Regulatory Impact Statement - Minimum Wage Review 2009
Conclusions and recommendations
The Department of Labour has assessed each option against the assessment criteria for the minimum wage and has found the following:
- Option 1 of $12.50 an hour will directly affect up to 87,400 workers. While this option erodes the real 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.
Given the fragile economic recovery and the likelihood that unemployment will increase over the coming year, the Department of Labour recommends a cautious approach when setting the minimum wage rates for 2010. In considering a potential increase there needs to be a careful balancing in terms of the benefits of preserving low paid workers' incomes vis--vis potential costs from employment impacts arising from an increase. The Department's examination of the current labour market conditions suggests that they could be robust enough to support an increase to $12.75 an hour (option 2) or $13.10 an hour (option 3).
