The Government's decision to raise the minimum wage this year is expected to result in the creation of 6500 fewer jobs, according to the Ministry of Business, Innovation and Employment.

While the Opposition says small businesses are going to struggle with the pay hike, ministers say workers are going to be significantly better off.

A week before Christmas, Workplace Relations Minister Iain Lees-Galloway announced the Government would be raising the legal minimum wage from $17.70 to $18.90 an hour in April.

It's part of a plan to have it reach $20 by 2021.

Advertisement

READ MORE:
Minimum wage rise to benefit 250,000 workers
Bay workers see rise in minimum wage today
Minimum wage set to increase to $20 by 2020
The need for a living wage

Documents released by MBIE show the ministry recommended the figure among a series of higher and lower options. After crunching the numbers it estimated:

• A full-time minimum wage employee would have their net weekly income rise by about $39, from $603.11 to $642.04.
• About 242,400 workers would get pay rises.
• Total wages across the country would rise by $306 million.

But it's another number that critics of the increases are focusing on.

MBIE's best guess at what the raise could to the number of new jobs created says it's likely to hamper growth by between 4000 and 7500 jobs, with an average estimate of 6500.

Act Party leader David Seymour says unskilled workers will be hit the hardest. Photo / Mark Mitchell
Act Party leader David Seymour says unskilled workers will be hit the hardest. Photo / Mark Mitchell

That would come out of a total 43,600 jobs predicted to be created in 2020. It also compares to a restriction of 8000 jobs when the rate went up from $16.50 to $17.70 last year.

Act Party leader David Seymour says the pay increase is a nice-sounding policy that doesn't account for the real-life consequences, and the focus should be on education and business confidence instead.

"A minimum wage of $20 will eventually mean unemployment for tens of thousands of vulnerable workers, many of whom are young, unskilled, Māori or Pasifika," he said.

Advertisement

"A significantly higher minimum wage will also put pressure on small business owners and push prices up for consumers."

But Council of Trade Unions National Secretary Melissa Ansell-Bridges says the increase will be a substantial boost to those earning the minimum wage.

"It's the ability to not have to take on extra work, being able to put savings away. It's not being concerned about utilities bills or paying for after-school activities for kids," she said.

"It will have an immediate effect in lifting our lowest-paid out of working poverty."

Workplace Relations Minister Iain Lees-Galloway announced the minimum wage rise just before Christmas. Photo / Mark Mitchell
Workplace Relations Minister Iain Lees-Galloway announced the minimum wage rise just before Christmas. Photo / Mark Mitchell

Government Minister Tracey Martin said with unemployment at 4.2 per cent – MBIE describes the current rate as near its "maximum sustainable level" – it's time for lower-paid workers to also benefit.

"The most common concern we hear from business is for more workers as they are struggling to get people they need with such low unemployment," she said.

"The rise in the minimum wage is estimated to boost wages by $306 million a year and that's money that's going to help families and be spent in local economies."

But National Party workplace relations spokesman Todd McClay said the increases were too steep.

"Everyone wants high wages for workers … But we believe the minimum wage should go up in a balanced way that doesn't go too far, too fast," he said.

"These projections could prove to be much larger if our economy continues to slow and the labour market weakens, as it has already under the Labour-led Government."

That sentiment was echoed by Business NZ in its submission to the Government, which raised concerns about job cuts, manufacturing going overseas and the potential to reduce opportunities for youth.

According to MBIE, 61 per cent of those earning the minimum wage are younger than 24.

New Zealand's minimum wage is the six highest in the OECD compared to median wage and the third highest overall (in NZD terms) after Luxembourg and Australia.

MBIE notes in its report that since the 1990s, academic debate has been split about whether increases in the minimum wage do have a substantial effect on the employment rate.