adult minimum wage rate will increase by only 2% to $23.15 an hour,” chief executive Carolyn Young said.

Retail NZ wrote to Van Velden before Christmas, asking her to restrain minimum wage increases to enable retailers to set a level that is more sustainable.