Unleashing the Living Wage 'monster'

02:02, Jul 05 2013

Hands up who would like a 34 per cent pay rise for doing exactly the same job as you are doing now?

Sound like an impossible dream? Not if you are a low wage worker at the Hamilton and Wellington City Councils.

In return for no additional labour and for not upskilling in any shape or form, the councils have proposed paying their low and minimum income earners up to $4.65 an hour more. This is to meet calls for what has become known as the Living Wage of $18.40 an hour, as compared with the statutory minimum wage of $13.75 an hour.

At the time of writing the proposal had just been narrowly voted down by Hamilton's council, following advice the policy would cost nearly four times the amount originally estimated.

Councillors had voted in May to introduce the living wage over two years, on the understanding it would cost $168,000 to lift the pay rates of 80 workers.

However, it emerged the resolution would actually apply to 144 staff at a cost of $643,000.

In addition Hamilton City's utterly sensible managers warned the elected officers they risked unleashing a monster, with Living Wage campaigners vowing to review the wage amount annually.

The policy's been equally controversial in Wellington, where the $250,00 cost of introducing it is set to blow the council's rates increase budget.

Most employers would laugh like drains at the suggestion they should pay staff a third more for simply turning up in the morning. Yet somehow local government politicians, spending rates income in many instances derived from other low income earners, feel able to play at being charities.

New Zealand's average output per head of population is around 30 per cent below the OECD average. In other words, productivity is not our strong suit. Paying people more for performing at the same level is a bit like buying your teenager a car for staying out late and refusing to do their homework. It doesn't address the issue and sends a really mixed message.

Retailer The Warehouse is introducing a wage of between $18.50 and $20 an hour for lowly paid staff who are fully trained and have at least three years' experience. The company claims to have taken inspiration from the Living Wage campaign, but the difference is there's a sound business case underpinning its actions.

The higher wages on offer are an incentive for employees to undergo training and stick with the job, thereby lifting skills and performance and improving staff retention. The business is getting something in return.

Forgive the Economics 101, but increased productivity grows the economic pie. If the pie is bigger there is more for both the owners of capital (businesses) and the owners of labour (you and me, the wage slaves). If the pie stays the same size paying higher wages is essentially robbing Peter to pay Paul - which, as anyone who's ever argued with their siblings over the size of their slice will know, never ends well.

Faced with having to pay people as if they were higher skilled without getting anything in return, employers will lean towards investing in automation and doing away with the lower skilled roles altogether.

Business decisions must not be dictated by social good campaigns. Absolutely New Zealand firms should strive to pay above the paltry minimum wage, but in the interests of improved productivity, not for altruistic reasons and certainly not to boost local officials' re-election chances.

* Maria Slade is morning editor at the Fairfax Business Bureau. maria.slade@fairfaxmedia.co.nz