A few days ago, the Labour party released their employment policy, confirming their plan to raise the minimum wage to $15 per hour. Some say it is needed to help workers keep pace with the increasing cost of living, while others say it is needed like a hole in the head. The latter group point out that conventional supply and demand theory predicts an increase in unemployment if the minimum wage is raised.
This got me thinking. The minimum wage is changed every year or every second year (see chart below) but have these changes kept up with inflation?
| Date of minimum wage change | Minimum wage rate |
| 1-Mar-97 | $7.00 |
| 6-Mar-00 | $7.55 |
| 5-Mar-01 | $7.70 |
| 18-Mar-02 | $8.00 |
| 24-Mar-03 | $8.50 |
| 1-Apr-04 | $9.00 |
| 21-Mar-05 | $9.50 |
| 27-Mar-06 | $10.25 |
| 1-Apr-07 | $11.25 |
| 1-Apr-08 | $12.00 |
| 1-Apr-09 | $12.50 |
| 1-Apr-10 | $12.75 |
| 2-Apr-11 | $13.00 |
This table is interesting in itself, as we can see that the nominal rate (without taking the effects of inflation into account) has almost doubled in fourteen years. However, if we include inflation data, we can see how the real minimum wage has changed relative to the cost of living.
| Date of minimum wage change | Minimum wage rate (nominal) | Consumer price index | Minimum wage rate (real, 2011 prices) |
| 1-Mar-97 | $7.00 | 821 | $9.86 |
| 6-Mar-00 | $7.55 | 849 | $10.29 |
| 5-Mar-01 | $7.70 | 876 | $10.17 |
| 18-Mar-02 | $8.00 | 900 | $10.28 |
| 24-Mar-03 | $8.50 | 913 | $10.77 |
| 1-Apr-04 | $9.00 | 935 | $11.14 |
| 21-Mar-05 | $9.50 | 962 | $11.43 |
| 27-Mar-06 | $10.25 | 1000 | $11.86 |
| 1-Apr-07 | $11.25 | 1020 | $12.76 |
| 1-Apr-08 | $12.00 | 1061 | $13.09 |
| 1-Apr-09 | $12.50 | 1081 | $13.38 |
| 1-Apr-10 | $12.75 | 1099 | $13.42 |
| 2-Apr-11 | $13.00 | 1157 | $13.00 |
As you can see, in real terms the minimum wage has increased by around 30% from 1997. This tells us that for the last decade and a half, the minimum rate of pay in New Zealand has kept pace with the cost of living.
A 14 year span of analysis is hardly comprehensive however. As a final thought, consider this:
In 1969 the minimum weekly rate of pay for adult males was $42. Assuming a 40 hour work week, this corresponds to a minimum wage rate of $16.40 per hour in 2011 prices.
In the future, I may try and get more data to continue this analysis, but for now I'll say goodbye.
See you later
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