Editorial: Complexities of a living wage

22:15, Feb 06 2014

At first glance, the idea of increasing the minimum wage to a "living wage" seems a good idea and one which would surely go a long way to addressing some of the difficulties of all those Kiwi battlers on Struggle St. However, the living wage concept, now being promoted by the lobby group Living Wage Aotearoa New Zealand nationwide, is complicated.

The current minimum wage is $13.75 an hour. The Living Wage movement proposes that this should be raised to $18.40, because this is the rate needed for a theoretical family of two adults and two children to meet basic living costs, when one of the adults is working full-time and one part-time. This is where things get tricky.

Firstly, the model family used would be eligible for Working For Families assistance from the Government. At the minimum wage, and assuming the part- timer is working 20 hours a week, this assistance would be $185 a week, or $9620 a year. After paying tax on their combined minimum-wage income of $42,900, the family's net income, including Working For Families, is $903 a week. That is not a generous amount to support four people these days, but neither does it look like destitution.

If the family's income is boosted to the proposed living wage of $18.40, they would obviously get substantially more, but so would the Government. The family would earn another $279 gross for their combined 60-hour week, but they would pay more income tax ($49 a week between them), and their Working For Families payments would drop $55 a week. Their net income after these changes would be about $1078. They have gained $175 in the hand to live on, but the Government gains or keeps an extra $104 a week, just from this one family.

What has to be remembered in this equation is that all of the money has to come first from the couple's employers, and ultimately from the people who pay for the goods or services obtained from those employers - often that means other ordinary New Zealanders. The couple is better off, the Government is richer, but the end-user is marginally poorer.

In the case of the Christchurch City Council, a committee of which has just considered (and not rejected) the living wage proposal, the immediate cost of giving a rise to the 937 employees who earn less than $18.40 an hour would be $1.1 million. The downstream cost of adjusting pay to other employees, to maintain relativities, would add about another $1m. With the current parlous state of the council finances, that would almost inevitably lead to a rates rise. A council report suggests it would be just under 1 per cent, all of which would have to come from ratepayers' pockets.

Of course, Kiwi battlers should earn more. But a living wage should not be considered the only mechanism for reducing inequality.

Instead, low-income earners need to have the opportunity for increased earnings through social mobility that comes with equal access to high-quality education, job opportunities, housing affordability and social support.


The Press