Minimum wage increase makes sense despite 'creative destructions' that might happen - NZIER

There are renewed calls for a minimum wage increase to help with skill development and productivity, while others say it's not the answer.

The Helen Clark Foundation and the Institute of Economic Research (NZIER) have put forward six suggestions for economic growth in a report released on Tuesday morning - one of them being a minimum wage spike.

An increase to the minimum wage last came in April - from $17.70 to $18.90 and was controversial, due to businesses struggling amid the COVID-19 pandemic. 

But the Helen Clark Foundation and the NZIER believe "we need to create a country where the incomes of low-income people grow more quickly than those of wealthy people". 

NZIER chief executive Todd Krebble told The AM Show the issue of employment in a post-COVID world needs to be discussed.

"A lot of those low-wage jobs that might have gone are gone now anyway and the other thing is, it really is an opportunity to think longer-term about how we want to re-adjust the economy."

Krebble said raising the wage makes sense despite the loss some may suffer as a result.

"It might be that we have some creative destructions; firms that aren't really meant to survive won't survive.

"What we'd like to see is, actually, all firms pushing up and investing, and making those good calls so they're moving forward to that front tier.

"We still are, overall, a low wage economy and have traditionally relied on migrants.

"This is a hit that we've had already so now is the time to invest in skills training; it is time to think about making sure we do have things like good access to transport [and] childcare."

Economist Cameron Bagrie said NZIER's theory is one to be debated.

Bagrie. Photo credit: The AM Show

"You want the horse in front of the cart - get the productivity up and then you pay people more," he told The AM Show. "The other way around in the cart in front of the horse.

"The minimum wage, to me, is not the real issue. The real issue here is median wages across New Zealand - we're a low-wage economy because we're a low-productivity economy."

In January, pre-pandemic, the Ministry of Business, Innovation, and Employment's review of the April minimum wage hike claimed it would cause 6500 job losses.

By law, an annual review on the minimum wage is required - carried out by the Workplace Relations and Safety Minister. 

Poverty advocacy groups are also piling pressure on the Government to increase benefits - something Prime Minister Jacinda Ardern has declined to do before Christmas.