Employers’ Perspectives - Part two: The Minimum Wage System

Key Results

One-fifth of employers are using the adult minimum wage

Twenty percent of all employers said they had at least one staff member on the adult minimum wage. Larger employers (27 percent) are more likely than small−medium enterprises (SMEs) (19 percent) to use the adult minimum wage.

There are some significant differences seen by industry. Employers in the accommodation & food services industry (47 percent) and the wholesale & retail trade industries (39 percent) were more likely to have staff on the adult minimum wage than employers in manufacturing (12 percent), construction (9 percent), and professional, science & technical services / health care & social assistance (4 percent).

All employers in the qualitative interviews were aware of the adult minimum wage, though not all knew the actual rate at the time of interviewing. Those who were using the adult rate said it had three key purposes: as a starting wage for entry-level positions, as a benchmark for setting their other wage rates, and as a wage that would send a message to non-performing staff to move on.

Smaller increases in the minimum wage rates have little impact on employers

Overall, employers reported there had been little or no impact on employment within their business from the 25 cent increase in the minimum wage in 2011. Employers reported absorbing the increased cost and making no change at all in response to the increase. 30. The 25 cent increase to the nominal wage rate in 2011 kept the real minimum wage constant. In times of low inflation, keeping real minimum wages constant will result in small nominal increases, which the research shows does not appear to strongly impact employers’ behaviour.

Smaller increases in the minimum wage also appear to cause little administrative burden, though some employers reported a medium impact in the short term related to changing rates and the prices of their goods.

Flow-on effects to wages of other staff

In the NSE, 31 percent of employers said they increase wages or salaries of staff that are already paid above the minimum in response to an increase in the minimum wage. The flow-on effect associated with increasing the minimum wage was reported to have a significant impact on businesses.

Employers reported that employees who were above but close to the minimum wage would feel they were relatively worse off if the minimum rate increased and the relativity was not maintained. This created pressure for employers to increase wages of staff above the minimum. However, employers did say that the increases given to staff above the minimum wage were not necessarily equal to the increase in the minimum wage, and that a compression of the wage scale could happen. Decisions about the size of increases were also influenced by merit in many cases.

Some employers said the regular increases in the minimum wages were useful for their internal wage-setting. The flow-on effect was also a consequence of employers benchmarking their wages to the minimum wage. Here, employers pointed out that they used the minimum wage as a guide for increases and in this case, the flow-on effect is a conscious undertaking by employers, rather than an external pressure.

Employers in the accommodation/food services, manufacturing, and wholesale and retail trade groups are more likely to report usually increasing wages of staff above the minimum wage than employers in the professional/technical services and health and social services group. These industries are more likely to have staff on or near the minimum wage than the professional/technical services and health and social services industries, which may in part explain this difference.

Employers would utilise a combination of responses to larger increases

The qualitative interviews asked employers about the implications for their business of a $1 increase in the minimum wage. Employers suggested that in

response to a larger increase in the minimum wage they would look at cutting staff hours, reducing the number of staff, casualisation of their workforce, capital substitution, not filling vacancies, and having higher expectations when hiring. A small minority of employers said they would hire fewer youth in response to increased minimum wages, as they viewed youth as being less productive thanolder employees. These were all measures related to wage setting and hiring decisions, and were aimed at achieving increased productivity by getting more out of the existing overall wage bill.

Some employers also said they would look at other measures in response to a larger increase in the minimum wage. These measures included looking at increasing the prices of their goods or services if possible, reducing the cost of other inputs, absorbing the cost into the business and reducing the profit margin (the most common actual response in the qualitative data), and, in the most extreme scenario, closing down parts of their business.

Also of note, employers in the accommodation & food services industry are more likely than other industries to report usually making at least one change (excluding increasing those on the minimum wage, where applicable) in response to an increase in the minimum wage.

Low rates of uptake of the new entrants’ and training minimum wages

Two percent of employers reported using the new entrants’ minimum wage and 1 percent reported using the training minimum wage. There were no significant differences between SMEs and larger employers, or between industries.

The qualitative interviews showed up a lack of awareness of the rates and the criteria for applying them. This is likely to be a contributing factor in the low uptake of the two rates.

The reasons given by employers for not using the new entrants’ minimum wage were that it was unfair to pay staff less based on age, the potential savings (a maximum of $520) were not large enough to warrant the time spent administering the wage, the application criteria were too complex, and subminimum rates do not reduce the risk associated with a new hire.

For the training minimum wage, employers said it would affect their ability to attract high-quality applicants, it was not fair to staff to pay them less while they were improving their skills (and thus benefiting the employer), and the savings were not enough to warrant administering the wage.

Trial periods the preferred intervention to increase employment opportunities

Although the government interventions researched are complementary and can be used in conjunction with each other, trial periods were reported to be the only well-liked intervention for increasing employment opportunities. Sixty percent of hiring employers reported that they had used a trial period since the introduction of the provision, and 70 percent of all employers intended to use the provision in the future. The preference for trial periods was due to the reduction in risk to the business that trial periods give. Employers said this was a far greater driver for them in decision making than the potential cost saving of the temporary minimum wage rates.

However, awareness of trial periods was also much higher than that of subminimum wage rates. Trial periods have received frequent coverage in the media, which vastly outweighs the publicity the sub-minimum wage rates have received since their introduction. This suggests that the information provision on the rates may be an area to consider in any future initiatives related to wage rates.

Employers put more priority on getting the right person than on reducing the cost of labour when hiring

Employers reported they would prefer to pay more (within reason) and attract the right staff than pay less and risk employing someone unsuitable for the job. The right person has four key characteristics: the right attitude, a work ethic, good communication, and willingness to work in a team. These soft skills were viewed as being instilled in employees from their time at school, and employers viewed the education system as an area where government could make a positive contribution to applicants’ employability.