Living wage policy is 'poor solution' to complex problem

Last updated 06:36 14/01/2014

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Wellington City Council's adoption of a living wage policy represents a failure of governance, writes Nicola Young.

Wellington City Council has lit a fuse leading to a bomb of unknown size, with its vote to implement a "living wage" for its employees from January 1.

Councillors often stress the need for evidence-based, reasoned and clear decisions; correct process; and the need to avoid writing blank cheques but there was little - if any - consultation and analysis of the impact this wages policy would have on Wellington households and businesses. Ironic, considering the council has also committed to the capital being "open for business".

Mayor Celia Wade- Brown has defended this Alice in Wonderland approach by pointing out the council didn't consult on the chief executive's salary either. The reality is that the CEO is paid the going rate in a competitive international market, whereas the "living wage" is an artificial intervention to boost incomes of lower paid workers who happen to work at the council.

The "living wage" proposed by the Living Wage Aotearoa New Zealand Campaign, is higher (relative to GDP per capita) than the United States, United Kingdom, Australia, and Canada. Incredibly, ours is higher than London's; the 18th most expensive city in the world (Wellington is ranked at 74th in Mercer's Cost of Living survey).

A review of the research that produced the New Zealand rate of $18.40 by researcher Brian Scott concluded the rate is over-stated and questioned its method and data (as did Treasury). It also questioned whether conclusions reached from overseas research on productivity, morale and poverty could be safely applied to New Zealand's situation. Preliminary research by the Auckland Council came to the same conclusion. Not everyone would agree that Sky TV, pets, international travel and video games are "basic necessities"; some expenses - childcare costs, for example - are counted twice and money is allowed for building and mortgage insurance, despite the stated assumption that recipients are tenants.

The cost has already increased by $250,000 to $1 million a year thanks to council's decision to employ parking wardens directly and; this does not include the impact of better-paid council staff wanting to retain relativity.

There are already reports of CBD cafe workers demanding parity with council pay rates. The council's implementation of a "living wage" will distort Wellington's labour market; it's inflationary and - as happened overseas - could lead to increased unemployment.

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We don't know the cost of including council- controlled organisations and, more significantly, city council contractors. The mayor has admitted it's a complex area, and has asked for suggestions for mechanisms to deal with the issue. How will the council manage its preference for contractors to pay the "living wage"? The policy may not comply with the Local Government Act's requirement for councils to provide services in the most efficient and cost- effective manner.

The council's stated rationale, to try to justify compliance with the act, is that implementation of the "living wage" will be linked to increased training and productivity: pay people 30 per cent more, and they will be 30 per cent more productive. Does this mean parking wardens will issue more tickets? (I hope not!) Would we get 100 per cent more productivity with 100 per cent pay increases? The training packages could be done as a stand-alone project, with personal wage increases linked to actual increased skill and productivity.

Many of the councillors who voted for the "living wage" had campaigned strongly for the prudent spending of rates, and at least one of them committed to a zero rate increase (the same councillor also said he would not be paying it to his own staff).

Wellington may be a comparatively wealthy city, but with an older population; much of the council's largesse will be funded by pensioners struggling on fixed incomes, well below the "living wage".

The "living wage" is a one-size-fits-all tool, based on a two-adult, two-child family.

The reality is that almost 80 per cent of those earning less than $18.40 have no children; many are students living at home. Treasury analysis shows that a low wage, two-parent family with two children will gain only $63 a week, while the Government will gain $126 because benefits will reduce as incomes rise. Several councillors weren't interested in the Treasury analysis; they supported the "living wage" because it would boost recipients' self-esteem.

Wage policies shouldn't be based on emotional arguments; it should be based on careful analysis and facts. The lack of consultation, research and analysis of this policy is a failure of governance, and will damage our city's economy and reputation as a place to do business. The "living wage" policy is a poor solution looking to solve a complex problem.

Nicola Young is a Wellington city councillor. Last month she attempted to delay the implementation of the minimum wage to allow for consultation. Her motion was defeated eight votes to five.

- The Dominion Post

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