Labour & the Minimum Wage

The most striking aspect of the Budget was not what it contained, but what it ignored. Government debt is not our most pressing problem (when overseas, Key boasts about our relatively low level of government debt). The low level of Government debt when Labour left office was largely due to Michael Cullen's paying down of government debt during the 2000’s. Our financial problem is based on the mountain of debt being accumulated by households and the private sector. The latest Budget obsessively focused on keeping government debt well below 30%, while the portion of debt that really puts our credit rating at risk (and within the same basket case status as Greece) is left to sail on regardless. There was nothing in the budget to promote growth, there was no vision for the future.

I will be discussing over the next few weeks the steps that Labour will put in place to assist with growing our economy and providing people with a better future. Today I will focus on Labour’s policy to increase the minimum wage.

Under a Labour government the minimum wage will go up to $15 an hour. That’s $600 a week – a real improvement on the current $520, and might just be enough to pay for the 20% increase in food costs since September. Its not huge, but then we all know we are in difficult times. Even that small increase has infuriated the National government and Business NZ. Their predictions of doom suggest that the increase will bring business to its knees.

Sorry – business is on its knees, and in a region like the Wairarapa, where there are an alarming number of people on the minimum wage, the increased dollars will provide a much needed boost to the local economy. In the end the beneficiaries of this increase will be businesses, particularly in those local retail and service areas where low paid people spend their money. The increase will not be spent on luxury goods or investments or imports or foreign travel, but in the supermarket, the chemists, the doctor, school trips; all on the basic necessities. Every dollar of that minimum wage increase will be fed back into the local economy.

Businesses are the wealth generator of any community, but many of them are dependent upon a customer base that has the dollars to spend. An increase in those dollars makes the world go round. It’s a modest increase, but when added to Labour’s promise of $100 a week tax free and a 15% reduction in the cost of fresh fruit and vegetables, this is a policy that will provide a vital stimulus to the Wairarapa.

I intend to represent the Wairarapa in parliament, and I have to recognise that according to the Dept of Statistics, the Wairarapa electorate is the lowest paid electorate in the country. On that basis alone, a $15 an hour minimum wage is vital for the wellbeing of our communities. It is a tragedy that Bill English’s budget, concentrated almost entirely upon cost cutting and missed the opportunity to set policies to stimulate economic growth. The English plan is to push us further away from recovery. The big problem is that the government is borrowing $2.5 billion a year to give tax cuts to just the top ten percent of earners.

Back in 2007 the Department of Labour funded a study on the effect of two increases in the youth minimum wage. The increases then were extreme, raising the youth wage by 41% and 69%. That study showed that there was no reduction in the number of young people employed, even though Business NZ had warned (as they do today) that every 10% increase in the minimum wage would mean a 4% drop in employment. That prediction was shown to be completely wrong.

So it is worth looking at what actually happens in the workplace when there is a pay increase, and I know this from my years in small business in the region. First of all there is a recognition that the worker is actually valued. That recognition is usually responded to by increased commitment to the job. That is the nature of pay rates. Pay is actually about recognition. Being paid at $13 an hour is statement about your worth. Not a good basis for a productive workforce.

Secondly, the increase is a universal one – so an employer who pays the minimum wage will know that competitors who also pay the minimum wage will not gain an advantage. The increase is not disadvantaging either in terms of competition. Increasing the minimum wage should not just be seen as a cost increase but within the context of the boost it will give to the broader economy. Even Don Braid, managing director of Mainfreight and hardly what one would regard as core Labour support agrees, when he said, “New Zealand’s lower wages compared with Australia are not an advantage and the minimum wage should be increased, not reduced.” (TVNZ News 29 April 2011)

So what better way to boost a local economy than to ensure a nationwide increase in pay for the lowest paid layer of our community. It will have a significant impact on the local economy and a huge impact on low paid families.