6 Mar 2016

How high should the minimum wage be set?

1:47 pm on 6 March 2016

The minimum wage should not be set so high that people will be expected to live off it without other help, an economist says.

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Photo: 123rf

Earlier this week, the government raised the minimum wage by 50 cents, and the country's living wage movement announced a new rate of $19.80.

In a debate on RNZ's Sunday Morning programme, Eric Crampton, who is an economist and the director of the New Zealand Initiative, said among developed countries New Zealand already had the highest minimum wage in relation to the average wage.

New Zealand Initiative's head of research, Eric Crampton

Eric Crampton Photo: Supplied

Mr Crampton said it was unreasonable to set the minimum wage high enough for people to live off it without any subsidy.

"I don't think that there is any problem that is solved by the minimum wage that is not better solved through things like wage subsidies and Working for Families," he said.

The minimum wage was poorly targeted and welfare systems were better placed to support lower-income workers, he said.

"We should look at where the burden of supporting lower productivity or lower income workers should fall," he said.

"Should it fall on the employers and customers of firms that supply goods and services that are produced by lower income workers? Or should it fall on the tax base more broadly?

"We've got a tax system that's progressive - it tries to spread the burden to where it can be afforded. When we instead put that burden onto employers of lower productivity workers, we knock them out of work."

However, former MP Laila Harré, now the co-owner of a living-wage restaurant, said full-time workers should not need to rely on government handouts.

"If people go to work, one should expect to learn a living from that job," Ms Harré said.

"We have many non-viable businesses keeping themselves viable by surviving on these incredibly low rates of pay, [and] often extraordinarily dangerous working conditions."

Being viable as a business meant employees were not being paid poverty wages to keep the business afloat, and were in a position to have a reasonable lifestyle on the money they earned for the work they did, Ms Harré said.

University of Auckland economics professor Tim Hazledine said businesses generally had a great degree of ingenuity to adjust to change.

New Zealanders had a social and cultural expectation that adults should go to work and receive a living wage, he said - and the economy could adjust to that.

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