Editorial: Greens' wage policy has to be affordable for country

The Greens believe there is reason to reassess assumptions about the impact of increases in the minimum wage on employment. Photo / Peter Meecham

Opinion

The Green Party's policy to lift the minimum wage by almost $4 to $18 an hour by 2017 is undoubtedly smart politics. Appealing to those who place a great emphasis on what they see as social injustice is an effective means of broadening its support base. More in doubt is whether such a substantial jump in the wage is smart policy. Certainly, the National Party was quick to scorn it, saying it would cost jobs.

This thinking formed the basis of the Government's decision earlier this year to lift the minimum wage to just $14.25, up from $13.75. Even in the most favourable economic climate for some time, it concluded that the cost of any greater increase in restrained job growth and unemployment was likely to outweigh the benefits. This caution was underlined by the Treasury, which suggested there should be no rise. The minimum wage had been growing at a faster rate than the median and average wage over the past decade, it said, so much so that its relativity to them was among the highest in the OECD. International competitiveness was damaged as a consequence.

The relativity issue provides its own commentary on the low median and average wage in this country. But, more fundamentally, the Greens believe there is reason to reassess assumptions about the impact of increases in the minimum wage on employment. The latest research on this heavily studied topic suggests, in fact, that the minimum wage has little or no discernible effect on the job prospects of low-wage workers. It is a small part of most companies' overall costs, and any downside is more than offset by savings arising from reduced labour turnover and improved efficiencies.

But the emerging consensus comes with a significant proviso. The research findings refer specifically to modest rises in the minimum wage. This suggests that when the lift is more dramatic, there is bound to be a point where jobs and employment growth are jeopardised. As much has been emphasised by a report by the Congressional Budget Office on President Barack Obama's plan to increase the the federal minimum wage from US$7.25 an hour to US$10.10 by July 2016. The non-partisan office concluded this would eliminate about 500,000 jobs by 2016, while helping 900,000 workers out of poverty.

This indicates that President Obama's plan exceeds the rate at which the minimum wage can be raised with a negligible impact on employment. It is reasonable to be concerned that the Greens' policy, which would involve an initial 75c rise in December and annual increments thereafter, enters similar territory. Equally, there are question-marks over whether a policy spanning three years is tenable.

On the plus side, it provides certainty for employers and their workers. But the minimum wage cannot be considered in isolation from the wider economic picture, as tends to be the case when times are good. Governments should not raise it unless the economy is growing and business can afford it.

Already, a raft of economic data suggests we have seen the peak of the present cycle in terms of quarterly growth rates. Any approach to the minimum wage, especially one involving a longish term, should acknowledge the impact of slowing growth.

There is no doubt that this country must lift its incomes. Otherwise, the flight of New Zealanders across the Tasman will resume at some time. Equally, a strong minimum wage provides an incentive to work, rather than subsist on an unemployment benefit, and more money for families to spend.

The problem with the Greens' policy is the likelihood of speed bumps.

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