Kim Campbell: The 'living wage' and what it really means

Peter King of the Anglican Family Centre, co-author on a report calculating the living wage. Photo / Natalie Slade

When the Anglican Family Centre proposed a "living wage" of $18.40 gross per hour earlier this year it quickly became clear many people did not understand what the figure referred to.

Since then many local council elections have jumped on the bandwagon. Both leading contenders in the Auckland mayoralty race appear to support it. Hamilton council has voted against it, and some other organisations such as universities seem to be considering it.

But what might the term "living wage" mean?

The Anglican proposal of $18.40 gross per hour applied to an average family of two adults and two children, with one adult working full-time and one working half-time.

Their pay at this rate included government payments such as Working for Families, accommodation supplements, and childcare assistance.

On this basis many people whose pay is currently based on $15 or $16 an hour already qualify as receiving a "living wage". Other groups appear to back the payment of $18.40 gross an hour with the welfare and support payments paid as well.

If the top-ups are included, the "average family" would receive the equivalent of over $20 gross per hour each.

In other parts of the world the "living wage" means something different. In London, some councils and education institutions call it the extra amount they pay to offset the higher costs of city living.

In the United States some local councils and universities are obliged to pay increases of $3-$7 an hour which are called a living wage.

Higher minimum wages are also sometimes called for here and overseas as a way to introduce a "living wage".

There is another fundamental problem. If implemented, the system proposed by the Anglican Family Centre would mean low wage workers were paid according to their family circumstances. This is totally different from the way everyone has been paid for their work to date. People are paid for their work, not for the size of their family.

If people were paid on this basis, how could all the different circumstances be calculated?

If $18.40 an hour was set as the right amount for a family of four with one and a half pay packets, a different rate would be needed for, say, a family of six with one pay packet, or a two-person-two-income household, or a single person with two jobs. Calculating the many different "living wages" would be a nightmare.

The proposal is also at odds with the fundamentals of our welfare state.

Since the 1930s our businesses have understood they were to pay market rates for their staff, and the state would assist the unemployed. Then, more recently the government began to assist employed people with programmes such as Working for Families, accommodation supplements, childcare assistance and other assistance for those in work.

Our taxes make these benefits possible for people both in and out of work; our rate of personal income tax and company tax reflect the overall level of revenue required to deliver them.

In fact our wage rates also reflect what our society has agreed to fund overall to maintain our welfare system, taking into account free education, free hospitals, Working for Families, accommodation supplements and so on.

Employers have never previously been required to decide pay rates on the basis of family size or their social circumstances, and they are not well equipped to do this.

The same applies to local councils. They don't have the experience or the skills to decide who should qualify for a "living wage" and who should not. If they choose to develop these skill sets, it will be us as ratepayers who foot the bill.

For their part businesses need to focus on being competitive, and paying market rates for the people they need and to create as many jobs as possible.

Implementing a "living wage" could divert them from this objective, and quickly reduce their competitiveness and the number of jobs they can offer.

What scope is there for increasing the minimum wage?

At 65 per cent of the median wage, New Zealand's minimum wage is reasonably high, and it could be higher, though if it were, many people, including the lesser skilled and those seeking their first job, could find it harder to get a job.

The minimum wage was always intended as a wage "floor" and as a protection against exploiting unskilled people. For most it is a stepping stone towards more skilled, higher-paid work.

If the minimum wage is pushed up arbitrarily, people with higher skills will logically expect to be paid more as well. Pay rates would ratchet up.

Of course we could all vote ourselves higher pay rates, but in a scramble to do this we, as ratepayers and taxpayers, are the same people who end up paying the increases.

That would mean inflation, and with interest rates going up, along with the exchange rate, it's hard to see where it all might end.

Kim Campbell is chief executive of the Employers and Manufacturers Association kim.campbell@ema.co.nz.

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