Minimum wage debate rages on

Labour claims a rise in the minimum wage would have a small effect on growth, but the Prime Minister says supporters of the move don't understand economics. File photo / NZ Herald

Supporters of an increase in the minimum wage are questioning claims it would hike unemployment but Prime Minister John Key says they don't understand economics.

At Labour's congress at the weekend the party said it would increase the minimum wage from the current $13 an hour to $15.

The Government responded saying Labour Department advice was that it would quickly put 6000 people on the dole because companies would not be able to afford higher wage bills.

Labour leader Phil Goff said the change would have a small impact on growth.

"The point is people have to have a living wage, and people can't live on $13 an hour when prices are sky rocketing."

Green co-leader Metiria Turei said the Labour Department actually said that increasing the minimum wage to $15 an hour could result in a "potential loss in job growth" of 4280-5710 jobs.

"That's very different from putting 6000 people out of work," she said.

"A potential loss in job growth can occur without a solitary person being put out of work. It all depends on the wider economic policy settings."

The methodology for the figures was questionable and other analysis showed the increase was unlikely to impact on employment, she said.

Unite Union national director Mike Treen said the department talked about job losses that equated to about 0.2 per cent of the labour force.

"That is really margin of error stuff for a workforce of 2.2 million. It is even small compared to the actual job losses of 150,000 over the past three years as a consequence of the economic crisis and failure of the Government to implement policies designed to protect jobs."

In the early 2000s employment rose along with the minimum wage.

Employers had benefitted for years from rising productivity without commensurate wage rises, he said.

Wellington People's Centre's Kay Brereton said taxpayers were subsidising employers paying the minimum wage through the Working for Families Tax Credit package.

"Increasing the minimum wage would put the costs onto the employers who are benefiting from the labour of their employees."

In a speech to a business group near Wellington today, Mr Key defended his rejection of raising the wage. He said the Government decided to grant a raise when it came into office at a time when business was struggling.

"We wanted to do what we thought was fair and that was to make sure that those that earned the least were keeping up with inflation."

However now was not the time to up it again, he said. Increases would result in job losses or higher costs for consumers.

"If anyone thinks we can just magically increase the minimum wage with no implication on either labour markets or costs to employers they don't understand basic economics," he said.

"The way we will lift our wages is to have a very productive environment."

- NZPA