The adult minimum hourly wage will rise 50 cents to $15.25 from 1 April.
The starting-out and training hourly minimum wages rates will increase from $11.80 to $12.20 per hour, remaining at 80 percent of the adult minimum wage.
Workplace Relations Minister Michael Woodhouse said the increase would directly benefit almost 152,700 workers, and would increase wages throughout the economy by $75 million per year.
"With annual inflation currently at 0.1 percent, an increase to the minimum wage by 3.4 percent gives our lowest paid workers more money in their pocket, without imposing undue pressure on businesses or hindering job growth."
Labour Party leader Andrew Little said the increase was too little, too late.
"Labour first called for a $15 minimum hourly rate seven years ago - today we are just 25 cents above that.
"At the same time we have corporate salaries in the millions of dollars and we are lagging behind Australia's minimum wage which is more than $3.50 per hour above the New Zealand rate."
Meanwhile a lobby group estimated the Living Wage should be increased by 55 cents to $19.80 per hour.
Living Wage Aotearoa said employers adopting the rate could make a significant difference to addressing inequality which it argued was not only good for workers and their families, but also for local economies.
Labour party finance spokesperson Grant Robertson was at the Living Wage announcement today and said the government's move was too little too late.
"I think that's wholly inadequate, you know for families who are trying to bring up kids, who are trying to pay the bills, $15.25 an hour is just nowhere near enough, you know that doesn't even cover the cost of increase in rent over the last year in places like Auckland, or even Wellington."
Mr Robertson said more employers should be encouraged to pay staff the living wage.