February 25, 2014

Minimum wage trends

I’m not going to get into the question of whether the NZ minimum wage should be higher; inequality and poverty are problems in NZ, but whether a minimum wage increase would help more than, say,  tax and benefit changes is not my area of expertise.  However, the question of how much the minimum wage has gone up is a statistical issue, and also appears to be controversial.

From April 2008 to April 2013, the minimum wage increased 14.6%. Inflation (2008Q1 to 2013Q1) was 11%. So, the minimum wage increased faster than inflation, and the proposed change will keep it increasing faster than inflation.

From whole-year 2008 to whole-year 2013, per-capita GDP increased 9.7%.  Mean weekly income increased 21%. Median weekly income increased 18.8%. Average household consumption expenditure increased 7.8%.

Increasing the 2008 minimum wage by 18.8%, following median incomes, would give $14.26, so the proposed minimum wage is at least close to keeping up with median income, as well as keeping ahead of economic growth. An increase to $14.50 would have basically kept up with mean income as well.

An important concern in using CPI is that housing might be a larger component of expenditure for people on minimum wage. However, since 2008 the CPI component for housing has increased more slowly than total CPI, so at least on a national basis and for this specific time frame that doesn’t change the conclusion.

[Sources: GDP at StatsNZ for GDP, household consumption expenditure. NZ Income Survey at StatsNZ for mean and median income. RBNZ for inflation]

As a final footnote: the story also mentions the Prime Minister’s salary. There really isn’t an objective way to compare changes in this to changes in the minimum wage. The PM’s salary has increased by a smaller percentage than the minimum wage since 2008, but the absolute increase is more than ten times that of a full-time minimum wage job.

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Thomas Lumley (@tslumley) is Professor of Biostatistics at the University of Auckland. His research interests include semiparametric models, survey sampling, statistical computing, foundations of statistics, and whatever methodological problems his medical collaborators come up with. He also blogs at Biased and Inefficient See all posts by Thomas Lumley »

Comments

  • avatar

    Related: the Nordic countries, Germany, Italy and Switzerland do not have minimum wages.

    Instead, they have collective bargaining agreements negotiated between organised labour and employers.

    Not sure which system serves workers the best, but the latter would seem more in order with free market theory than the former.

    5 months ago Reply

  • avatar
    Martin Connelly

    Interesting summary – thanks

    5 months ago Reply

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