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Interpreting Changes in Minimum Wage Incidence Rates

Author

Listed:
  • Tim Maloney

    () (Auckland University of Technology)

  • Gail Pacheco

    (Auckland University of Technology)

Abstract

Statutory minimum wages increased substantially in New Zealand between 2000 and 2008. Where less than three per cent of workers were being paid the minimum wage in the late 1990s, this figure increased to more than ten per cent of workers by 2008. However, it is not obvious how this rise in the minimum wage incidence rate should be interpreted. The problem is that minimum wages can have behavioural effects. A higher wage floor could reduce the proportion of minimum wage workers in an economy by eliminating low-wage jobs. Recent New Zealand experience provides a unique opportunity for estimating this behavioural impact. The substantial gap between adult and teenage minimum wages was eliminated immediately in 2001 for 18 and 19 year-olds and gradually by 2008 for 16 and 17 year-olds. We find little evidence of an overall behavioural effect. Increases in incidence rates were not diminished by losses in low-wage employment. However, we find compelling evidence that minimum wage incidence for an age group is reduced by increases in minimum wages for neighbouring age groups.

Suggested Citation

  • Tim Maloney & Gail Pacheco, 2010. "Interpreting Changes in Minimum Wage Incidence Rates," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 13(3), pages 219-240.
  • Handle: RePEc:ozl:journl:v:13:y:2010:i:3:p:219-240
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    More about this item

    Keywords

    Labor Economics Policies Wages; Compensation; and Labor Costs: Public Policy Labor Standards: Public Policy;

    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J88 - Labor and Demographic Economics - - Labor Standards - - - Public Policy

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