Why are we all paid close to minimum wage?

Photo: 123RF New Zealand's minimum wage might have increased substantially over the past five years, but it hasn't helped lift the wages of the population overall. As a result, the median wage has drawn significantly closer to the minimum, and commentators say it will take a big productivity boost to boost incomes more generally. In 2010, when the minimum wage was $12.75 an hour, the median hourly earnings for all workers was $20. At that point, minimum was 64 percent of the median. Over the following 15 years, the minimum age has risen 84 percent. The median wage has only risen 75 percent and the average 72 percent. In the past 10 years, the minimum wage has lifted 59.3 percent and median wages 52.9 percent. The average has lifted 50 percent. How Does Australia Pay High Wages but Still Keep Prices Low? Listen to No Stupid Questions with Susan Edmunds That has taken the minimum to 67 percent of the median. The increase in the minimum was particularly noticeable during the period of 2020 to 2023, when it rose sharply and in 2023 was 72 percent of the median. Infometrics chief forecaster Gareth Kiernan said New Zealand's minimum wage was high relative to average wages when compared with other countries. In 2023, it was fifth-highest in the OECD compared to the median wage of fulltime workers. "I think it's partly a function of the last Labour government's belief that by putting up the minimum wage, they could make those people who were at the lower end of the income spectrum better off without necessarily thinking through the process or the logic around what does that actually do to costs? "And does it end up putting prices up for stuff as well, which, to be fair to them, it's hard to decompose all of that through the pandemic and all the stuff that's gone on. So I wouldn't want to overstate that, but I think it's a factor in some areas." He said the big problem for the country was its poor productivity. "If you're not able to sort of grow your productivity and get more output per hour of labour that you're putting in… then there's no way that you can lift incomes on a sustained basis, whether that's at the bottom end of the spectrum or further up as well. "I think until we do something to address those sort of productivity issues, that overall wage situation that we're working with here in New Zealand is going to be one of relatively lower wages and stuck with compression down the bottom end." Kiernan said New Zealand still had a propensity to export commodities rather than adding value. "There's not always an easy fix for that - for example, a big chunk of our forestry exports are logs to China, rather than processed timber or wood products, but that's because they want to buy logs and do the processing themselves. Plus we lack the scale to do it anywhere near as cost-effectively as China either. And we need to get past the mindset that the best way to grow is to simply add more people, because although that might increase the size of the economic pie, it doesn't increase the amount of pie that each person ends up getting." Victoria University professor and Motu Research senior fellow Arthur Grimes said lifting the minimum wage had not pushed up wages overall. "The reason is wages generally reflect productivity and so pushing up the minimum wage doesn't change the productivity of the economy. There's no reason why it should push up wages overall." He said the country had previously managed productivity improvements when it shifted from sheep to dairy. "We've got to increase the value of what we produce… that could be through technical productivity improvements, including the quantity of things we produce or just producing things that are higher value." There had been sharp improvements in that productivity between 1994 and 2019, he said. "We were one of the most successful countries in the Western world at doing that. "So for 25 years to 1994, we had zero increase in real incomes per person in the country. So 25 years of stagnation. The following 25 years from 1994 to 2019, we had really large increases in real incomes per person…almost the same as Australia. "So we did really well for that 25 years. From 2019 onwards, we've stagnated again, zero growth in real incomes since 2019." There were tentative signs things were improving, he said. "But you wouldn't want to hang your hat on it… The payoff that we had from the reform period in the 80s was huge. You know, it took a while, took 10 years probably to come about. And then that's basically disappeared now. "We've had five years where nobody's got any better off, on average as a country, we haven't got any better off… I presented this to some business people the other day and they were all very 'so much regulation, so much red tape, so difficult to produce and things like that…it's not, none of this is a surprise to us'. "I think you just have to talk to the people in business to sort of work out why is it that they feel the...

Why are we all paid close to minimum wage?

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