Advice shows “living wage” would not 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’s analysis is available at:

http://www.treasury.govt.nz/publications/informationreleases/livingwage