Best intentions worst results

February 21, 2017

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.


Pay rise ought to be commended

August 17, 2016

Spark is  introducing a benchmark salary above which its staff are paid.

All non-commission full-time staff will earn at least $40,000 a year, and front-line commission employees who earn a lower base salary will earn an average of $42,000.

If compared to the current living wage of $19.80 an hour, $40,000 a year minimum falls short at $19.23 an hour.

Spark general manager of human resources Danielle George said the company wanted to “do the right thing” for its staff and attract the best talent, as well as contribute to turning New Zealand into a higher wage economy. . . 

“We have revised our entire value proposition, exploring how we can best deliver base pay and meaningful benefits, all designed to meet the needs of a very diverse workforce.”

The new Spark pay policy has benefited more than 250 staff who have received pay increases over the past two years to bring them up to the new level. . . 

That ought to be cause for commendation but the Council of Trade Unions’ Richard Wagstaff doesn’t think so:

“Their $40,000 salary that they’re promoting is actually a little under the living wage which doesn’t really inspire too much in terms of fair pay for people.”

Spark says the pay scheme is a commitment to a higher-wage economy, and once you take into account staff benefits, the overall package is better than the living wage.

“We want to do the right thing for our people and to attract the best people to a career in Spark,” says general manager of human resources Danielle George.

“If that sets a standard that encourages others to follow, that’s got to be a good thing for New Zealand.”

Benefits include credit towards Spark products and services, life and income insurance, flexible working arrangements and interest-free loans to buy company shares. . .

Spark is offering more than $4.00 an hour more than the minimum wage which is $15.25.

Paying that is a legal requirement and it’s reviewed each year, taking into account that increasing it could price some people out of jobs and threaten some businesses. The living wage is an artificial construct which takes no account of what’s affordable.

Another union, the PSA is praising three Wellington mayoral candidates who support the living wage:

The PSA held a forum for candidates which was attended by Justin Lester, Jo Coughlan, Helene Ritchie, Keith Johnson, Andy Foster, Nicola Young and Nick Leggett.

Mr Lester, Ms Ritchie and Mr Leggett confirmed they support the Living Wage for all council workers, including those employed through contractors and council-controlled organisations.

“We’re extremely pleased to hear three candidates plan to build on the good work already done by Wellington City Council towards making this a fairer city”, PSA National Secretary Glenn Barclay says.

“The PSA decided to hold this forum to hear from the candidates first-hand about their vision for Wellington – including their stance on local ownership of local services and privatisation.

“Wellington City Council has already taken great strides towards becoming New Zealand’s first accredited Living Wage council since it voted to do so in 2013.
“We know this has the backing of Wellington’s voters – what’s now needed is a mayor and a council that will deliver on the promises and finish the job.”

Do voters really support that and if they do, are they happy to be rated more to pay for it?

Unlike the minimum wage, the living wage takes no account of the value of work being done or the danger that some businesses couldn’t survive if they were forced to pay it.

It’s also based on what a vicar thinks a family of four needs to participate in society which ignores the fact that not everyone has to support a family of four on their wages, and if they do Working For Families would give them a generous top-up if they were on a low wage.

New Zealand isn’t a high-wage economy and that’s a weakness. But the solution is increased productivity and upskilling, not the job-threatening imposition of the so-called living wage.


Higher wages, lower benefits, higher costs

June 11, 2014

The law of unexpected consequences struck when the minimum wage was increased in the USA city of SeaTac:

. . . Every debate over increasing the minimum wage comes with predictions that the law of unintended consequences will result in the opposite of what a higher wage is designed to accomplish—a better standard of living for low-wage workers.  Employers cannot pay a worker more than the value of their output.  In other words, if an employer must pay a worker $15 per hour, they must ensure the worker produces at least that amount, or they must figure out a way to reduce the cost of that labor.  So forcing employers to pay workers an artificially high wage creates perverse incentives for employers to find other ways to cut labor costs.

One way employers are cutting their labor costs in SeaTac, which recently mandated a $15 per hour minimum wage for certain workers, is by stripping away the benefits they used to offer. 

Northwest Asian Weekly reports that employees earning the new wage in SeaTac have lost benefits such as 401k, paid holidays and paid vacation, free food, free parking and overtime hours.  One hotel waitress said she is earning less because tips have decreased since the high wage has been in effect.  In many cases these benefits plus the lower state minimum wage added more value to workers’ earnings than the new $15 wage.

As one SeaTac worker put it, “It sounds good, but it’s not good.” . . .

But workers aren’t the only ones paying more, consumers are too:

Many SeaTac businesses have tacked on an additional fee to mitigate the increased cost of labor.  On the receipt below, a $6.93 “living wage surchage” was added to a $84.00 parking charge.  That is the equivalent of a 8.25% tax.

Contrary to what supporters claim, increasing the minimum wage does not create jobs and stimulate the economy.  The higher wages are not free money.  The increased cost must either be absorbed by the employer, which is impossible for many who already operate on shoe-string profit margins, or it must be passed on to workers, in the form of reduced hours and benefits, and consumers, in the form of higher prices.  Either way, someone pays.

Another consequence of higher wages is increased mechanisation to reduce the need for staff.

McDonalds recently went on a hiring binge in the U.S., adding 62,000 employees to its roster. The hiring picture doesn’t look quite so rosy for Europe, where the fast food chain is drafting 7,000 touch-screen kiosks to handle cashiering duties.

The move is designed to boost efficiency and make ordering more convenient for customers. In an interview with the Financial Times, McDonald’s Europe President Steve Easterbrook notes that the new system will also open up a goldmine of data. McDonald’s could potentially track every Big Mac, McNugget, and large shake you order. A calorie account tally at the end of the year could be a real shocker. . .

Proponents of the so-called living wage here pay no heed to the fact that money for higher wages has to come from somewhere.

If the wage increases aren’t at least equalled by higher productivity and profits then costs have to be cut or prices increased and it’s the very people the policy is trying to help who will be hurt most by that.


Where the living wage will lead

March 6, 2014

One of the criticisms of the living wage is that it takes no account of the relationship between the cost of an employee and the value of his or her work.

If the cost gets out of kilter with the value the employer is going to look for alternatives like this:

. . . In the new concept video, Pizza Hut swaps out the tables at its dine-in restaurants for massive touch-screen displays. Once you sit down, the first thing you’ll do is place your smartphone on the electronic table, activating the display and automatically signing into your own personalized account. Then you’ll design your pizza using the interactive screen before finalizing your order and paying through your device. Finally, the display lets you and your friends play popular mobile games while you wait. . .

This is only a concept, it will be a long time before it is implemented, if it ever is.

People will still be needed to cook the pizzas, bring them to the table and clean up after the diners but technology like this could reduce the number of waiting staff needed.

The more expensive staff become, the greater the cost of employing people in relationship to the value they provide, the more attractive technology to replace them becomes.

Hat tip: AEIdeas

 

 


Why stop at $15?

February 25, 2014

Labour Minister Simon Bridges announced the minimum wage will increase from $13.75 an hour to $14.25.

 . . The Starting-Out and training minimum wages will increase from $11 an hour to $11.40 an hour, which is 80 per cent of the adult minimum wage.

“Setting these wage rates represents a careful balance between protecting low paid workers and ensuring jobs are not lost,” says Mr Bridges.

“The increase announced today balances the needs of both businesses and workers and will have minimal impact on the wider labour market and inflationary pressures.

“This increase will keep the minimum wage at around 50 per cent of the average hourly rate, which is the highest rate in the OECD.

“The Government is firmly focussed on growing the economy and boosting incomes. Through our Business Growth Agenda we are creating opportunities to help grow more jobs in New Zealand, for New Zealanders.” . . .

That nearly half those surveyed think that’s not enough goes to show most people don’t understand the issues.

The only sustainable way to increase wages is by economic growth.

Without an increase in productivity and profit, an increase in wage rates will result in a decrease in job numbers.

The Green Party doesn’t understand that.

The Greens would have immediately raised the minimum wage to $15 an hour, Green Party Co-leader Metiria Turei said today. . .

Why stop there?

“Around 125,000 kids live in families where the adults earn less than the living wage. It is in the government’s hands to end poverty for working families and improve the lives of those kids. . .

Those families get Welfare for Families through which those with two children pay no net tax until they earn $50,000. Any increase in their pay will reduce their welfare. That’s less money from public coffers but they’ll be no better off and could be worse off if jobs are lost.

That living wage is an arbitrary figure and last week’s increase in it was based on different methodology from the original figure:

The ‘new’ living wage has shifted the goalposts and appears to be more about politics than public policy, says BusinessNZ.

Last year the living wage campaign said $18.40 should be the living wage, calculated on the basis of the living costs of a family of four.

The promoters now say the living wage for this year should be updated to the higher rate of $18.80.

“But the report shifts the goalposts,” BusinessNZ Chief Executive Phil O’Reilly said.

“The increase from $18.40 to $18.80 is not based on the same methodology as last year.

“Using the same methodology, for the same family of four, would show the new living wage should really be $22.89.

“If last year’s formula said $18.40 was needed for a living wage, and the same calculations now show $22.89 is required, why isn’t the campaign seeking $22.89 an hour?” Mr O’Reilly asked.

“Either the original calculations were flawed, or the campaign is just picking numbers out of thin air.”

Mr O’Reilly said decision makers could not have confidence that the living wage figures were soundly based.

“This switch in the figures used is important for taxpayers and ratepayers who are being asked to pay for the campaign. Wellington ratepayers are now funding the living wage policy for council employees and taxpayers would be funding it for all government employees under Labour Party policy.

“There can be no confidence in a living wage proposal set on an arbitrarily changing basis.”

The whole concept of a living wage which decrees everyone should be paid enough to support a family of four, regardless of what the work they do is worth, is flawed.

For the record, all our staff are paid more than the minimum wage.

That’s a decision we make in negotiation with them taking into account their skills and experience, what they’re required to do, the value of all of that and what the business can afford.


Living wage already up 40c

February 18, 2014

The ‘living wage’ has increased by 40 cents in just a few months:

The new figure for a living wage was also up from last year, with campaigners saying it now costs $18.80 an hour to feed two adults and two children in New Zealand.

The wage is based on a family with two children, where one adult is working full-time and the other half-time at the same wage.

The calculations come from the Anglican Family Centre research unit and are up 2.1 percent from last year’s estimate of $18.40 an hour. . .

The figures come from surveyed spending of the poorest half of Kiwi families with two adults and two children. Costs are figured on average New Zealand-wide rents for the cheapest quarter of three-bedroom houses and food costs for foods that meet Otago University’s nutritionists’ “basic” diet of nutritious food.

But the ‘living wage’ doesn’t just cover necessities like food and rent. The calculation was based on all sorts of other things the campaigners deem necessary  for a family with two children to participate in society, including overseas trips which most of us would regard as luxuries rather than necessities.
There is a need for an examination of why New Zealand wages aren’t higher and so many families have their incomes topped up by taxpayers.
But the ‘living wage’ which takes no account of the value of the work done is not the answer to that problem and would cost jobs:

. . . Labour Minister Simon Bridges said the figure seemed to be “much more what they feel rather than what good evidence suggests is right”.

He said raising the legal minimum wage to the original figure of $18.40 would cost employers $2.3 billion a year and wipe out 24,000 jobs. . .

A wage of $18.80 would be around $40,000 a year but a family with two children would get Working for Families on top of that.
Increasing the minimum wage to that figure would save taxpayers’ money but would not be affordable for all businesses, and would cover young, single and part-time workers without families.
If the figure has gone up by 40 cents in a few months,  it won’t stop at $18.80 and Labour has already raised the bar.
The party’s baby bribe would go to people earning up to $150,000 which is about $72 an hour.

If they think you need an extra $60 when you have a new baby who costs very little, how long before they think you need at least that when the baby is older?

By Labour’s reckoning the living wage isn’t around $40,000 but $150,00 and climbing.


Living wage doesn’t apply

January 8, 2014

An advertisement on the Green Party website:

Intern for Kevin Hague

Kevin Hague’s office has a vacancy for a parliamentary intern for 2014.

This is an unpaid, voluntary position based in Wellington. A minimum of 8 hours a week is required but the hours worked are negotiable. You will be required to go through a reference check and application process with both Kevin’s office and Parliamentary Service.

This position will give you the opportunity to see first-hand the work environment and process of a Green Party MP, and contribute to their team. The nature of the work is flexible around the applicants’ level of skill and interest but some background in Health, ACC, NZ politics, or Rainbow Issues will be preferred. . .

This from the party which is promoting the so-called living wage.

It obviously doesn’t apply here.


11 -10 against Brown on living wage

December 31, 2013

The people of Auckland should be very grateful to Councillor Cameron Brewer for moving what is a contender for the motion of the year:

“That the Governing Body agrees that Auckland Council first and foremost prepare a remuneration policy in the 2014/15 financial year, and as part of that policy work fully investigate the costs and wider implications on the organisation, business community and region of the Living Wage policy and have the CE back to the Governing Body at a later date.”

The motion was seconded by Dick Quax and passed by 11 votes to 10.

It is ridiculous to effectively raise the minimum wage to the level supposedly needed for a family of four to have a reasonable life.

Those families would be little if any better off because any gains in their wages would be offset by reductions in Working for Families payments.

The ones who would gain would be single, mostly young, workers, many of whom would be part-timers.

Aucklanders should be grateful that a majority, albeit a slim one, of the council have the good sense to require a thorough investigation of the costs and implications before committing a large sum of money to implementing the policy.

This was a big defeat for mayor Len Brown who campaigned on introducing a living wage.

But it’s a win for the city and its people.


Living wage won’t work – Treasury

November 1, 2013

Treasury advice on the “living wage” is blunt – it wouldn’t work.

Treasury advice shows that the so-called “living wage” is not well targeted to help low-income families and, if implemented, would be likely to cost jobs and be unlikely to lift average wage rates, Finance Minister Bill English says.

The Government’s economic programme is focused on increasing incomes and supporting more jobs and the best way to achieve that is through a growing and more competitive economy, Mr English says.

The “living wage” campaign claims a minimum hourly pay rate of $18.40 is necessary for a family of two adults and two children. But Treasury analysis shows that not just the figure, but the concept, is flawed, Mr English says.

“It might sound politically attractive to be able to dial up a pre-selected made-up wage rate, but for higher wages to be sustainable they have to be based on productivity and affordability in real workplaces,” he says.   

The “living wage” idea is based on a two-adult, two-child family, yet analysis shows that people in this situation make up only 6 per cent of families earning less than $18.40 an hour. Almost 80 per cent of those earning less than $18.40 are people without children, including young people and students.

The analysis shows that the “living wage” would least help low-income families whose welfare support would abate as their income rose. In those cases, the main beneficiary of the living wage would effectively be the Government because it would receive more in tax and pay out less through abated transfers.

The Treasury also notes that although New Zealand’s minimum wage has grown faster than the median or average wage over the past decade, it has not increased average incomes relative to other countries.

Mr English says the analysis confirms that some industries would be hit particularly hard if an $18.40 pay rate was imposed on them, and it would likely put downward pressure on their growth.

“The ‘living wage’ is just one more of the ideas supported by the Labour/Greens opposition that would cost jobs.

“It’s already been estimated that abolishing  the Starting Out wage could cost about 2,000 jobs,  taking the  minimum wage to $15 an hour would cull a further 6,000 jobs and removing 90-day trials would cost thousands more jobs. 

“This Government provides substantial targeted support to low-income families through programmes like Working for Families and the Accommodation Supplement. It is also doing a great deal to encourage people to enhance their education and skills to improve their income prospects and life outcomes. That is a better and more effective approach than having activists impose an artificial wage rate on businesses.  

“Business confidence is strong and growing, which is a good sign that more employers will take on new workers and pay a bit more. It is increased business confidence and new investment that lifts employment and wages in a real and sustainable way,” Mr English says.

The Treasury paper is here.

It says:

The group who earn a wage between $13.75 and $18.40 is diverse …
Almost all teenagers and the majority of people in their twenties earn below $18.40.
63 percent of households earning below $18.40 are single adults without dependants.
About 30 percent of households with dependants earn below $18.40.
… and those who would benefit most are the families that do not receive
supplementary assistance that abates.
Families that receive means-tested income payments would benefit less the more
those payments are abated.
Families without dependants would see the biggest increase in incomes in their hands. . . .
A Living Wage is therefore not well targeted at low income families with children …
In 2012 benefits were the main income source for 44% of households with the bottom
20% of household incomes. A Living Wage would not improve the living standards of
those without employment.
Sole parents are overrepresented in the $13.75-$15.00 wage bracket, but would
benefit least from a Living Wage in terms of lifting household income because of steep
abatement rates.
… and is likely to have negative economic impacts on employment and inflation.
Negative employment effects are likely to be
felt strongest by those with weak labour
market attachment, such as teenagers and young adults.
The Living Wage figure of $18.40 is a relative measure and not based on a calculation
of need.
A number of calculations are made in the Living Wage report, each resulting in different
figures. The $18.40 figure, however, is only a relative measure.
Adoption of the Living Wage as a minimum wage would have greater impact on some
industries …
Over 70 percent of the Accommodation and Food Services industry earn below $18.40.
Adoption of the Living Wage would be likely to put some industries, such as Retail
Trade, at a disadvantage compared to overseas competitors.
… and we do not think increasing the minimum wage to this extent would lead to
higher average wages.  . . .

It’s neither logical nor sustainable to create a new minimum wage based on what a vicar reckons a family with two children need for a reasonable life.

Not every household is a two adult, two child one and what it costs them to live will vary for all sorts of reasons, including location.

It’s cheaper to live in #gigatownoamaru than in bigger cities.

The best way to help everyone is with policies which stimulate economic growth and give businesses the confidence to increase wages and employ more people.


Should single and childless be paid less?

October 11, 2013

If $18.40 is considered to be a “living wage” for a family, should the single and childless be paid less?

Trans Tasman says:

Employers and Manufacturers Association CEO Kim Campbell has exposed fundamental flaws in the campaign launched by the Anglican Family Centre for a so-called “living wage.” The Anglican proposal of $18.40 gross per hour applies to an average family of 2 adults and 2 children, with one adult working fulltime and one working half-time. Their pay at this rate includes Govt payments such as Working for Families, accommodation supplements, and childcare assistance. Campbell says 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 an hour each. Another fundamental problem with the system proposed by the Anglican Family Centre for low paid workers being paid according to their family circumstances is totally different from the way everyone has been paid for their work.

“People are paid for their work, not for the size of their family. If $18.40 an hour was set as the right amount for a family of 4 with 1½ pay packets, a different rate would be needed for, say, a family of 6 with 1 pay packet, or a 2-person-2 income household, or a single person with 2 jobs. Calculating the many different ‘living wages’ would be a nightmare.” . . .

It would be iniquitous to pay people less because they needed less to support the sort of lifestyle a ‘living wage’ is predicated on.

But is it any better to pay people more than the job they do is worth because their needs, which have nothing at all to do with their work, are greater?

New Zealand would be better off if all wages and salaries were higher but increases must be based on what the work is worth not an artificial construct of what’s needed.


Why stop there?

October 10, 2013

Question of the day:

Economic development minister Steven Joyce says Mr Cunliffe is making promises he can’t keep.

“If he was right about the living wage why stop at $17-$18, why not treble it, because if it doesn’t have any effect on business growth then why stop where he is proposing to stop it?”

Exactly.

If raising the minimum wage doesn’t have a negative impact why stop at $15 and if imposing a living wage, which effectively lifts the minimum wage to that level, doesn’t cause problems, why stop there?


Not prudence but promise that can’t be kept

October 10, 2013

Labour leader David Cunliffe lurched to the left while campaigning to be leader and confirmed that’s where the party would go in  rewarding unions for their support:

Mr Cunliffe, who received strong support from unions during the recent leadership contest, underlined the commitments he made while campaigning for the job.

That included raising the minimum wage immediately to $15 an hour if Labour was elected next year, supporting the “Living Wage” campaign, putting it in place immediately for public sector workers, and extending paid parental leave from 14 to 26 weeks.

Mr Cunliffe also pledged to “scrap National’s unfair employment law changes in the first 100 days”. . .

However, there’s some fine print:

Mr Cunliffe later told reporters Labour would look at putting in place the living wage for state sector workers in a Labour Government’s first Budget.

“We would have to confirm that when we see the financials on taking office but that’s our plan.”

This would look like prudence if it wasn’t that we already know that it would be unaffordable:

But Key said yesterday the “living wage” promise was “unbelievable”, and a “back-of-the-envelope calculation” put its cost at $2.5 billion if rolled out to all low-paid workers, or $68 million a year if implemented just within the core public service.

Economists had also estimated it would cost 26,000 jobs, because of the extra cost to business. . .

That changes the proviso from prudence to a promise made in the knowledge he can’t keep it.

It’s not just the cost of the increase in pay for those currently on less than the new minimum, but the flow on effect which makes it unaffordable.

People who were rewarded for extra skill or responsibility by getting a few dollars more than those without them will still want to maintain the difference. If the lowest paid get around $3 more, those already on $18.40 an hour will want an increase of a similar amount or more and that will have a domino effect right up the pay ladder.

Wages have to be based on what a job’s worth not what someone thinks a family needs to maintain what they deem an acceptable lifestyle – especially when a lot of those who would get the increase would be young, single people who aren’t trying to keep a family.


Need more to pay more

October 8, 2013

The left criticise tax cuts in general and were particularly critical of National tax changes saying they favoured the wealthy.

But top earners are paying more tax:

. . . A feature was that higher income earners paid a larger share of income tax; only 6% of taxpayers earned more than $100,000 a year but they paid 37% of total income tax, he said. That was up from 29% in the 2010-11 tax year.

“So there’s been some significant shift in higher income earners paying a greater share of income tax – the opposite of what the critics said would happen as a result of the tax reforms in 2010,” Mr English said. . . .

The concerning point about this is that only 6% of taxpayers earned more than $100,000.

We need more people earning more at all levels.

That won’t be achieved by artificial boosts through the imposition of a so-called living wage.

The only sustainable way to lift incomes for everyone is through economic growth.

 


Living wage will cost jobs, kill businesses

September 5, 2013

A “living wage” is one of many expensive policies based on emotion rather than research which Labour’s aspiring leaders are promising to implement.

Prime Minister John Key said the policy would cost about $2.6 billion and predicts 26,000 jobs would be lost.

The Motel Association said the introduction of a living wage will cost jobs in the motel sector, with some owner-operators indicating they do not have the capacity to pay more in wages, and would instead lay off staff.

. . . While it’s all well and good for politicians to talk about raising wages, but thought needs to be given to the businesses that end-up footing the bill, MANZ Chief Executive Michael Baines says.

“It’s a simple equation, raising the minimum wage to the so-called ‘living wage’ level of $18.40 will cost jobs. That is a fact,” Mr Baines says.

“Motels are being hit on one side with sharply increasing costs, often in the form of rating and compliance costs that are forever being cranked higher by greedy local government. On the other side we are facing competition from the likes of B&Bs and holiday homes which are untaxed, unregulated and can dodge these compliance costs.”

The majority of motels are owner-operated, so when costs increase but revenue does not, usually the only option is for the owner to lay off staff and do more of the work themselves. This is what will happen under the living-wage scenario.

“If politicians wanted small business owners such as in the motel sector to have the capacity to raise wages then they should cut the red tape, reduce compliance costs and create an even playing field across accommodation providers,” Mr Baines says.

 

“If you create an environment where quality businesses can flourish, especially small businesses, then the rewards will flow for everyone.”

Max Whitehead, CEO of the Small Business Voice said the policy would cause economic disaster for working New Zealanders:

Mr. Whitehead says that 97% of New Zealand enterprises employ less than 20 people — mum and dad businesses struggling to keep afloat.

“These are Kiwis who mortgage their homes to have a go at running a small business. They give people in the dole queue a job and hope for the future. If their businesses go well, then you’ll find that employees’ wages, along with job security, will increase too.”

Mr. Whitehead says a 34% wage increase will hit these business’ hard. David Cunliffe and Grant Robertson’s over-generous declaration with “other people’s money” will most certainly bring many of the small businesses down and, ironically, cost jobs.”

The costs will be put back to the consumer; inflation will go up; the Reserve Bank will respond by raising interest rates and, in turn, mortgage rates will go up.

“ The very people this bribe is designed to please will be the ones who suffer. Is this what Labour wants?

Eric Crampton at Offsetting Behaviour runs an economists eye over the proposal:

. . . Were the government promising an $18.40 minimum wage across the board, things would be rather worse. The median hourly wage in the 2012 NZ Income Survey was $20.86. A minimum wage that’s 88% of the median wage would be rather, well, breathtaking. Recall the median wage is the one where half of all wage earners earn more and half earn less. Workers vary in ability; a minimum wage at 88% of the median would disemploy anyone who cannot produce value equal to just a bit less than the median worker. This would obviously be very bad. Recall that unemployment weighs far more heavily in disutility than do wages. . .

The proposal here isn’t for an $18.40 minimum wage but rather for a living wage mandate for government workers. The effects then are more minor. . .

The main effect will be an increase in the cost of providing some government services. At the margin, this should mean that we have a few fewer things done by government, albeit within the context of an expansion in the size of government under a future Labour government. There would also then need to be an increase in taxes to fund it, or reduced spending in other areas to compensate, or higher deficits. I suspect Labour would bridge the gap via tax.
Bereft of ideas which would foster economic growth and so increase the tax take, one of few tools it has to fund its wild spending is to increase tax rates.
There will be some transitional unemployment as marginal jobs undertaken by government get shifted away from the government sector. If some of these workers were earning substantial rents in the government sector and are not employable above the legal minimum wage in the private sector, there could be some increased longer-term unemployment from that. . .
Another important effect: contractors will enjoy less of a cost advantage relative to government departments; we could easily read the policy as a way of trying to knock out contracted services to benefit public sector unions.. .
A policy that benefits unions but costs jobs – where’s the economic and moral argument for that?
If you want to increase the wages of the working poor, you hardly should be starting with government workers, who earn more on average than those in the private sector and who typically also enjoy greater job security and flexibility. And if you want to run transfers to the working poor, generalised wage subsidies are the least distortionary way of doing it. Labour’s proposed mechanism would be likely to reduce the efficiency of government services by pushing away from contracting out, and to skew the optimal balance between government services and other goods and services by increasing public sector costs. . .

That would increase the burden of government and  make it more difficult for businesses outside government to compete for staff.

Improving incomes is a laudable aim but imposing a “living wage” is not the way to do it.

Sustainable wage increases must be based on productivity and profitability, not government dictate.


What’s earned and what’s spent

February 15, 2013

The campaign for a living wage is focussed on what people need to spend without taking any account of what they earn and what employers can afford:

Hon STEVEN JOYCE: I think it is important to note that everybody, I think, wants to see real wages grow in the New Zealand economy for New Zealanders and their families. It is absolutely something that we are all—I think, most people in this House—are very passionate about. But, of course, for that to occur we have to do the things that allow that to become affordable. We have already noted earlier in this House this afternoon, in question time, the growth of the minimum wage in the New Zealand economy and the fact that the minimum wage is a relatively high proportion of average wages. But, fundamentally, for Governments and organisations and companies to be able to afford further increases in wages, that involves further productivity increases, more investment, and, for companies, more sales. It is those things that the Government is very focused on assisting with, in order to enable wages to continue to grow, and our record in this matter is actually pretty positive. . .

Increasing wages to take account of what’s spent, rather than what’s earned and the worth of the work done is unsustainable.

Anything which adds costs without improving productivity will ultimately lead to business failure.

 


Still spending OPM

April 22, 2012

Labour leader David Shearer gave a big speech in Nelson last week, which only three reporters from Wellington bothered going to.

His new big idea was that everyone should have a living wage.

It’s hard to argue against the idea that people should be paid enough to live on but it’s a policy which aims to treat the symptom not the cause, and use other people’s money to do it.

Rather than telling employers they should be paying their staff more, a party that wants to be taken seriously as a government-in-waiting need to be addressing the barriers to higher wages.

One of those is the burden of government and Labour is opposing National’s policies which will reduce that.

Another is high taxation and Labour wants to impose another one – a Capital Gains Tax which will take years to gain momentum and will add another cost to business, redirecting money which might instead be used to increase productivity and wages.


%d bloggers like this: