Minimum wages and wage inequality in New Zealand

Minimum Wages and Fairer Pay: What Changed in New Zealand Since 2000?

How much can raising the minimum wage reduce inequality? In this paper, we explore how sharp increases to New Zealand’s minimum wage—more than 75% in real terms for adults and over 200% for teenagers—have shaped the wage landscape since 2000.

Wages rose across the board, but the biggest gains were for the lowest-paid workers. Wages at the 5th percentile grew by up to 66%, while those in the top half of the wage distribution grew steadily by around 30%. This resulted in substantial compression of the wage distribution, particularly over the half: the difference between middle and low earners (10th percentile) shrank by 28%, and overall wage inequality (measured by the standard deviation) dropped by 16%.

Using a well-established method to disentangle the drivers of this shift, we find minimum wage increases account for most of the reduction in inequality—about 90% of the compression in the lower tail, and 70% of the overall drop in wage dispersion. Shifts in workforce characteristics and how the labour market rewards them had smaller effects.

Some patterns remain unexplained—particularly the growing number of workers earning between the minimum wage and the median wage. Recent gender pay equity settlements and spillover effects from the minimum wage likely played a role in these changes.

Our findings show high minimum wages can deliver higher wages for lower wage workers with no evidence of substantial employment loss.

Citation

Hyslop, Dean, Dave Maré and Lily Stelling. 2023. “Minimum wages and wage inequality in New Zealand". Motu Working Paper 25-04. Motu Economic and Public Policy Research. Wellington, New Zealand.