The increase from $12 (US$6) to $12.50 (US$6.62) announced by New Zealand Prime Minister John Key is the smallest annual rise in the minimum wage since 2005.
The Unite union, which represents many minimum-wage workers in fast food and other services, chose the same day to lodge a request for a citizens-initiated referendum on whether the minimum should be raised to $15 (US$7.95)an hour, and then to two-thirds of the average wage within three years.
But Business New Zealand chief executive Phil O’Reilly said even a 50-cent increase would have an effect on employment when recession-hit employers are already struggling.
“Having said that, the government’s decision is pragmatic,” he said. “I’m a realist, and it’s certainly not as bad as it could have been.”
A spokesman for Labor Minister Kate Wilkinson said the Labor Department gave the Government three options: keep the minimum at $12 an hour, raise it to $12.50 in line with prices, or raise it to $12.65 in line with the average wage.
The increase to $12.50 represents a 4.2 percent rise. Consumer prices rose 3.4 percent and the average wage 5.4 percent in the year to December.
Cabinet ministers appeared divided over the issue a week ago.
Key said they were “concerned that if the wage was to rise too much there would be unemployment.”
“Similarly, no raise at all in the minimum wage would have left the lowest-paid, most vulnerable workers with no increase to offset the costs that they are obviously bearing,” he said. “I think we have hit the right balance.”
But O’Reilly said the referendum proposal was “utterly ideological.”
“If you increase the minimum wage by that much at this time you would have a very significant impact on employment.”
The Labor and the Maori Parties want the minimum wage raised by more than the 4.2 percent announced by the government.
The youth training and new entrant wage would also increase, from $9.60 (U.S.$5) to $10 (U.S.$5.31) an hour.
Labor leader Phil Goff said the minimum wage should be raised to $13 (U.S.$6) an hour and the 4.2 percent increase, after inflation, equated to nine cents an hour in “real wages.”
Maori Party co-leader Tariana Turia said it should be increased to $15 (U.S.$7) an hour and income up to $25,000 (U.S.$13,000) should not be taxed.
Goff said that in difficult times the burden too often fell on those already finding it hardest to survive.
“Our lowest paid people in shops, offices and factories struggle to make ends meet,” he said
Turia said that given the current world economic crisis it was even more important to lift the minimum wage.
“If we are to survive this crisis in reasonable shape we need to get cash into the hands of our most vulnerable so they can adequately feed, house and clothe their families,” she said.
Key said the increase struck the right balance between protecting the spending power of the lowest income earners and protecting jobs.
Official advice was that the increase would have a negligible effect on employment.
Green Party employment spokeswoman Sue Bradford said the increase was better than nothing but would not buy much as costs continued to rise.
Council of Trade Unions president Helen Kelly said the move was welcome but it was the lowest increase in the statutory minimum for many years.
The Unite Union, which covers many low paid workers, said it was barely enough to cover the increased cost of living.
