The Minister of Labour has been advised that raising the minimum wage from $13 to $15 an hour would have increased workers' spending power by close to $500 million.
It would also have pushed up prices and potentially cost 5500 jobs.
The Department of Labour's advice to Kate Wilkinson shows such an increase would have increased hourly pay rates for more than 250,000 workers.
The department says younger and part-time workers were the most likely to benefit, with more than half of all workers on the minimum wage aged between 16 and 24.
It also says social welfare assistance - rather than raising the minimum wage - could be a better way to address income inequality because many younger minimum wage earners do not live in low income households.
The minimum wage will be increased from $13 an hour to $13.50 in April this year.