Workplace Relations Minister Michael Wood says he's "very comfortable" with the Government's decision to increase the minimum wage rate to $21.20 an hour, despite initially trying to convince his Cabinet colleagues it should have been higher.
Last week's minimum wage increase could have been $21.40 an hour - 20 cents more than what was ultimately decided - had Wood got his way. Under that rate, a worker would have earned an additional $8 a week or $416 a year, before tax, compared to the current minimum wage.
According to a recently-released Cabinet paper, Wood had pushed for the rate so that it could provide "a starting point towards achieving a living wage" and an "increase in real disposable income" while balancing the needs of businesses.
The 2021 paper outlined a number of options, including Wood's preferred $21.40 rate, MBIE's recommendation of $21, and a middle ground of $21.25 that kept minimum wages above inflation and aligned with average annual increases in the past four years.
Wood opted against MBIE's recommendation of $21, which would have resulted in a real-term pay cut that didn't keep up with a 5.9% inflation rate.
He also noted that going "significantly beyond" the $21.40 rate would put "unsustainable cost pressure" on employers and that the resulting impact on unemployment would disproportionately impact Māori and Pasifika.
Speaking to reporters on Tuesday afternoon, Wood said Cabinet had a "good discussion" to land on the final $21.20 figure.
He said the increase - a 6% rise that was slightly above the 5.9% rate of inflation in the year to December 2021 - was a "reasonably significant one".
"We struck the balance at a level we thought was sustainable."
But in the Cabinet paper, Wood argued that increasing minimum wages to $21.40 was reasonable, based on analysis by officials.
"The estimated negative effects of this level of increase are not unduly large. MBIE estimates that this increase is unlikely to result in more than around 7900 individuals not being employed," he wrote.
That figure was based on models by MBIE that estimated how businesses would react to minimum wage hikes, either by culling jobs or their reluctance to hire new people because of the increased pay.
In comparison, MBIE modelled that the $21.25 rate could have resulted in 6400 fewer people employed.
"After the 2020 minimum wage was increased to $20 per hour, unemployment fell to its current fourteen-year low despite the impact of Covid on our economy. This can give us some confidence that increases of a broadly similar scale are unlikely to contribute to a significant reduction in employment," Wood continued.
1News asked the Council of Trade Unions what it thought of the fact that the actual minimum wage increase was 20 cents lower than what the Minister initially proposed.
President Richard Wagstaff said the union would have supported any rise in the minimum wage rate, and that it continued to push for it to be set at the living wage of $22.75 an hour.
He added, citing a paper from the NZ Institute of Economic Research, that minimum wage increases could have been anything up to $25 an hour while having "negligible impacts on employment and the economy".
The union also calculated that to keep up with rental price increases over the past few years, that figure would have needed to be as high as $25.17 an hour.
"The move to $21.20 an hour made sure that workers were protected from the increase in the cost of living… this is more than the general labour market which only saw a 2.6% increase in wages," Wagstaff said.
Wood said on Tuesday there wasn't a decision yet around setting minimum wages at the living wage rate, but that the Government would continue to set it in a way that supported low-wage workers.
The Government was also progressing its Fair Pay Agreements bill through Parliament, which meant "we won't necessarily be so entirely reliant on the minimum wage to support low-wage workers", he said.
Meanwhile, Business NZ chief executive Kirk Hope said any minimum wage increase now "is simply poor timing" and that "a more considered approach to future increases needs to be taken".
“This increase comes at a time when businesses are under pressure from fast-rising costs in labour, capital, and in their supply chains."
ACT’s Small Business spokesperson Chris Baillie called Wood's $21.40 proposal "ludicrous".
“This shows the Minister’s fundamental lack of understanding of how small business works, as MBIE’s advice stated, 'with the recent lockdowns and continuing economic pressures on businesses, there is a risk that the additional wage costs may result in employers increasing prices, reducing workers’ hours, their staffing levels, or, for some vulnerable businesses, ceasing trade.'"