Minimum wage increase: Will it really cost jobs?

Smaller businesses say they might struggle to foot the bill of the minimum wage increase.

It's going up 75c to $16.50 as part of the Government's plan to boost it to $20 by 2021.

Business New Zealand CEO Kirk Hope says employers need to have strategies in place.

"Some may have to lay staff off. That might just be the reality for them," he told Newshub.

"They don't have any capacity to absorb more costs or pass it on. That's what we've always said - if the minimum wage increases get too big, people will lose jobs."

The pay rise will directly affect 164,000 people, but Mr Hope says it will have an impact right through the pay scale.

"If you have a group of people being paid $18 with more skills than the people on the minimum wage, their expectation may be that they want a wage increase as well. It's not just those people employed on the minimum wage."

MP Iain Lees-Galloway says is part of Labour's plan to improve wages and conditions for working New Zealanders. 

"The rise in the minimum wage is estimated to inject $129 million into the economy through the wages of low income workers, circulating back into the economy because people on lower incomes are more likely to spend their wages on essential items like doctor's visits, keeping on top of bills, buying more healthy food - things that far too many Kiwis struggle to afford." 

Analysis by the Ministry of Business, Innovation and Employment (MBIE) said 3000 jobs were at risk by the latest hike.

"In a classic example of good intentions and poor results, some of New Zealand's most vulnerable workers will be stripped of an opportunity to gain valuable skills and work experience," said ACT leader David Seymour.

Lessons from history

According to data on MBIE's website, the last time Labour was in Government it increased the minimum wage from $7.55 to $12 - an increase of 59 percent.

Over the same time period, unemployment fell from almost 8 percent to less than 3.5 percent, before spiking as the global financial crisis hit in late 2008.

The last National Government increased the minimum wage 31 percent - from $12 to $15.75. Unemployment peaked in 2012 at 6.9 percent, and has since fallen to 5.8 percent.

Newshub.