In a new Motu Working Paper, Dave Maré and Dean Hyslop review and update a bunch of research findings in relation to minimum wages in New Zealand. There are too many results for me to adequately summarise, so I'll just focus on some of the more interesting (to me) results, and I encourage you to read the full paper if you want more.
First, over the last twenty years, New Zealand's minimum wage has increased dramatically, and in relative terms is now among the highest in the OECD:
Comparative OECD data shows NZ’s minimum wage increased from 50% of the median wage in 2000 to 59% in 2008 (and from 45% to 51% of the average wage) and was then stable at 59-60% of the median wage until 2017 (51-52% of the average wage). In comparison to other countries, these relative changes have been large with New Zealand’s minimum wage moving from about the middle of the range of developed countries to near the top...
And because the youth minimum wage was abolished, the increases in the minimum wage have been even larger for the youth population. Those changes make New Zealand an interesting case study internationally for what happens when you have very high minimum wages.
Second, there are differences in the measured rate of increase in real terms, depending on which deflator is used. As Maré and Hyslop write:
...the wedge been the CPI and PPII changes over the period which underly these differences, means that the spending power of minimum wage workers increased 75% over the period while their cost relative to firms’ other inputs only increased 55%. In this sense, the minimum wage increases have been relatively more beneficial to workers’ (consumer) spending power than they have been detrimental to firms’ production costs.
That's interesting, and a small but important piece of evidence of employers' bargaining power in the labour market, relative to workers. Higher minimum wages offset employers' bargaining power, so workers benefit more from higher minimum wages than what is costs employers.
Third, the minimum wage is most salient for younger workers, and less educated workers:
A clearer view of which groups are most strongly affected by the minimum wage is evident in... the proportion of employees in each group who are paid at or below the minimum wage. Overall, this proportion has risen from 4 percent in 1997 to 9 percent in 2020, reflecting the increase in the real value of the minimum wage. For 16 to 17 year old workers, however, around half were on the minimum wage in 2020, down slightly from 64 percent in 2008, when the youth minimum wage was abolished. Similarly, 38 percent of 18-19 year old employees were paid at or below the minimum wage in 2020. Other groups that have a disproportionate share of employees on the minimum wage include young adults aged 20-24 (20 percent), people with school qualifications as their highest qualification (15%), or with no qualification (13%), and Pasifika (13%).
There is probably an argument for looking at these groups jointly, as I suspect that the Pasifika group is also younger and less educated on average than other ethnic groups.
Fourth, Maré and Hyslop use a variety of methods and measures of the 'bite' of the minimum wage and look at the effect on employment. Briefly, they find that:
...the results presented here using either measure are comparatively underwhelming in terms of finding robust evidence of adverse employment effects associated with minimum wage increases.
That's a second piece of evidence of employers bargaining power - a lack of disemployment effects of higher minimum wages. However, it is worth noting that the time series approach isn't as robust for finding effects as other evidence internationally where the counterfactual is more obvious.
Fifth and finally, Maré and Hyslop investigate minimum wages as a form of income support, and conclude that:
...although minimum wage workers are more concentrated among lower income individuals, and to a lesser extent more likely to be in the lower income households, the latter relationship is relatively weak. Thus, as a redistributive income support policy, the minimum wage is relatively blunt and far less targeted and effective than the current set of welfare and transfer policies.
As I noted above, there's a lot of detail in the paper, and it is well worth a read if you are interested in minimum wages in New Zealand. The lack of evidence of disemployment effects of the minimum wages rises so far is potentially important. However, that should not be taken to mean that the minimum wage can be raised without limit with no effect on employment. And, if you believe that the goal of minimum wages is as a redistributive tool to reduce inequality, there is little evidence that it successfully serves that purpose. There are other policy options (starting with progressive taxation) that would be much more effective.
[HT: Eric Crampton at Offsetting Behaviour]
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