Minimum Wage Mayhem
I was with some people the other day and the conversation came around to the pending increase to the minimum wage. The comment that struck me the most was “I’ve heard a lot of businesses say that they won’t be able to employ anyone, unemployment will increase”. In my head I’m thinking, “why should they say that?” Let’s look at reality.
The government is increasing the minimum wage from $15.75 to $16.50 come 1st April 2018 with progressive increases to meet the $20 target by 2021. This gives businesses certainty over the next 4 years around the minimum wage – no surprises. Many businesses will now take the opportunity to look at their margins, assess where efficiencies can be made, and use these figures in their forecasts. They are hardly likely to fire anyone, but there may be some small resulting price increases.
Branko Marcetic wrote 2nd November 2017 in The Spinoff https://thespinoff.co.nz/politics/02-11-2017/the-evidence-is-in-a-minimum-wage-increase-doesnt-actually-mean-economic-apocalypse/ “part of running a business is recognising the inherent risk that your venture may not end up profitable enough to survive. In the year to February 2017, 57,500 businesses closed their doors. If the wage increase means the difference between survival and failure for a business – or in other words, if the only thing keeping a business alive is the ability to pay its workers substandard or even poverty wages – then that particular business was probably not long for this world anyway, and it will be replaced by the many thousands more that are started every year”. Marcetic also quotes many overseas research articles that have been reviewed recently that are now showing there has been “little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labour market”.
The government has indicated they would be exploring the Australian model around having a stepped tax bracket; meaning lower turnovers would have a lower tax bracket. We haven’t seen anything further on this so we don’t know what this will look like, but depending on the details could this alleviate some of the wage increase anxiety and reduce the likelihood of price increases?
Few people would argue that when we get a wage increase our expenditure mysteriously seems to increase in line with this. In other words, an increase in the minimum wage will filter back into the economy with additional purchasing. Not a bad thing for businesses really.
It has also been said that in countries where there have been increases in the minimum wage young people have been locked out of the labour market. Whilst making education free for the first year or for three years may help, businesses need to take some steps as well – increasing apprenticeships, in house training and recruiting people without formal
qualifications are just some ideas. There are many other organisations and initiatives happening in this area as well to get young people more engaged and work ready.
I guess my point is don’t be too reactive yet, an optimistic outlook may serve us better.