ANNUAL MINIMUM WAGE REVIEW 2013 AND MINIMUM WAGE ORDER 2014
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Office of the Minister of Labour
Cabinet Economic Growth and Infrastructure Committee
ANNUAL MINIMUM WAGE REVIEW 2013 AND MINIMUM
WAGE ORDER 2014
PROPOSAL
1. This paper reports on the minimum wage review for 2013. I seek Cabinet consideration of my
recommendation to increase the adult minimum wage from $13.75 an hour to $14.25 an hour
from 1 April 2014. The starting-out minimum wage and the training minimum wage rates
would remain at 80 per cent of the adult minimum wage, which will make these $11.40 an hour.
Following the confirmation of my recommendation of minimum wage changes, I recommend
that the Cabinet authorise the submission of the Minimum Wage Order 2014 to the Executive
Council.
EXECUTIVE SUMMARY
2. The current minimum wage rates are $13.75 an hour for adults and $11.00 an hour for starting-
out workers and trainees. Minimum wages are being paid to just over 54,600 workers, making
up approximately 2.4 per cent of all employees. Minimum wage workers are disproportionately
young people and those working part-time. Women, Māori and Pacific workers, people without
formal qualifications, disabled workers, or refugees and migrants are also more likely to be paid
the minimum wage than other groups of workers.
3. This year’s review takes place in a more favourable economic climate than recent years, with
more stable economic growth and stronger labour market performance. However, the
unemployment rate, at 6.0 per cent (December 2013 quarter), is still high compared with that
prior to the onset of the economic recession (3.6 per cent in March 2008). Economic growth
remains uneven and has already shown signs of pause in some regions.
4. I considered and received advice on minimum wage options for 2014 from the Ministry of
Business, Innovation and Employment (the Ministry). These options were assessed against the
objective for the minimum wage review. Some specific impacts of the minimum wage increase
options are summarised in Table 1.
5. I recommend increasing the adult minimum wage to $14.25 an hour (option 4 that I considered
in the review). It is also my recommendation that the starting-out minimum wage and the
training minimum wage remain at 80 per cent of the adult minimum wage, which will make
these $11.40 an hour.
6. This option reflects a modest approach that slightly increases the real value of the minimum
wage and maintains its relativity with the median wage, which increased 3.5 per cent to $21.58
an hour (New Zealand Income Survey, June 2013). It could increase annual economy-wide
wages by $56 million and inflation by 0.03 percentage points. The constraint on employment
growth is negligible.Table 1: Summary of the impacts of the minimum wage options
Option 3 (broadly Option 4 (in line Option 5
Option 2 (broadly
Minimum wage impact Option 1 in line with with median (proposed by Option 6 (proposed
in line with CPI
measures (status quo) average wage wage increase of NZCTU in previous ‘living wage’)
increase of 1.4%)
increase of 2.1%) 3.5%) review)
Adult minimum wage
$13.75 $13.90 $14.00 $14.25 S15.00 $18.40
(hourly rate)
Adult minimum wage (weekly
$550 $556 $560 $570 $600 $736
income)
Percentage increase N/C1 1.1% 1.8% 3.6% 9.1% 33.8%
Relativity to median wage 63.7% 64.4% 64.9% 66% 69.5% 85.3%
Number of people impacted
54,600 61,900 65,200 109,000 178,800 530,000
(rounded up to 100)
Restraint on employment N/C N/C N/C Negligible 5,000 24,000
Economy-wide increase in
N/C 11 20 56 224 2,302
wages ($m, annual)
Inflationary impact/GDP
N/C 0.01 0.01 0.03 0.10 1.05
(percentage points)
Additional annual costs to the
N/C 4.39 7.91 18.32 58.78 454.813
government ($m)2
1
N/C means ‘no change’.
2
This is a high level estimate based on the additional costs to the Ministries of Health, Social Development and Education and the Accident Compensation Corporation from
higher wage costs for their employees and service providers.
3
This estimate in particular is likely to be an underestimate because employees and contractors working for state agencies other than the four surveyed here would be
affected by a minimum wage increase to $18.40.BACKGROUND
7. I have a statutory obligation to review the minimum wage rates by 31 December each year
under section 5 of the Minimum Wage Act 1983.
8. The government’s objective for the minimum wage review is ‘to keep increasing the minimum
wage over time to protect the real incomes of low-paid workers while minimising job losses’
(CAB Min (12) 41/58 refers).
9. Cabinet agreed in 2012 to adopt a cyclical process for the review of the minimum wage rate.
The process comprises a comprehensive review (as was last undertaken in 2011) to be
completed every fourth year, with a streamlined process in the intervening three years
focusing on fewer key factors and with limited formal consultation.
10. As specified for the streamlined process, the Ministry has focused on the following factors in
assessing the options for the minimum wage rates for 2014:
inflation, using CPI as the indicator
wage growth, using median wage as the indicator
restraint on employment, and
other relevant factors. 4
11. The minimum wage rates normally increase every year after the completion of the annual
review. The following table shows the recent changes in the hourly rate, compared with the
annual increase in the average wage.
Recent changes in minimum wage rates
Time Period Adult Minimum Youth Minimum % Change Annual increase
Wage Wage5 in average wage6
April 2005 $9.50 $7.60 5.6% 3.6%
April 2006 $10.25 $8.20 7.9% 5.4%
April 2007 $11.25 $9.00 9.8% 4.7%
April 2008 $12.00 $9.60 6.7% 4.7%
April 2009 $12.50 $10.00 4.2% 5.4%
April 2010 $12.75 $10.20 2.0% 1.0%
April 2011 $13.00 $10.40 1.9% 2.6%
April 2012 $13.50 $10.80 3.7% 3.8%
April 2013 $13.75 $11.00 1.9% 2.1%
4
Other relevant factors considered in the minimum wage report 2013 include the impacts on industries,
impact on the state sector and the interface with other government policies.
5
This includes new entrants and training rates and the starting-out wages rates (from 2013).
6
Source: Ordinary time hourly wages, Quarterly Employment Survey, March quarters, Statistics NZ.COMMENT
12. In general, minimum wage increases could have the following impacts:
Increased earnings for minimum wage workers (although net household income is also
affected by other government interventions, such as taxation and abatement for those
receiving income support and tax credits) and potentially flow-on impacts for other
workers earning close to the minimum wage.
Increased labour costs for employers, especially for those industries that employ a large
number of minimum wage workers such as retail and hospitality. This could result in
greater inflation pressure. An increase in the minimum wage will also have a fiscal
impact on the state sector, mainly the Ministries of Health, Social Development and
Education, and the Accident Compensation Corporation (ACC).
Negative employment effects, including lower job growth and reduced hours,
particularly from a significant rise in the level of the minimum wage. The extent of these
effects will depend on the size of the wage increase and the economic and labour
market context in which it occurs, and are most likely to impact on some demographic
groups, such as youth and Māori/Pacific.
13. Setting the minimum wage requires balancing the benefits of any changes, such as the
protection of the lowest paid, against the costs that any changes might bring, such as negative
employment impacts.
14. The Ministry advises me that a modest increase is appropriate in the current labour market. A
modest increase means a small incremental adjustment that maintains or increases the real
value of the minimum wage while not constraining employment growth.
15. A modest adjustment in the minimum wage rate will not have a significant impact on either
the demand or supply of minimum wage workers, or more broadly employment or
unemployment. Further, it is unlikely that a modest rise in the minimum wage will have any
significant impact on wage growth.
16. Given the significant uncertainty around a lot of the impacts of the minimum wage increase, I
consider that a cautious approach continues to be warranted. Amongst all the options I
considered, option 4 ($14.25 an hour) is the preferred option because:
This is a modest increase that aligns with our previous approach.
The modest increase will have a positive financial and social impact for low paid workers
through an increase in their income. Option 4 impacts up to 109,000 workers directly
with negligible impact on employment growth.
Options 1, 2 and 3 ($13.75, $13.90 and $14.00) have similar (negligible) impacts on the
economy, but do not have as significant or widespread impacts on workers.
Under options 5 and 6 ($15.00 an hour and $18.40 an hour), the costs are very likely to
outweigh the benefits as employment growth could be significantly restrained. This is
inconsistent with the objective for the minimum wage review.
Option 4 is therefore the option most consistent with the objective for the minimum
wage review.CONSULTATION
17. In accordance with the Cabinet minute (CAB Min (12) 41/58 refers), consultation has been
undertaken with the social partners – Business New Zealand (Business NZ) and the New
Zealand Council of Trade Unions (NZCTU). Their views and submissions are analysed and
modelled in the review process:
Business NZ submitted that the minimum wage be maintained at its present level until it
falls below 25 per cent of the average national wage, which is currently calculated to be
just under $7 an hour.
NZCTU asked for an immediate rise in the minimum wage to 66 per cent of the average
ordinary time wage (estimated at $18.63 an hour in April 2014), or, if that is not
achievable, increasing to that level over 3 years with an interim step to $15.50 from 1
April 2014.
18. The Treasury, State Services Commission, Ministries of Economic Development, Health, Social
Development (MSD), Education, Pacific Island Affairs (MPIA) and Women’s Affairs (MWA), the
Accident Compensation Corporation (ACC), Te Puni Kōkiri (TPK), and Inland Revenue have been
consulted in this review. The Department of Prime Minister and Cabinet has been informed of
the review. Comments and views of the Treasury, TPK, MWA, MSD and MPIA are summarised
in the attached Regulatory Impact Statement. MWA and MPIA support the increase of the
adult minimum wage rate from $13.75 an hour to $14.25 an hour.
Treasury comment
19. The Treasury recommends maintaining the adult minimum wage rate at $13.75 per hour and
the starting-out wage rate at $11.00 per hour, for the following reasons:
The minimum wage has grown at a faster rate than the median and average wage over
the past decade, and also at a higher rate than inflation.
Relative to our OECD counterparts, New Zealand has one of the highest minimum wage
rates relative to median wages (third in OECD) and average wages (highest in OECD at
49% of the average wage – likely to be a combination of a comparatively high minimum
wage and a comparatively low average wage). As labour is an input into production, high
minimum wage rates for low skilled workers may have an adverse impact on our
international competitiveness.
A high proportion of minimum wage workers are aged under 25. The youth
unemployment rate remains high and increasing the minimum wage by 50 cents per
hour may have adverse employment effects for this group.
Holding off an increase in the minimum wage this year delivers a small real cost
reduction to business.
It also avoids direct and flow on costs to the state sector.FISCAL IMPLICATIONS
Impact on State Sector
20. There are state sector employees and contractors who earn at or close to the adult minimum
wage, particularly in the public health and compulsory education sectors. Increases in the
minimum wage rate are therefore likely to have direct (and also indirect or ‘flow-on’) costs for
some state sector employers. The Ministries of Health, Social Development and Education, and
ACC have identified areas which would be impacted by changes in the minimum wage. For
these four agencies, total annual costs directly related to the proposed minimum wage
increase could increase by $18.32 million.
21. As well as increasing wage costs, increasing the minimum wage might have other fiscal
impacts. Social assistance costs through benefit payments may rise if an increase in the
minimum wage increases unemployment. Meanwhile, higher incomes can increase the
amount of personal income tax received and lead to the abatement of social assistance, such
as Working for Families tax credits. However, these impacts cannot be accurately assessed
with the information currently available.
HUMAN RIGHTS
22. I recommend that the starting-out minimum wage and the training minimum wage continue to
be set at 80 percent of the adult minimum wage. As these minimum wage rates continue to
make a distinction on the basis of age, namely those aged 16 to 19 years, or their employment
status, it continues to raise an issue of discrimination under section 19(1) of the New Zealand
Bill of Rights Act 1990.
23. However, this discrimination appears to be justified in terms of section 5 of the Act for the
following reasons:
There are negative long-term economic and social effects associated with young people
being out of work, especially if they remain unemployed for significant periods of time.
The starting out wage and training minimum wage were designed to help get young
people into work and work-based training. They encourage employers to take a chance
on a young person, and provide opportunities for 16 to 19 year olds to engage in
training in their chosen occupation. This enables young people to earn money, gain
skills, and get work experience. It helps mitigate the “scarring” effects of long term
unemployment by assisting young people into work before they move into a cycle of
benefit dependency.
While there has been a stronger labour market performance over the past year the
unemployment rate for the 15 to 19 year old age group is still high, being 23.4 per cent
in September 2013. Labour market conditions and the unemployment rate have not
changed significantly enough over the past year to warrant increasing the relativity of
the starting-out wage and training minimum wage from the status quo of 80 per cent of
the adult minimum wage.
LEGISLATIVE IMPLICATIONS
24. Minimum wages are set through an Order in Council made under section 4 of the Minimum
Wage Act 1983. To give effect to a change to the minimum wage rate, a new Order in Council
needs to be made by the Governor-General, on the recommendation of the Minister ofLabour. It is proposed that the new order will come into force on 1 April 2014 to provide
consistency and certainty to both employees and employers.
REGULATORY IMPACT ANALYSIS
25. The Regulatory Impact Analysis (RIA) requirements apply to the proposal in this paper and a
Regulatory Impact Statement (RIS) has been prepared and is attached.
26. The Regulatory Impact Analysis Team (RIAT) has reviewed the RIS prepared by the Ministry of
Business, Innovation and Employment and associated supporting material, and considers that
the information and analysis summarised in the RIS meets the quality assurance criteria.
27. I have carefully considered the analysis and advice of officials as summarised in the attached
Regulatory Impact Statement. I am satisfied that, aside from the risks and uncertainties
already noted in this Cabinet paper, the recommended option ($14.25 an hour) provides a fair
balance between protection of the lowest paid and employment impacts. The
recommendation is the result of my statutory review of the minimum wage rates and is
consistent with expectations of the Government Statement on Regulation.
GENDER IMPLICATIONS
28. Women tend to be highly represented in a number of demographic characteristics associated
with low pay, including working part-time, and working in the hospitality and retail sectors (in
service and sale occupations). It is estimated that, of those currently earning the minimum
wage, 53 per cent are women7. The Ministry calculates that the average hourly wage for
women is approximately 87 per cent of the average hourly wage for men (aged 18 to 64 years)
and this would not change significantly under my recommended option.8
PUBLICITY
29. I intend to make a media statement about the decision on the minimum wage rates for 2014
following Cabinet confirmation. The Regulatory Impact Statement and Officials’ report will be
made publicly available through the Ministry’s website (the Regulatory Impact Statement will
also be available on Treasury’s website), subject to any appropriate withholding of information
that would be justified under the Official Information Act 1982.
MINIMUM WAGE ORDER 2014
30. The Minimum Wage Order 2014 gives effect to my recommendation to increase the minimum
wage rates, as described below:
For adult workers aged 16 years old and over, who are not trainees or new entrants,
from $13.75 an hour to $14.25 an hour. For the purposes of the Order, this rate is also
expressed as $114.00 per day, plus $14.25 for each hour worked in excess of 8 hours on
a day; or $570.00 per week, plus $14.25 for each hour worked in excess of 40 hours in a
week.
For starting-out workers, from $11.00 an hour to $11.40 an hour; or $91.20 per day, plus
$11.40 for each hour worked in excess of 8 hours on a day; or $456.00 per week, plus
$11.40 for each hour worked in excess of 40 hours in a week.
7
Source: 2013 New Zealand Income Survey, Statistics New Zealand.
8
This calculation excludes all workers that reported an hourly wage below the adult minimum wage. For trainees aged 20 or over and undertaking at least 60 credits a year in an Industry
Training Programme registered on the National Qualifications Framework, from $11.00
an hour to $11.40 an hour; or $91.20 per day, plus $11.40 for each hour worked in
excess of 8 hours on a day; or $456.00 per week, plus $11.40 for each hour worked in
excess of 40 hours in a week.
TIMING AND 28 DAY RULE
31. It is intended that the Minimum Wage Order 2014 will be notified in the New Zealand Gazette
on 27 February 2014, and so will comply with the 28 day rule.
COMPLIANCE
32. These regulations comply with the following:
the principles of the Treaty of Waitangi;
the rights and freedoms contained in the New Zealand Bill of Rights Act 1990 or the
Human Rights Act 1993. This proposal does raise an issue of discrimination under
section 19(1) of the Bill of Rights Act 1990 on the ground of age. It is considered that this
issue appears to be justified in terms of section 5 of that Act;
the principles and guidelines set out in the Privacy Act 1993;
relevant international standards and obligations. New Zealand has ratified International
Labour Organisation Conventions Number 26: Minimum Wage-fixing Machinery 1928,
and Number 99: Minimum Wage-fixing Machinery (Agriculture) 1951. The proposed
Order in Council is consistent with these Conventions; and
the “Legislation Advisory Committee Guidelines: Guidelines on Process and Content of
Legislation”, a publication by the Legislation Advisory Committee.
REGULATIONS REVIEW COMMITTEE
33. I do not consider that there are grounds for the Regulations Review Committee to draw the
regulation to the attention of the House under Standing Order 315.
CERTIFICATION BY PARLIAMENTARY COUNSEL
34. The draft Minimum Wage Order 2014 has been certified by Parliamentary Counsel as being in
order for submission to Cabinet.
RECOMMENDATIONS
I recommend that the Cabinet Economic Growth and Infrastructure Committee:
1 note that I, as the Minister of Labour, intend to recommend to the Governor-General (through
an Order in Council) that the adult minimum wage rate be increased from $13.75 an hour to
$14.25 an hour from 1 April 2014;
2 note that I recommend maintaining the starting-out minimum wage and the training minimum
wage at 80 per cent of the adult minimum wage rate for 2014, which will make these $11.40 an
hour;3 note that the Treasury recommends that the adult minimum wage remain at $13.75 an hour;
4 note that an increase in the adult minimum wage to $14.25 an hour slightly increases the real
value of the minimum wage and maintains its relativity with the median wage increase. This
increase could directly affect up to 109,000 workers. It could increase annual economy-wide
wages by $56 million and inflation by 0.03 percentage points. The constraint on employment
growth is negligible;
5 note that the Minimum Wage Order 2014 gives effect to my recommendation referred to in
paragraphs 1 to 2 above;
6 note that the Minimum Wage Order 2014 comes into force on 1 April 2014;
7 authorise the submission to the Executive Council of the Minimum Wage Order 2014.
Simon Bridges
Minister of Labour
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