Bowing to the neo-liberal economic theory of cutting the minimum wage rate to what the market can bear would lead to some very low wage rates in New Zealand, Prime Minister John Key says.

Speaking to Newstalk ZB's Mike Hosking this morning, Key was dismissive of the Act Party's policy for a reduction in New Zealand's minimum wage, although indicated a policy around youth rates or schemes for 16 and 17 year olds was an area that may be looked at for young people with limited training who were looking for work.

"It's the classic neo-liberal economic theory that you pay what the market can bear, and I think you would see very low wage rates on that basis," Key said on Newstalk ZB when asked about his view on the ACT Policy.

"You would definitely see some companies that would say, well ok, I'll hire you at two bucks an hour," Key said.


The question then would be how much less would that see the state paying because people still needed a certain amount of income to live off, he said.

There was certainly an argument to be had around 16 and 17 year olds with limited skills, and whether they needed another helping hand to get them into work.

"The government's actually been trying to address that on a lot of different fronts," Key said.

That included one option that saw the government give an employer $5,000 if they took a young person on-board through one of the government's youth skills schemes and helped train that person.

"But people need a basic amount to live," he said.

Asked whether the idea of paying people just more than what they would receive on the benefit could work, Key replied:

"Yeah, assuming they turned up and a variety of other things.

"Isn't the point here though to say, well look, yes of course we want to get people in work, but what is equally important in that young group, actually I think, is getting them into training," Key said.


"It's also addressing why they're not in work. In some of the cases they're not in work because their basic foundation skills - their literacy and numeracy - are so poor, they actually can't hold together a job. They actually basically can't carry out that work," he said.

"So sometimes it's actually addressing those early issues that are stopping work, as opposed to just the pay rate. It's not as simple as just pay."