Impact of the Minimum Wage on Expected Profits

This paper investigates the impact of a significant reform to the youth minimum wage in New Zealand in 2001, on the expectations of low wage employers' profits. In March 2001, the eligibility for adult minimum wage rates was lowered from 20 to 18 years while the youth minimum wage for 16-17 year olds was also increased from 60 to 70% of the adult minimum wage. We construct a descriptive profile of minimum wage workers in New Zealand and their industry membership. We find that most minimum wage workers in New Zealand predominantly work in the four industry sectors; (1) Retail, (2) Textile and apparel, (3) Accommodation, cafes and restaurants, and (4) Agriculture, forestry, and fishing. Next using an event study methodology we examine the economic impact of the substantial increase in youth minimum wage rates on employers in industries with high concentrations of minimum wage workers. Surprisingly, all conclusions point to there being an insignificant impact on profit expectations for low wage employers by investors.