Real net minimum wage now 11% higher than under Labour

Michael Woodhouse announced:

The will increase by 50 cents to $15.25 an hour on 1 April 2016, Workplace Relations and Safety Minister Michael Woodhouse announced today.

The starting-out and training hourly minimum wages rates will increase from $11.80 to $12.20 per hour, remaining at 80 per cent of the adult minimum wage.

“The Government has once again taken care to ensure the right balance has been struck between protecting our lowest paid workers, and ensuring jobs are not lost,” says Mr Woodhouse.

“An increase to $15.25 per hour will directly benefit approximately 152,700 workers and will increase wages throughout the economy by $75 million per year.

“With annual inflation currently at 0.1 per cent, an increase to the minimum wage by 3.4 per cent gives our lowest paid workers more money in their pocket, without imposing undue pressure on businesses or hindering job growth.

“The Government has increased the minimum wage every year since coming to office, from $12 to $15.25. This is an overall increase of 27% compared to inflation of around 11%.

What matters to people on the minimum wage is indeed not the nominal increase, but what it does to their after tax income. If you have low inflation, lower taxes and ACC levies and an increase in the minimum wage the combined impact can be significant.

Here’s what the difference is between April 2008 and April 2016.

April 2008:

  • Minimum wage $12.00/hr
  • Gross income on MW $25,029
  • Tax $4,881 (19.5% effective rate)
  • ACC $350 ($1.41%)
  • Net Income $19,798
  • Real Net Income (2016$) $22,718

April 2016:

  • Minimum wage $15.25/hr
  • Gross income on MW $31,807
  • Tax $4,486 (14.4% effective rate)
  • ACC $385 (1.21%)
  • Net Income $26,836
  • Real Net Income (2016$) $26,836

So someone working FT on the minimum wage is now 10.9% better off than in 2008. Worth remembering that when the unions and others all state how evil National is to low paid workers.

The problem with increasing the minimum wage is that if it goes too high, it will reduce the number of jobs available. This is beyond dispute – if you don’t believe me, then try a minimum wage of $100/hr and see what happens.

So the question is at what level does an increase in the minimum wage really start to impact employment. The research I’ve seen points to when the minimum wage becomes a high proportion of the median wage, you then start to really price jobs out of the labour market.

Now here’s the ratio of the minimum wage to the median wage since 2008:

  • 2008 67%
  • 2009 67%
  • 2010 66%
  • 2011 65%
  • 2012 66%
  • 2013 66%
  • 2014 66%
  • 2015 67%
  • 2016 67%

So the ratio has not changed greatly.

What I’d like to see is the minimum wage not become a lottery every year but instead be set by statute as a percentage of the median wage, say the status quo of 67% (which is I think the highest in the OECD). This would then put the focus on increasing wages over the whole economy (which needs productivity gains to occur sustainably) rather than the politics of envy.

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