The Department of Labour wants to evaluate the model it uses to review the minimum wage each year, saying there is renewed interest in updating the 15 year old analysis it currently uses.
The minimum wage, together with youth wage rates, is being set up as one of the key issues in the upcoming campaign for the November 26 general election.
The Don Brash-led ACT Party, which could be central in Prime Minister John Key's bid for a second term in office, is calling for the government to reverse the former Labour government's decision in 2008 to scrap the youth minimum wage for 16 and 17 year-olds, while Minister of Labour Kate Wilkinson has not yet confirmed National's postition on the issue.
Last week Prime Minister John Key was dismissive of the ACT Party's policy for a reduction in New Zealand's minimum wage, although indicated a policy around youth rates or schemes for 16 and 17 year olds was an area that may be looked at for young people with limited training who were looking for work.
“It’s the classic neo-liberal economic theory that you pay what the market can bear, and I think you would see very low wage rates on that basis," Key said when asked about his view on the ACT Policy.
On the other side of the political spectrum, Labour and the Greens, who are likely coalition partners if Labour were to form a government after the election, and the Mana Party, all have policies for the minimum wage to be raised to NZ$15 and hour from NZ$13 currently.
Is it right?
The Department of Labour put the tender for an evaluation of its minimum wage model on the government procurement website GETS this week.
"This request for proposal aims to assess whether the in-house model is appropriate for purposes of advising policy makers on the impact of changes in the minimum wage on employment," it says in the tender document.
"For several years, policy analysts at the Department of Labour (the Department) have, in their supporting role in the annual review of the minimum wage, relied on econometric evidence regarding the impact of higher minimum wages on employment by Chapple (1997[1]) amongst others. The results of this analysis suggest that there is a weakly significant negative impact of increases in real minimum wages on employment," it says.
"At most, increases in the real minimum wage have a small negative impact on employment rates. More recent analysis by Hyslop & Stillman (2004[2], 2007[3]) also finds little evidence of adverse impact of large minimum wage increases in youth minimum wages on youth employment and weak evidence of employment loss a year after the event.
"The Hyslop & Stillman analysis is restricted to youth and may have limited potential to be repeated for adult minimum wages due to the lack of recent single large changes in the minimum wage. The Chapple analysis is now almost 15 years old and there is a renewed interest in updating of this study. The Department has conducted partial updates using the latest data available in 2006 and 2009," it says in the tender.
Here is the research referred to by the Department of Labour:
[1]Do minimum wages have an adverse impact on employment? Evidence from New Zealand, Labour Market Bulletin 1997:2, pp 25–50
[2]Youth Minimum Wage Reform and the Labour Market, IZA Discussion Paper No. 1091
[3]Youth Minimum Wage Reform and the Labour Market, Labour Economics 14 (April), no. 2: 201-30
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