Wages of political spin

Last updated 05:00 09/02/2014

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It's a truth universally acknowledged that a single man (or woman) in possession of little but the shirt on his back must be in want of a life.

OPINION: Life now, as in Jane Austen's day, revolves around money. Surveys have shown those with plenty of dosh seldom worry about it, while those with nothing think about money all the time.

It doesn't buy happiness, but there is a minimum amount below which life is really not much fun. That minimum depends, of course, on many factors, such as the cost of living, an individual's needs, and the number of mouths to feed.

The big question, though, is whose responsibility it is to furnish this basic level of necessity. Is it yours? Or is it the state's?

This ideological tussle is one of the purest forms of political divide. It still separates Left from Right, even after conservative governments worldwide grudgingly accepted the need for welfare systems and minimum wages.

The debate is being played out again, not just here, where workers are asking when they might expect a pay rise after several years of belt-tightening, but in the United States and Britain, too.

In his State of the Union speech last week, US President Barack Obama proposed an almost unthinkable 30 per cent rise in the adult minimum wage, sending Republicans, conservative commentators and the Fox Network into apoplexy.

Obama pointed out that the American minimum wage was now 20 per cent lower than it was in President Harry Truman's day, and that "Americans overwhelmingly agree that no-one who works fulltime should ever have to raise a family in poverty".

If this wasn't heretical enough in the New World Order, Britain's Conservative Chancellor George Osborne said the British Government was considering an "above inflation" increase in the minimum wage because the "economy can now afford it".

Surely then, the world's "rock star" economy will be following suit? Don't hold your breath. Prime Minister John Key has already hosed down expectations of anything more than another inflation adjustment, which should see the adult minimum wage claw its way over $14 an hour.

Finance Minister Bill English, meanwhile, has suggested workers do an Oliver Twist and proffer the begging bowl to their employer rather than knock on the government's door.

So who's right? Obama and Osborne? Or Key and English?

First, some context. Minimum wages aren't set in isolation. They're part of the solution alongside welfare payments and tax breaks. There's also what is known as the purchasing power differential. The American minimum wage is a lousy US$7 (NZ$8.46) an hour. Britain's minimum wage is £6.31 (NZ$12.47), which is also less than ours.

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But when you adjust for what that money buys in those countries the picture is a little different. Britain's "real" minimum wage is slightly higher than ours, and America's about in the middle of the pack for countries within the Organisation for Economic Co-operation and Development (OECD). Australia's stellar A$16 (NZ$17.38) an hour minimum wage is third-highest once purchasing power is taken into account.

Adjusted for the sky-high cost of living in New Zealand, our "real" minimum wage is eighth among 26 OECD countries. Is that good enough? The Living Wage campaigners don't think so. They want an adult minimum of $18.40 an hour, which they say is the lowest a family of two adults and two children can live on. I don't doubt it.

But the problem is, most wage earners no longer fit neatly into that nuclear family category. Just 6 per cent of wage earners living in two-parent, two-child households are on or below $18.40. Most are single young people. In addition, low-income earners with children get large income top-ups through Working for Families, accommodation supplements and income-related rents, which makes benchmarking a living wage hard.

Americans get nothing like the state help available here, which is why Obama is proposing such a hike in the minimum wage.

But the US system is transparent. New Zealand, which once had the cleanest and most efficient tax system in the world, messed it up with the mountain of income support payments introduced by Labour a decade ago.

Although Working for Families provided temporary relief for struggling workers with children, it had three major drawbacks: it alleviated from employers the responsibility to pay a living wage, it discriminated against anyone who did not have children, and it blurred the poverty line by making direct comparisons of income almost impossible.

So is National correct that decent wages are the responsibility of the employer, rather than the taxpayer? In an ideal world, absolutely. But given most employers are not charities, that is unlikely to happen unless the market demands it.

And that can't happen while the state is helpfully topping up sub-standard wages. It's time for us to admit Working for Families is a Band-Aid solution at best that has done nothing for productivity and has cost us a fortune.

Key should scrap the scheme he once described as "Communism by stealth" and replace it with a gold standard minimum wage of $16 an hour, matching Australia.

Unfortunately, the political risk involved makes it unlikely. Yet any meaningful debate over what a living wage really is can't happen until then.

- Sunday Star Times


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