Facts of the matter: can we afford a living wage?

New Zealand's Living Wage campaign, led by unions, community and faith-based groups, is part of a worldwide movement to address the growing numbers of working poor in wealthy societies.

living wage logoBy Bill Rosenberg

Research by the Family Centre Social Policy Research Unit has estimated the living wage to be $18.40 per hour. It’s based on a two-child family with two adults both working at this rate, one half-time, the other full-time. It takes into account Working for Families, accommodation supplements and tax.

A living wage is defined as the income necessary to provide workers and their families with the basic necessities of life and enable them to live with dignity and to participate as active citizens in society.

After years of growing income inequality, high levels of child poverty, and with New Zealanders working some of the longest hours in the OECD, the Living Wage campaign addresses a need that goes beyond a minimum wage and beyond rising just above a poverty line.

It is not asking for luxury – indeed it could still be criticised for being too low – but it is establishing one of the benchmarks for a decent and socially sustainable society.

The inevitable question arises: is it affordable?

The standard Stage 1 economics claim is that “wages will rise when productivity rises. Raising wages without raising productivity will just lead to inflation and no-one will be better off”.

It would be great if workers were paid for their increases in productivity. They haven’t been. The average hourly wage in the private sector would have been 30 percent higher, at $31.85, in March 2011 if it had kept up with labour productivity increases since 1989. Instead it was $23.43.

Government measures like the minimum wage, collective bargaining by unions supported by much better legislation, and social movements like the Living Wage campaign are needed to ensure fair wages are paid.

Secondly, raising wages has been shown to raise productivity. Studies of the Living Wage in the UK illustrate that. One study looked at cleaners at Queen Mary, University of London. “The research has revealed that the move to be a living wage employer and bring the cleaning service in-house has stimulated improvements in job quality, productivity and service delivery, with very little increase in costs.”

Another study showed “significantly lower rates of staff turnover” leading to “substantial cost savings on recruitment and induction training”, lower rates of absenteeism and sick leave, enhanced quality of work, and widespread efficient work reorganisation. It found little or no impact on business performance, sales, profits, prices or output.

These reflect broader research findings. Higher wages, if employers respond positively, lead to better motivated employees who put more effort and thought into their work, raising productivity and efficiency.

If wage rises are widespread, the increased spending creates greater demand for employers’ products, encouraging them to invest in their firms, raising productivity and creating more jobs.

Employers may say “no” to raising wages, but “yes” to raising their customers’ incomes – but collectively, their employees are their customers.

Finally, low incomes create big social costs as well as hardship. We all pay for the problems in health, education, crime, child poverty, debt and gambling that low incomes make much more prevalent. For example, low income is associated with low birth weights, which in turn can lead to health and educational problems, creating another cycle of poverty.

We could ask: “is it sustainable not to pay at least a Living Wage?”

The Living Wage campaign puts pressure on government and employers to face up to these problems and create a virtuous cycle of better pay, higher productivity, and a thriving economy.

Find our more – livingwage.org.nz


Government should lead the way

As the country’s largest employer, the government is in a strong position to take a lead and provide a living wage to its employees.

Government agencies could also ensure that contracts for out-sourced services include a requirement to pay a living wage

The PSA estimates about 16 per cent of people working in the public sector are not earning a living wage, calculated to be $18.40 an hour.

Thousands of people working in government departments, local government, community services and district health boards are on less than $18.40 an hour. They are on a low wage treadmill – battling higher housing, food and living costs while at the same time being offered minimal or zero percent pay increases.

The additional costs to the government in providing a living wage would be at least partially offset by the higher tax take and savings in benefits such as Working for Families.


This article is from the March 2013 issue of the PSA Journal. You can read back issues of the Journal by clicking here.