The Government's lead business agency has estimated that 6400 fewer jobs will be created due to the latest minimum wage hike.
The Government announced on Friday an increase to the minimum wage from $20 per hour to $21.20 per hour, which will come into effect from April.
It has increased by about 5.9 percent, matching the 5.9 percent increase in the price of goods and services in New Zealand in the last three months of 2021 compared to 2020 - the biggest jump since a 7.6 percent annual increase in 1990.
The average hourly wage, by comparison, increased by 3.8 percent to $35.61 an hour, according to Stats NZ. Meanwhile, rents have increased by the same amount, and are expected to move higher given the impacts of inflation.
While the minimum wage hike will be welcome news for minimum wage earners, the increase will cost job creation, according to the Ministry of Business, Innovation and Employment (MBIE).
In MBIE's Minimum Wage Review 2021 paper published in November, it says increasing the minimum wage to $21.25 - 5 cents more than what Labour chose - would lead to an estimated restraint on employment of 6400, compared to 3900 at its recommended rate of $21.
"This move will mean businesses raise their prices or close, and more people are out of work and on welfare for longer. We just can't afford that," ACT leader David Seymour said in response.
Retail NZ chief executive Greg Harford said the "significant" minimum wage increase has been "badly received by the retail sector", with 84 percent of retailers disapproving of the announcement, according to a snap poll.
"A snap member poll suggests that most businesses are not in position to absorb the cost increases. Instead, 63 percent will be looking to increase prices, 47 percent will be looking at reducing the hours available for employees to work, and 38 per cent will be looking at reducing the number of people employed."
But MBIE has advised in the past that "for most businesses and sectors, workers on the minimum wage represent a small fraction of total labour costs so any increase in the minimum wage should not significantly impact overall operation costs".
Workplace Relations Minister Michael Wood said the minimum wage rise will directly benefit about 300,000 workers. The starting-out and training minimum wage will also increase from $16 to $16.96 per hour.
For someone working a 40-hour week on the minimum wage, the increase will see them earning an extra $48 a week, and almost $2500 more each year.
"With the arrival of Omicron, we are once again calling on many of our frontline workers - such as cleaners, supermarket workers, and security guards - to keep the country running as the virus spreads and cases begin to increase," Wood said.
"I think everyone agrees those contributing so much to our COVID response deserve a pay rise.
"The wage increase will also have a stimulatory effect on the economy as many workers will spend the extra money on goods and services, which in turn, will help support businesses."
But MBIE suggests the stimulatory effect might not happen.
"Lifting the minimum wage can result in increased overall consumer demand caused by minimum wage earners spending the additional money as they normally spend a high proportion, if not all, of their earnings. For this to happen, the increase in overall spending would need to be significant.
"As only a small number of people earn at or near the minimum wage (estimated to be 175.500 people or 9.2 percent of all wage earners in the 2020 Minimum Wage Report), this effect is unlikely to occur in New Zealand."
National MP and finance spokesperson Simon Bridges said Labour's minimum wage increase was an "admission to the cost of living crisis they have created".
The Reserve Bank has printed tens of billions of dollars in the past two years and most of it has been spent by the Government on its COVID-19 response, such as the $18 billion wage subsidy scheme during the lockdowns.
"That money is moving around the economy and pushing up the price of everything," Seymour says. "Inflation is at a 31-year high and Kiwis are being squeezed from every direction - at the checkout, at the petrol pump, and when they pay the rent."
Economists agree that stimulus-spurred consumer buying is a reason for inflation. But it's not that simple. COVID-19 has disrupted supply-chains across the globe, and when too much money is available to purchase too few goods and services, demand outstrips supply, forcing prices up.
The United States, Australia and Britain are also experiencing inflation and all have cited higher global oil prices as a factor, which the Government of New Zealand has no control over.
Globally, crude oil prices have risen from a low of $29.33 a barrel in April 2020 to $126.5999 in January this year. Fossil fuels will always be at the whim of geo-politics, such as speculation Russia may invade Ukraine, which spooks the markets.
Profit margins made by petrol companies have been going down as a result of the Government's inquiry into petrol prices. However, there are other things the Government could do to ease the pressure more, like revisiting petrol taxes.
Housing is the other significant factor causing inflation. The Reserve Bank pumped billions of borrowed dollars into the economy and dropped lending requirements to keep money flowing during the COVID-19 crisis, thus keeping people employed.
But it artificially inflated house prices - a nearly 30 percent annual increase. The Reserve Bank has responded by increasing interest rates and tightening borrowing conditions. There are also more houses being consented than ever before to fill the gap in supply.
The challenge the Government faces in the meantime is ensuring New Zealanders have enough money to get by. Their solution is to help those at the bottom struggling the most by increasing the minimum wage and boosting benefits - beneficiaries get another $20 increase from April.
The centre-right parties disagree and believe that productivity is the problem - that by reducing government regulations, businesses would be set free and wages would rise naturally.
It's an age-old debate.
