Living Wage disputes
Last week, the Government announced that the minimum wage will soon rise by 50 cents to $15.25/hour, higher than the 25 cent rise predicted by most. Not to be outdone, an hour later the Living Wage campaigners increased their figure by 55 cents to $19.80/hour. Many have taken this opportunity to argue that the Living Wage should be the minimum wage. This would be a massive mistake.
Before I go on to give reasons why, it may be helpful to give a brief refresher about the Living Wage. Living Wage Aotearoa defines it as “the income necessary to provide workers and their families with the basic necessities of life,” enabling them “to live with dignity and to participate as active citizens in society.” The Living Wage figure is calculated based on a two-parent family with two children.
Andrew Little echoed this focus on families following the announcement. He remarked that we are “creating a generation of working poor, Kiwis who hold down fulltime work yet can’t put food on the table for their families or afford a warm, dry house.” Rather, he believes “in a decent pay for a good day’s work, one that allows workers to support their families, and help them achieve the Kiwi dream.” Who would disagree?
The biggest problem here, however, is that that the lion’s share of households that would benefit from introducing a blanket living wage don’t have any children to support—a whopping 79 percent according to Treasury. In fact, only 6 percent of those earning below the Living Wage fit the two-adults, two-children family bill, meaning a minimum wage set at Living Wage levels would primarily help single teenagers and twenty-somethings, not the struggling families that Little is advocating for.
It would also a cost jobs—a lot of jobs. While Government officials claim that the increase to the minimum wage would not affect unemployment, in comparison, they estimated that increasing the minimum wage to the Living Wage would benefit 500,000 workers, at the cost of around $500 million and a bewildering 28,000 jobs. Even for eligible families, much of their wage increase would be clawed back as their means-tested benefits diminish.
Internationally speaking, our minimum wage already compares favourably. The gap between New Zealand’s average wage and our minimum wage is one of the smallest in the OECD. Our minimum wage in real terms is low, but it’s not falling unreasonably behind the average. Our minimum wage is $3.50 below the Australian figure, which is not unexpected given the Productivity Commission’s estimation that on average, our labour productivity figures are almost a third lower than Australia’s.
The brains behind the Living Wage in New Zealand see it as an “aspirational,” voluntary target for businesses rather than a replacement for the minimum wage. This is how it should be. Raising the minimum wage to the Living Wage would do little to help struggling families and cost a lot of jobs. Continuing to increase the minimum wage in line with inflation, average wages and rental increases is the way to go.