The workplace relations minister is not ruling out lifting the minimum wage in line with the living wage.
A new report from the Helen Clark Foundation and the New Zealand Institute of Economic Research is calling for the increase, saying it would boost productivity and create a more inclusive economy.
The opposition says the report is misguided, and piling more costs on businesses will lead to job losses.
NZIER deputy chief executive Todd Krieble said that in the wake of Covid-19, the government should take advantage of the chance to push the reset button.
"We're not going to be able to rely on migration, at least not for a while, and we have incredibly cheap borrowing at the moment, it's really the first time in our history that we've had that sort of alignment. It's an opportunity to invest in our people and be more inclusive with growth," he said.
Krieble said lifting the minimum wage to the level of the living wage of $22.10 would boost productivity.
"It would encourage investment from employers in skills, either technical skills or soft skills, and it would help employees to hang around."
The government increased the minimum wage three times last term, moving from $15.75 to $18.90.
During the election, Labour promised to raise it to $20 next year.
Minister of Workplace Relations Michael Wood said after that, he would take stock and decide what to do next.
He was not ruling out matching the living wage.
"Well-remunerated workers live better lives, are able to meet their basic needs better and there's very strong arguments to say that's better in terms of workplace maintenance, building a skilled and productive workforce, those are compelling arguments," he said.
"But then we get to the crunch point of where do we draw the line in terms of where wages should sit. So I'm not closing off that option, I'm saying I want to look at the full range of factors before making decisions."
National Party small business spokesperson Todd McClay said the report was misguided and it would lead to increased costs to consumers - and more job losses.
National Party small business spokesperson Todd McClay says matching the minimum wage to living wage will will have the opposite effect than intended if it happens. Photo: RNZ / Richard Tindiller
"What the business community needs at the moment is policies to help them grow the economy and create jobs, not greater costs that will slow the job market down, and unfortunately I think the suggestion from the [Helen Clark] Foundation will have the opposite effect than they're hoping for," he said.
Business New Zealand chief executive Kirk Hope said the Ministry of Business, Innovation and Employment's advice to the government was that a living wage would reduce the number of available jobs by 30,000.
Hope said young people would be the most affected.
"The demographic of those people that lose their jobs are disproportionately young people, 18 to 24, because they are often the lowest skilled people."
However, Krieble said that was short-sighted - and Covid-19 had already caused 11,000 vulnerable jobs to go.
"The jobs that were going to be lost have gone and I would back employers, I think we should back ourselves as a country to make the right sorts of investments that would lift productivity," he said.
"There's a dynamism that's been introduced into the economy already, so let's get it working in the right direction."
Wood also was not convinced.
"The evidence that we've seen in New Zealand is that governments led by the Labour Party, which have sustained increases in the minimum wage, are also governments that have seen sustained decreases in unemployment, so don't always buy the argument that a decent minimum wage for workers has to be at the expense of jobs," he said.
McClay said the minister should not even be contemplating piling more costs onto businesses at a time when they were already struggling.
"What he should be doing is looking for ways to create more jobs and to be working with the business community. He needs to send a signal to the business community that he backs them," McClay said.
Wood said that was exactly what he was doing, and he did not think good businesses should be scared about workers being paid a fair wage.
He promised to work through the process collaboratively, consulting with workers and businesses before making any decisions.
Mixed reactions among business owners
Some business owners say increasing the wage to livable wage will only result in redundancies.
Some said they would be happy to pay more for experienced staff, but having to pay a higher wage for someone fresh out of high school without any work experience was not sustainble.
Complete First-Aid Supplies owner Shelley Meredith said her business had struggled to pick up after the Covid-19 lockdown. She was now moving her office to work from home and putting her supplies and stock into storage.
"If [they] put up the minimum wage, we might have to look at dropping one of our staff," she said.
"I am even having to leave this building and move it home and if they look at increasing the minmum wage, you got an 18- or 19-year-old that's just left school [with] no skills, no experience, we just won't be able to employ them."
She said her business had got worse since the lockdown.
Quick Stop Tyres and Mechanical owner Sarkaw Abdullazada said he already paid his staffs over the minimum wage, but increasing it any further would put extra pressure on his business.
He said if the government wanted to increase the wage to a livable wage then they should provide some kind of subsidy to the business.
Without any help, he would potentially have to cut down some of the jobs to keep his store if the suggestion was implemented.
Lynfield Chainsaws & Mowers manager Glen Lurman said he supported a wage increase because that would help young people start their own life, without having to rely on their parents.