Regulatory Impact Statement - Minimum Wage Review 2009
EXECUTIVE SUMMARY
The Minimum Wage Act 1983 requires that any minimum wage rates must be reviewed by 31 December each year.
Five options have been considered for the adult minimum wage in 2010:
- Option 1 of $12.50 an hour will directly affect up to 87,400 workers. While this option erodes the real[4] value of the minimum wage, it is likely that there would be no impact on employment growth, national weekly wage earnings or inflation. No change in the minimum wage may decrease its relativity with benefit payments that are likely to increase from 1 April 2010, which may reduce incentives to work.
- Option 2 of $12.75 an hour could preserve the real value of the minimum wage and maintain relativity with benefit payments. It will maintain existing work incentives, as it will increase by a similar percentage as benefits, and current levels of fairness. It may erode existing levels of income distribution and protection as the movement is lower than the increase in average wages and average minimum wages in collective agreements. This option could directly affect up to 96,400 workers. It is estimated that it will have no constraints on employment growth. The national weekly wage earnings could increase by 0.04% and it could increase inflation by 0.02 percentage points.
- Option 3 of $13.10 an hour could preserve the real value of the minimum wage and maintains existing levels of fairness and income distribution. It may increase or maintain work incentives, as it is likely to have a higher percentage increase than benefits. The size of the increase is similar to movements in average minimum wages in collective agreements so it is likely to maintain protections. This option could directly affect up to 151,300 workers. It may constrain employment growth by between 400 and 900 jobs (0.02% to 0.04%). The national weekly wage earnings could increase by 0.10% and it could increase inflation by 0.04 percentage points.
- Option 4 of $15.00 an hour will increase the real value of the minimum wage and its relativity with other income benchmarks. It will strongly improve relative levels of fairness, protection, income distribution and work incentives as the increase is higher than the benchmarks used. This option could directly affect up to 336,900 workers. It may constrain employment growth by between 5,400 and 8,100 jobs (0.3% to 0.4%). The national weekly wage earnings could increase by 0.96% and inflation could increase by 0.42 percentage points.
- Option 5 of $16.75 an hour will significantly increase the real value of the minimum wage and very strongly improve relative levels of fairness, protection, income distribution and work incentives as the increase is significantly higher than the benchmarks used. This option could affect up to 524,800 workers. Employment growth may be constrained by between 10,100 and 14,800 jobs (0.5% to 0.7%). The national weekly wage earnings could increase by 2.55% and inflation could increase by 1.12 percentage points.
The new entrants' minimum wage is set at 80% of the adult minimum wage. This is the relativity that was set when the new entrants' minimum wage was first introduced in April 2008, and has not been reviewed since then. The training minimum wage is also set at 80% of the adult minimum wage. It is set at the same relativity as the new entrants' minimum wage to ensure that there is no incentive to employ one type of minimum wage employee over another. The relativities for the new entrants' and training minimum wages have not been reviewed in this minimum wage review process. Therefore, we recommend that they continue to be set at 80% of the adult minimum wage.
Footnotes
[4] i.e. if we adjust for changes in prices.
