Best intentions worst results

LIving Wage advocates want employers to pay a minimum of $20.20 an hour from July.

The rate, more than $4 above the adult minimum wage, is at the level needed to provide families with the necessities, they say.

How many jobs will that cost?

The current Living Wage, of $19.80 has already cost 17 jobs at Wellington City Council according to a report by Jim Rose for the Taxpayers’ Union.

The report’s key findings were:

  • Seventeen Wellington City Council employees lost their jobs after being under the skill level required for the living wage.
  • Councils hire on merit, so candidates under the skill level commensurate with the living wage will be crowded out by higher-skilled candidates.
  • There is no consensus or scientific basis for the calculation of a living wage. Any calculations are politically subjective.
  • Any living wage in New Zealand will be abated by up to 40% by decreases in government transfers and increased income tax obligations.
  • Living wages shift the burden from means-tested taxpayers to ratepayers and business owners.
  • Below-living-wage employment allows for in-work training, where employees trade off lower wages for the opportunity to learn skills that increase their future earning potential. 

Living Wage Aotearoa New Zealand nobly want to alleviate poverty and reduce unemployment with their activism for a living wage, but the evidence to date shows they are achieving the exact opposite. This report shows that a living wage will only make it harder for low wage earners to find work.

Contrary to intentions, living wage policies actually hurt the very people they seek to help. For the first time, we reveal that seventeen parking wardens lost their jobs at the Wellington City Council as a result of its living wage policy.

Living wage policies mean higher-skilled candidates apply for jobs previously occupied by lower-skilled candidates. Of course councils will hire on merit and shortlist the candidates who previously would never have applied for the lower, pre-living wage role. That’s exactly what happened when Wellington City Council brought its parking services in-house.

Minimum wage applicants do not get a shot against better-qualified candidates attracted by the higher wages. So much for the poverty alleviation and reduced unemployment.

The economic theory is clear that living wages do more harm than good, but the job losses in Wellington is the proof in the pudding. Councils should stop implementing these living wage policies which achieve so little but cost ratepayers who can ill afford it.

Living wage policies mean ratepayers pay more for less and achieve none of the intended poverty relief.

Those are very damning conclusions, but not surprising.

The Living Wage is based on what someone thinks a family of four needs to have a reasonable life.

It bears no relation to individual employee’s needs, ability or performance.

I have several reservations about Working For Families but it is a better way to help low income workers with dependent children than the living wage which takes no account of the value of their work.

The full report is here.

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