Living wage provides many benefits

Paying the living wage makes good economic sense, argues Prue Hyman.

Last week Wellington City Council took the first step towards becoming a living wage council, by voting to move directly employed staff to the living wage by next July.

The council also voted to ask staff to report on how to implement the living wage for low- paid council workers employed in CCOs and by contract companies.

Wellington City is right to take a lead on this. The region has the highest average household incomes in New Zealand, but also the greatest level of inequality, so thousands of low-waged workers struggle with household bills, including high housing costs.

Wellington has both the capacity and the need for a living wage.

Living Wage Aotearoa New Zealand defines the living wage as "the income necessary to provide workers and their families with the basic necessities of life. A living wage will enable workers to live with dignity and to participate as active citizens in society".

A detailed 2012 study by Peter King and Charles Waldegrave of the Family Centre Social Policy Research Unit provided the empirical basis for an hourly figure of $18.40 for New Zealand, using internationally accepted modeling. The level will be reviewed annually.

The living wage call has emerged from growing concern about poverty and inequality.

Rapidly increasing income and earnings inequality in New Zealand from 1985 to 2000 took this country from being one of the most equal to one of the least equal in the developed world.

The consequences in adverse health and education outcomes are alleviated and social participation improved when wages are lifted. High levels of inequality contribute significantly to major societal problems, creating economic costs for everyone.

There are critics of the living wage, including the Treasury.

Its November report misleadingly presents it as replacing the hourly minimum wage and effectively raising this overnight by $4.65.

In fact the living wage is voluntary. It will be adopted by those employers rightly convinced that it will benefit both business and employees. Productivity gains, reduced absenteeism, and lower turnover costs are benefits found overseas when committed workers know they are valued.

Large profitable employers and local government usually take a lead, but many small businesses also see its value.

The Treasury argues it is "not well targeted at low-income families", with single adults benefiting most.

Nevertheless, more than half of sole parents working earn below the living wage, as does the principal earner in 25 per cent of households with two adults and dependants.

So many New Zealand families struggle, despite having one or two adults in paid work. Of the 270,000 children estimated to be living in poverty, two in five come from households where at least one person is in fulltime work or self-employed.

Further, families are formed from those single adults who could benefit if working for a living wage employer. Higher earnings could help them make modest savings towards buying a house and bringing up a family later, as well as reducing the incentive to jump the ditch to Australia to find better-paying work.

The Treasury calculates that for a two-child family with two parents (one working 40 hours at $16 an hour and one 20 hours at $13.75), a living wage would increase take-home pay by $63 a week.

The government would be a bigger winner, with an additional $126 per week in increased tax and reduced benefits. But any increase in annual pay for such families is positive and $3276 is significant. Also, putting more responsibility on employers to pay a living wage allows the government to refocus spending, targeting the neediest and largest low-income families more effectively.

Further, with lower income families spending almost all their income, there will be a boost to the local Wellington economy which will itself create more jobs.

The Treasury's report argues that "adopting a living wage would rebalance the role of the employer and the welfare system towards work being the primary mechanism for people to support themselves." Isn't this a positive? It's far too easy for the government and employers to regard adequate living standards as the responsibility of the other with neither group taking responsibility.

Labour's share of national income has declined sharply in recent decades with lower earners failing to receive the gains from their productivity increases.

As London's Conservative mayor, Boris Johnson, says: "Paying the London living wage ensures hard-working Londoners are helped to make ends meet, providing a boost not only for their personal quality of life but delivering indisputable economic dividends to employers too. This in turn is good for London's productivity and growth."

Prue Hyman is a former associate professor of economics and gender and women's studies at Victoria University.

The Dominion Post