We're involved in the ownership and management of a couple of small to medium businesses. So we were interested to see that Labour was releasing its work and wages policy today.
One thing stands out immediately; Labour's desire to increase the minimum wage to $15.00/hour. So here's a hypothetical scenario:
Let's say our business has just employed an office junior; a young person who rocked up to our offices seeking work. This person was unemployed, and had little work experience but there was something about them that made us think that we could develop them into a really good team member. Lo and behold; there's a change of government, and suddenly instead of paying this person $13.00/hour (which they were thrilled to be earning), we have to pay them $15.00/hour. The young person is doing really well, and we take the hit and keep them on.
But then we have two accounts clerks who each earn $16.00/hour, and an office manager on $20.00/hour. The reason that they are paid at those rates is because of the value their respective jobs, and their performance in them add to the business. Aren't we honour-bound as a "good employer" (unlike Matt McCarten, we pay PAYE on due date) to increase their pay as well, by a similar rate to that which the office junior's pay went up?
But we're only a small business; we can't afford to pay all our office staff around 15% more. We've had a tough couple of years, and our income has dropped. We certainly can't put our prices up, or the customers we still have will be priced out of the market. Do we have to let the office junior go, and share their work among the other staff?
Hypotheses over, that's the very dilemma that many small and medium businesses find themselves in right at the moment. Small business simply can't afford big wage increases in the current climate. And a wage increase across the board is going to have a significant inflationary effect; many businesses will have no alternative but to put their prices up, or to lay staff off.
Who wins then? Certainly not our hypothetical young unemployed person walking the streets looking for work. As it happens we did take on a person in those circumstances earlier in the year, and they are paid at a rate somewhat higher than minimum wage.
A minimum wage of $15.00 per hour might sound good to those low-waged New Zealanders. But it cannot just be imposed on business, especially at a time when many small, medium and even large businesses are just hanging on by their fingernails after a recession, a global financial crisis, and a downturn in consumer spending. Labour needs to seriously consider the overall effect on the economy that such a policy will have.