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Submission by Annual Review of the Minimum Wage 12 October 2007 Hospitality Association of New Zealand The Hospitality Association of New Zealand The Hospitality Association of New Zealand represents a diverse variety of New Zealand hospitality businesses including restaurants, caf￩ bars, hotels, off-licenses and a wide array of short and long term accommodation providers. The Association is voluntary and is primarily funded by membership subscriptions. Our membership of approximately 2350 plus members employ 11,610 full-time and 19,674 part time employees for a total of around 30,000 people. Approximately 90% of the Association’s members are small businesses and owner operated. The Association asserts that this figure mirrors the wider hospitality industry. There is also a perception that the Association speaks for and represents the interests of the hospitality industry as a whole. Thank you for considering the views of the Association. Bruce H Robertson Annual Review of the Minimum Wage 1.1 The Association considers that further increases in minimum wage rates will severely impact on the ability of hospitality and tourism businesses to provide jobs and training opportunities for less skilled workers and that Government should instead focus on increased access to training and employment to achieve higher productivity and increased real earnings over time. 1.2 Minimum wage rates have increased steadily and significantly since 1999. The Association is concerned that, in the face of a slowing economy that further rises will negatively impact on the ability of businesses to provide jobs and training opportunities for those younger and less skilled. 1.3 The Association further believes that a period of consolidation is required before further increases are contemplated and that instead that the Government should focus on increased access to training and employment to achieve higher productivity and increased real earnings over time. 1.4 The Association therefore opposes any further increases in minimum wage rates at this time. However, if the minimum wage rates must increase then any increase should be confined to the level of inflation. - There be no further increases in either the youth or adult minimum wage rate. Alternatively, if the minimum wage rate must increase that any increase be confined to the level of inflation. - The Government should focus on increased access to training and employment opportunities, particularly for young people - That the proposed new objective of reducing the Gender Pay Gap not be included in the forthcoming review of the minimum wage. 2. Discussion 2.1. Minimum wage laws can set wages, but they cannot guarantee jobs. 2.2. The Association considers that minimum wage laws place additional obstacles on particularly those who are young and unskilled and at the lowest end of the economic ladder. 2.3. Although there is research to show neutral or even positive effects on employment of increasing minimum wage rates, it is important to note that this research is at the macro economic level and that there is further evidence to suggest that once minimum wage rates reach market wage levels further increases in minimum wage rates have a negative outcome on employment, especially for young and/or unskilled workers employed in competitive industries that are significantly influenced by minimum wage rates at the micro economic level. 2.4. Increases in minimum wage rates beyond a certain level therefore reduce job and training opportunities for young and/or unskilled workers. Raising and/or extending minimum wage rates could therefore mean that many workers receiving such rates would find their jobs no longer sustainable as their productivity is below their comparable wage level. 2.5. It is also likely that continued increases in minimum wage rates may also signal to younger people that further education and training is not warranted and this is inconsistent with stated Government objectives. 2.6. For these reasons the Association believes that further increases in minimum wage rates should be dropped in favour of approaches that generate higher skills and greater productivity, the key ingredients to sustainable increases in income. 2.7. Since 1999, there have been extensive increases in the minimum wage rates for adults and youth workers. The adult minimum wage has increased by 60%, while the youth rate has increased at a much stronger rate of 114%. In addition, the age criterion for receiving the adult minimum wage rate has dropped from 20 to 18 years, while those doing at least 60 points or more towards a qualification from the National Qualifications Framework are paid the youth minimum wage level. Collectively this represents a substantial cost increase for employers over a relatively short period of time. 2.8. The Association believes that recent increases in minimum wage rates (particularly for the youth rate) will lead to a much stronger negative impact on employment once the economy slows or goes into a recession, compared with previous increases that were adjusted for general inflation levels. 2.9. This has obvious flow-on effects for growth and retaining jobs in the hospitality tourism sector, a sector that receives the leisure dollar and is therefore influenced by a slowing economy and also employs a significant number of younger people. Further increases in minimum wage rates exacerbate the problem, leading to job losses that might not have been the case if minimum wage rates had previously not increased at levels far exceeding that of the general rate of inflation. 2.10. Any further increases in either the adult or youth rate will therefore continue to exacerbate the problem, which may also deny many youth workers the opportunity to gain relevant skills and work experience. 2.11. The Government has also proposed a new objective for the coming review; reducing the gender pay gap. 3.1. The Association considers that further increases in minimum wage rates are inconsistent with the Government’s priority on raising productivity and growth. 3.2. Remuneration is a key factor in getting higher productivity, but only where it can be linked to specific individual or team outcomes, such as throughput at a freezing works. Increases in minimum wage rates boost wages but of themselves do not boost productivity. Furthermore increased costs that are not offset by increase productivity typically flow though either into increased prices or, if the market cannot sustain higher prices, cost cutting and, often, job losses. 3.3. The Association believes Government should focus on providing employment opportunities and training schemes, aimed at equipping young people with higher skill levels at the point of entry to full time employment, thus enhancing their productive capacity and, ultimately, earning potential. Recommendation: The Government should focus on increased access to training and employment opportunities, particularly for young and unskilled people. 4.1. The Association supports providing workers with every opportunity to raise their skill levels and to achieve recognition based on skills and productivity. However, it is the Association’s view that straight increases in minimum wage rates distort labour markets, encourage job reduction and potentially conflict with promoting productivity. 4.2. With an economy that shows signs of slowing, further increases in minimum wage rates will only exacerbate existing pressure to cut the least productive jobs, affecting particularly those who are young and/or unskilled. Recommendation: That there are no further increases in either the youth or adult minimum wage rate. |
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