The working poor had cause for celebration as the Labour and NZ First leaders shook hands today in a coalition deal.

The minimum wage will go up to $16.50 starting April 2018 before rising in steps to $20 by 2021.

Currently, the minimum wage is $15.75 and the living wage is $20.20

Around 700,000 people earn less than the living wage - a figure found by the Council of Trade Unions - and this pay rise will "transform them", Unite union national secretary Gerard Hehir said.

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"People are living week to week, hand to mouth when on the minimum wage. This is with them even working fulltime."

The first wage increase will see someone working 40 hours take home $30 a week extra. By 2021 this will amount to an extra $170 a week, before tax.

McDonald's employee Alex Couprie, 23, was delighted to hear about the wage increase.

She currently works around 17 hours a week for $15.85 an hour while studying fulltime at Unitec. With her living cost allowance she lives off around $400 a week and is left with around $210 after rent and bills. The remaining money goes on transport, food and other expenses like clothes, school books and savings.

Couprie currently has to save a week ahead to go to the movies with her partner. But the relief would be even bigger for her workmates with children.

"Honestly it's great. I'll be able to afford more things and not have to budget as strictly.

"I know people that have kids and are struggling to make ends meet. This would enable them to give their kids what they need."

Alex Couprie. Photo / Jason Oxenham
Alex Couprie. Photo / Jason Oxenham

Locking youth out of the employment market and an increased price for goods and services were two possible consequences of the minimum wage hike, BusinessNZ chief executive Kirk Hope said.

"If you're an employer and you are required to pay someone with five years experience the minimum wage or one year experience minimum wage, you're more likely to take the opportunity to hire the more experienced person.

"This can have an impact on younger people getting into the workforce."

Hope said New Zealand was a country of small businesses and the hike would be harder for them to absorb. Out of the 500,000 businesses in New Zealand only 200 have over 100 employees.