Theoretical framework

The neoclassical model

In neoclassical theory, no unemployment happens since the labor market clears in

response to changes in the nominal wage. The level of real wage depends on the relationship

between demand and supply (Akerlof G & Yellen J, 1986). This model evaluates the

misemployment effect of the minimum wage. According to this model, increase in the

minimum wage is likely to increase unemployment rates in the economy since many

industries will be forced to reduce the number of employees in response to the new wages

(Cahuc P & Michel P, 1996). Since the wage rate is determined by the market rather than an

individual in this competitive economy, every industry is a potential wage taker. Individuals,

therefore, take the price of commodities as dictated by the firms. When the wage rate is above

the equilibrium, it causes unemployment. This is because the employers tend to substitute the

low-skilled laborers with other inputs such as machinery and capital (Brynjolfsson E &

McAfee A, 2012). Secondly, an increase in minimum wage implies higher prices on different

commodities which in turn reduce the demand of the product and consequently the amount of

required labour. Therefore, this model argues that the increase in minimum wages in a

competitive labor market will reduce employment rates compared to what it could have been

if there were no minimum wages (Cahuc P & Michel P, 1996). The rate of unemployment is

usually high especially in firms where the demand for labor is elastic such as in restaurants

which are susceptible to the effects of increased wage rates, especially in the long run

(Ehrenberg G & Smith S, 2016). As a result, determinants of the supply and demand

functions determine the wage level.

Theory of Wage Norms

The theory of wage norms was developed by John Dunlop in 1964 (Wicks-Lim,

2006). Wage norms are socially constructed compensation standards, which are imbued with
an organization’s social value. The wage standards or procedures once set are considered to

be fair, to constitute the company’s or organization’s norm, and to be independent of current

demand and supply pressures in the labor market (Lindbeck and Snower, 1986). In this case,

the notion of fairness depends on the status quo and other reference points set within the

organization. Under this theory, practices such as wage underbidding are not acceptable

forms of social behavior (Lindbeck and Snower, 1986). According to Akerlof and Yellen

(1990), wage norms play a key role in determining the wages. This model explains how the

effort of work by the employees was highly dependent on the exchange with a fair wage. In

this case, wage equity is dependent on its distance from the remunerations of other employees

as compared to other specific conditions of the job.

If the wages are increased, there will be an increase leading to an increase in human

workforce and lower wages. On the contrary, if the wages are low, population will reduce

hence reducing the labor supply and increase in wages (Kirti Shailes, 2017). For the

employees to keep up a cooperative working environment there is a need to maintain wage

equity. Thus, if the minimum wages are increased, it will reduce the wage differential

existing between the targeted group of workers and other workers not directly covered under

minimum wage regulation (Neumark D & Wascher W, 2004). To maintain the differential

and equity of the wage, the wage of the un-targeted workers will have to be increased,

thereby causing a ripple effect. This argument supports Grossman (1983), who noted that

different 31occupations compare their wages to the wages of different reference groups,

which makes a change in the minimum wage to set off a chain reaction (ripple effects). Based

on this theory, wage for labor should equalize with the value of the marginal product under

perfect competition.

Constructivist worldview
 Constructivist is an approach to a qualitative research. It holds the view that people

seek understand the world they live and work. People develop subjective meaning of their

experiences to the world where they live and work (Maxwell J, 2012).. People come up with

subjective meanings of the experiences which are directed towards certain things and objects.

Such meanings are usually varied and multiple. This makes researchers to look for

complexity of views other than narrowing meanings into few ideas. The goal of the research

is to rely on the participant’s views of the situation under study. The questions are, therefore,

are broad and general so that the participants can come up with meaning of the situation. The

more the open-ended the questions, the more the researcher pays key attention to the

participant’s opinions and their life settings. Constructivist researcher addresses the process

of interaction between people (Maxwell J, 2012). The researcher’s intention is to interpret the

meaning of others about the world and come up with a pattern of meaning. Constructivists

understand how their own backgrounds based on historical, cultural, and personal

experiences determine their interpretation.

Hypothesis

Increase in the minimum wage will cause increased unemployment rates, poverty, and

affect employees motivation.

Sampling

This research basically focuses on the effects of the minimum wage increase. A

convenient sample will be chosen among employers and employees who have been affected

by the minimum wage increase. The research requires a sample size of about 600 employers

and employees in order to maintain a confidence level of about 95% and 4% confidence

interval. The participants will be informed about the research prior to the time when the

study will be carried out to make sure that only those who are interested will take part.

Research design
 This study fell within the purview of descriptive research as it ought to answer the

question. It will employ a longitudinal research design involving the use of panel data.

Saunders et al. (2003) posited that the main strength of longitudinal research design was its

capacity to study change and development. This means that a longitudinal research design

can reveal both net change and gross change in the dependent variable. In addition,

longitudinal studies are capable of revealing shifting attitudes and patterns of behavior that

might go unnoticed with other research approaches.

Since the main objective of this study is to find out the effects of wage increase on

both the employees and employers in New Zealand, the study will use both qualitative and

quantitative methods of data collection to enable the researcher to detect and measure effects

such as influence of minimum wages on earnings that usually cannot be observed in a pure

cross-section or time series data.

Data collection

Qualitative data

This study will conduct interviews with 900 employers from the food industry or their

representatives. This industry was chosen because it has a large number of employers on or

near to the minimum wage. The focus of the interviews will be the minimum wage system

which mainly targeted the employers who had staff on or near the minimum wage. We will

incorporate both face to face interviews as well as interviews through the phone. Basically,

the interviews will ask about the wage setting, price setting, hiring decisions, and other

questions based on the minimum wage system. Through the interviews, we will explore any

type of administrative burdens which are experienced by employers which come as a result of

the increase in the minimum wages. The study will come up with a sample size of about 900

people to increase the expected response rate. The survey sample will be obtained through an
external organization and through a probability scheme with a target of the food industry and

use establishment size.

A survey will be carried out to collect information from about 900 employees in the

food industry. The employees will be selected in a manner that will increase the propability

of all characteristics in the workforce. The employees will be chosen from the food industries

that have been surveyed. Most of the survey will be conducted outside the working

environment and this includes online surveys.

Quantitative data

This research will also use detailed data on wages and its effects to an individual and

employers before and after the increase which happened in April 2018 in New Zealand. The

study will use a source of data which has not been used in any other research on minimum

wages. The research will rely on minimum Wage Review from the National Survey of

Employers (NSE) which surveys the effects of minimum wage increase in different firms per

quarter (Zealand N, 2014). It does this by selecting a firm which is surveyed regularly. From

this source, the researcher will be able to gather information about how both employers are

affected by the increase in wage rates, answer questions related to the current policy, closely

monitor the employment issues and monitor the labor market.

This study will gather information on how the employees are affected by increasing

minimum wage from the labour market statistics. The statistics give a picture of the New

Zealand labor market, employment and unemployment rates and how employees are affected

by wages and salaries. This paper will use the labour market statistics of June 2018 quarter.

The statistics will help us understand how employees are affected by the increase in

minimum wage.

Data analysis
 To conceptualize the effects of increase in the minimum wage, Statistical Packages

for the Social Sciences (SPSS) version 16.0 software will be used to statistically analyse the

collected data. Data will be entered, cleaned and identify all the outliers. The research will

perform frequencies and percentages on the categorical data and run descriptive statistics for

data continuity. The differences between the participants within the study group by the use of

paired sample t-tests.

Ethical considerations

The research will adhere to all the ethical considerations. We will obtain permission

to carry out the research from the necessary authorities, ministries, institutions, and

corporations. The participants will be given a written consent before being engaged in the

study and the results will be made unidentifiable before reporting. Only the first authors will

have access to the interview data to ensure high levels of confidentiality. Participation will

also be voluntary. This is aimed at collecting genuine and helpful information.

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