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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