Thursday, 27 July 2017

Concerns over news that Christchurch City Council is considering introducing the Living Wage

On Thursday 27 July the Christchurch City Council is considering the introduction of the Living Wage for Council employees. There is no doubt that the concept of the Living Wage is well intentioned. We all want everyone to be rewarded with higher wages as the economy improves. However, there is considerable controversy over the sustainability of the Living Wage concept and whether or not it can achieve its objectives. 

New Zealand’s current Living Wage campaign dates from 2013, based on a calculation by social researchers of the costs of a basic healthy lifestyle for a family of two parents and two children (one aged ten and one aged four), one parent working full time and the other part time. The living family rate was calculated in 2013 at $18.40 per hour and in 2017 sits at $20.20 per hour. Living Wages are calculated on the basis of a notional employee’s domestic circumstances rather than the value of their work (skills and productivity). Many of the potential recipients of the Living Wage will not meet this criteria.

However, if the work done by employees doesn’t generate sufficient value to pay their wages, something has to give. There is abundant literature arguing that lifting minimum wages without supporting increases in productivity may actually increase poverty and unemployment in the medium and long term. This can be readily accessed online through a simple google search (search: “minimum wages increase poverty”).  A central premise is that just increasing the minimum wage increases competition for that work.  The losers in that competition are usually the uneducated, unskilled and inexperienced i.e. those often already on the edge of poverty. 

No matter how an enterprise chooses to label its approach, the approach it takes to wages should be an economically rational and sustainable one.   It is therefore vitally important that enterprises, especially those that are spending ratepayers and taxpayers money, looking to increase wages to “Living Wage” levels do so in full knowledge of the potential consequences. 

This in part is why a majority of existing Living Wage employers are in community groups and taxpayer funded public and local government sectors where their existence is not immediately threatened by the need to be profitable.

Currently accredited “Living Wage employers” are made up almost exclusively of churches, community groups, unions, left wing political parties and a very small number of small and mainly “green” businesses (e.g. organic foods). None of the local authorities that have taken up the Living Wage brand are accredited Living Wage employers.

Our City Council is generally regarded as paying its employees well. It is hard to understand why employees of the Council alone should all be entitled to the Living Wage when other organisations owned by the Council will not be. This indicates an ideologically driven positioning funded eventually by the rate payers of the city. It also sends a strong signal that this could be the beginning of a trend towards adopting an arbitrary Living Wage figure across all entities associated with Council, as is happening elsewhere in New Zealand. When looking at the big picture, one could be excused for suspecting that the Living Wage campaign is simply about raising the minimum wage through the backdoor. That would be very damaging for first time employees and the New Zealand economy.

It is puzzling as to why the City Council would consider branding its employment remuneration under the “Living Wage” banner when it is perfectly capable of remunerating employees at levels which reflect their value and contribution to the enterprise.

In considering the adoption of the Living Wage the Council needs to be very clear of the additional permanent costs this will involve, the pressure that will come on to entities associated with the Council, and the impact on the wider community.

The very small number of larger private sector employers who have increased wages to “Living Wage” levels have all apparently done so in a staged and structured manner that aligns increases in wage rates to increases in the skills and productivity of employees. Employers in this category in fact are not following the Living Wage model as such, as their structured approach has added value to the workers’ labour, rather than compensated them for their domestic circumstances.    

The same could be said for SMEs striving to remain competitive and for whom an obligation to pay unsustainable minimum wages would mean closing down, or shifting into the informal economy. 

We can best achieve higher wages and good employment outcomes by growing the Christchurch and Canterbury economy. Lifting everyone’s wages is something we should all be aiming for, but it’s a matter of how we do that and the basis for it. It is not done by a stroke of a pen.

It is important to this city and our region that we are not seen to be followers of those who have not considered the consequences of adopting the Living Wage. Let’s be a leader of those who have.

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