23 Jun 2024

How many Big Macs can you buy for the minimum wage?

9:33 pm on 23 June 2024
No caption

The Big Mac is used as an economic measuring stick for how much minimum wage can buy. Photo: McDonalds

Times might be tough, but there's one glimmer of (possible) relief: New Zealanders can buy many more Big Macs on the minimum wage than they used to.

The international hamburger icon is often used as a touchstone for international economic comparisons such as the Big Mac Index.

While in some other countries, the number of Big Macs that can be bought for an hour's worth of the minimum wage has dropped, in New Zealand the reverse is true.

Analysis by Gareth Kiernan, of Infometrics, shows that in April 1995, when the minimum wage was $6.25, it could have bought 2.12 Big Macs.

By July last year, the minimum wage was $22.70 and would have bought 2.8.

He said, while that was good news for burger consumers, it was not a sign of the adequacy of the minimum wage - because the cost of everything else could put a damper on even the strongest burger appetite.

A better benchmark would be a basket of essential living costs.

Between 1 April 2012 and 2021, every minimum wage increase was higher than the annual CPI rate of inflation.

But that has not been the case more recently.

Kiernan said, over the past 50 years, house prices had lifted faster than the minimum wage over time.

"The trend is pretty similar for rents up until 2000. Since then, however, rents have not risen as fast as the minimum wage. So in terms of providing people with money to meet their basic housing costs - renting, rather than owning, the minimum wage has improved over the last 20 years. That conclusion doesn't mean it's adequate, of course - the 358,000 people getting the Accommodation Supplement would suggest otherwise."

He said the difference reflected how much house prices had risen over the past 20 years, driven by a downward trend in mortgage rates.

"Home ownership has got less affordable for everyone, and unless we sort out the constraints on our supply of land and our poor productivity performance and its limiting effect on our real incomes, no amount of fiddling with the minimum wage or other settings that only address the symptoms is going to solve the problem or lead to a sustainable improvement in the situation."

NZ Council of Trade Unions policy director Craig Renney said the fact that the most recent increase in the minimum wage was less than inflation meant it was falling in real value.

"New Zealand's minimum wage has been a global leader for a number of years but now it's reached the point where it's going backwards."

He said global comparisons were not very helpful because fixed costs such as housing, power and rates could be very different between countries.

Some economists pointed to the relative compression between the average wage and the minimum wage.

The Ministry of Business, Innovation and Employment said in its most recent review that New Zealand's minimum wage was one of the most generous in the OECD in terms of relativity with the median wage.

"As a ratio to the median wage, the minimum wage has increased from 62 percent of the median wage in June 2017 to 72 percent in June 2023. This has compressed the distribution of wages in the lower-earning half of the labour market, which can reduce the ability for businesses to pass on higher wages to more experienced and skilled workers."

But Renney said that was more a function of a low average wage than a high minimum wage.

Get the RNZ app

for ad-free news and current affairs