Economy

Service sector adds jobs despite wage hike

Employers argued the record 7.3 percent hike in the minimum wage on April 1 would cost hundreds of retail, hospitality and food service workers their jobs. Instead, Statistics New Zealand figures show those jobs rose 10,000 in the following three months. Marc Daalder reports.

When the Government announced in December that it would raise the minimum wage to $17.70 an hour (the largest ever hike for the bottom pay rate and the second one under the coalition's plan to lift it to $20 an hour by 2021) it was hit with a wave of opposition. Even its own official advice was that it would cost 8,000 jobs, but the opposite has happened.

"It's constant criticism that the sky is falling in, that business confidence is down," Employment Minister Willie Jackson said.

But the sky is still up, according to Stats NZ's latest labour market numbers. Not only did the wage growth rate jump to the highest it's been since December 2008, but the retail, hospitality and food service sectors added 10,000 jobs in the first quarter after the hike went into effect.

The figures aren't seasonally-adjusted, but still stack up favorably against past June numbers, which consistently saw between 4,000 and 16,000 people leaving the sector for the April-June quarter.

"It's cause for celebration," said Council of Trade Unions president Richard Wagstaff.

New Zealand was the first country in the world to set a national minimum wage in 1894 and now has one of the highest minimum wages in the world. New Zealand's minimum wage was the fifth highest in the world relative to the median wage in 2016 at just over 60 percent, this Motu paper shows. The MBIE regulatory impact statement for the wage hike estimated it would lift that percentage to 70.8 percent this year and could reduce employment by 8,000 in 2019. America's federal minimum wage is US$7.25/hour or less than a third of the median wage.

'Fat lady yet to sing'

Industry groups insist that it is still too early to draw conclusions from the numbers. Hospitality NZ spokesperson Penelope Walsh said: "Anecdotally, this certainly doesn’t match the feedback we have been receiving from our members."

"Our view of the minimum wage increase is it’s not just about the minimum wage. It's the minimum wage increase combined with the changes to the Employment Relations Act that, in the long run, that’s likely to lead to fewer jobs in retail, assuming that everything else holds equal," said Retail NZ's Greg Harford.

The situation would become even more fraught as the minimum wage continues to rise, Harford said. "I still think in the long run you're likely to lose staff members as a result of minimum wage increases. Not necessarily right now, but once you hit that $20 mark in two years' time."

Unions happy

Wagstaff disagrees. He told Newsroom that business groups were "absolutely wrong about the minimum wage." However, he doesn't think that the new numbers will change their minds.

"I don’t suppose it will stop them continuing to promote the myth that you can’t have increasing wages and low unemployment," he said.

Jackson also defended the positive effects of the wage hike.

"We're always getting critics in terms of the minimum wage and business confidence. They're inevitably proven wrong. Just look at the figures, look at the numbers and you'll see that we're doing well."

The costs of any minimum wage increase fall initially to employers who will experience an economy-wide labour cost increase (of approximately $231 million in this case). The increased cost of labour may then be passed on to customers through rising prices of goods and services, as employers seek to maintain a profit. However, for many businesses and sectors, workers on the minimum wage represent a small fraction of total labour costs so will not significantly impact overall operation costs. Increasing the minimum wage is expected to create some inflationary pressure, and MBIE’s minimum wage model suggests a small impact (0.1 percent).