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The Redistributive Effects of a Minimum Wage Increase in New Zealand: A Microsimulation Analysis

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  • Nazila Alinaghi
  • John Creedy
  • Norman Gemmell

Abstract

This paper examines the potential effects on inequality and poverty of a minimum wage increase, based on a microsimulation model that captures the details of household composition and the income tax and welfare benefit system and allows for labour supply responses. Results suggest that, largely due to the composition of household incomes, a policy of increasing the minimum wage has a relatively small effect on the inequality of income per adult equivalent person, and a money metric utility measure, using several inequality indices. Hence, the minimum wage policy does not appear to be particularly well targeted, largely due to many low wage earners being secondary earners in higher income households, while many low income households have no wage earners at all. These results are reinforced when allowing for wage spillovers further up the wage distribution. Nevertheless, a minimum wage increase can have a more substantial effect on some poverty measures for sole parents in employment.

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  • Nazila Alinaghi & John Creedy & Norman Gemmell, 2020. "The Redistributive Effects of a Minimum Wage Increase in New Zealand: A Microsimulation Analysis," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 53(4), pages 517-538, December.
    • Handle: RePEc:bla:ausecr:v:53:y:2020:i:4:p:517-538
    DOI: 10.1111/1467-8462.12381
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    2. David Maré & Dean Hyslop, 2021. "Minimum Wages in New Zealand: Policy and practice in the 21st century," Working Papers 21_03, Motu Economic and Public Policy Research.
    3. Rajaguru, Gulasekaran & Srivastava, Sadhana & Sen, Rahul & Mukhopadhaya, Pundarik, 2023. "Does globalization drive long-run inequality within OECD countries? A guide to policy making," Journal of Policy Modeling, Elsevier, vol. 45(3), pages 469-493.
    4. Creedy, John, 2021. "Comparing Income Distributions Using Atkinson’s Measure of Inequality," Working Paper Series 9469, Victoria University of Wellington, Chair in Public Finance.

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