The argument in support of a living wage

Wellington City councillor Nicola Young's article suggesting that Wellington City Council's adoption of a living wage policy represents a failure of governance has no sound basis. The evidence she applies in the article to back her case is seriously flawed.

First, she claims the living wage of $18.40 in New Zealand is higher than the United States, United Kingdom, Australia and Canada. To get this result she calculates relative to GDP per capita, but this does not take into account government transfers in different countries that profoundly affect the incomes of poorer families.

Actually, Australia does not have a set living wage. Australia hardly needs to because its statutory minimum wage, at $NZ19.63, was already more than a dollar higher than the living wage here when it was set last year. In Canada, the living wage is set city by city. In Vancouver it is currently $NZ21.40. For most cities in British Colombia, for example, the living wage is higher than New Zealand's.

It is lower in the UK because the government there provides a child benefit payment of $NZ66.10 per week for two children on top of more generous child and working tax credits than we have here. They also have much more extensive affordable social housing programmes and public transport systems than we do.

Second, she shamelessly selects luxury categories out of the Household Economic Survey (HES) database which is used for all New Zealanders, including the very wealthy, to imply the living wage includes international travel, Sky TV and the double counting of mortgage insurance simply because the questions are there. HES data is the record Statistics NZ gathers to show movements in income and expenditure for all New Zealanders. Everyone is asked all categories, but lower income households are hardly likely to be recording owning yachts or regular international travel. People who rent houses don't record mortgage insurance, just as homeowners don't fill in the rent columns.

She misunderstands what a living wage is when she dismisses all categories that are not "basic necessities". Basic necessities are what "poverty lines" and "minimum wages" are about.

A living wage, on the other hand, refers to having those necessities, but also having the ability to participate modestly in society. Examples include being able to afford a computer, especially for children in a household, and a modest insurance policy. It could also include a trip to family in Australia or Samoa for an important occasion where savings have been put aside or extended family contribute.

Third, she states that wage policies should not be based on "emotional arguments" but on "careful analysis and facts". So why does she not produce evidence for the "fuse leading to a time bomb of unknown size", "the failure of governance" and the "damage" caused to "our city's economy and reputation as a place to do business"?

The evidence, in fact, points in the other direction. Studies on implementing the living wage, on both sides of the Atlantic, point to its affordability. They show that costs are minimal when increases in productivity, lower rates of staff turnover and reduced absenteeism are taken into account (Wills, 2009, London Economics, 2009).

Business giant KPMG, with a UK staff of more than 5000 and a turnover of £1.6 billion (NZ$3.18b), has been paying a living wage since 2006. It states that, "staff turnover has reduced, and productivity has increased as attitudes are now more flexible and positive".

Boris Johnson, the Conservative London Mayor, and whose council pays the living wage, is on record as saying it "is good for London's growth and productivity".

With regard to governance and compliance with the Local Government Act, public law specialist Matthew Palmer has stated that it is quite valid for a local authority to set remuneration policy "by adopting a living wage policy".

Finally, two further matters may interest Ms Young as a councillor with the concerns of Wellingtonians at heart. The Ministry of Social Development, in its latest report on household incomes, states that 40 per cent of children living in households below the poverty threshold were in households where at least one adult was in full-time work or self-employed. That is a worry.

The second matter concerns wellbeing in our community. The living wage is not compulsory. It carries moral force and tests business ethics. As Boris Johnson put it, employers often adopt it because they want their employees to go home with pay packets that meet their families' basic needs and allow them to enjoy life in their society.

That, I assume, is why a majority of Wellington City councillors voted to implement a living wage for council employees.

Charles Waldegrave leads the Family Centre Social Policy Research Unit and was co-author of Report of an Investigation into Defining a Living Wage for New Zealand.

The Dominion Post