A damning critique of the so called Living Wage

January 3rd, 2014 at 7:37 am by David Farrar

has published a critique of the so called , and it should be compulsory reading for any politician that has treated the calculations done by Rev Waldegrave as a fit basis for public policy decisions. It is quite legitimate to have a view that wages should be higher, but to insist that the correct level is that calculated by Rev Waldegrave is a surrender to symbolism over substance.

The key findings by Scott are:

  1. Only 12% of low income households are two adults and two dependents, which the Waldegrave calculation is based on
  2. They assume you need 10 hours of childcare a week, even if the children are aged over 14
  3. They calculation of level of “basic necessities” is not based on any empirical measurement of the lowest cost of necessities, but merely a proportion of the average expenditure in deciles 1 to 5 (this one is key – it is a calculation based on the Browns should be spending as much as the Jones, and is not a caculation on how much income the Browns need)
  4. The calculation doesn’t account for some sources of household income such as trade-ins, sales, teenagers income (yet does include their costs) and school donation tax refunds
  5. The calculation double counts some expenditure such as childcare costs
  6. The calculation includes as a basic necessity costs such as Sky TV, pets, international travel and video games
  7. The calculation includes insurance for dwellings and mortgages, despite assuming they are renting

Scott’s report should be sent to any politician who advocates that New Zealand’s wages policy should now be based on Rev Waldegrave’s so called living wage calculations.

Scott makes the point that in other countries such as the UK (specifically London) the living wage is based on detailed itemised budgets, and weighted averages of a wide range of household types from single to two adults and two children. That is a far more robust way to calculate it.

He has provided much detail such as how assumptions used are contradictory. They assume one child is in childcare for childcare costs but also assume both children are teenagers for food costs (teenagers eat more than pre-schoolers).

The full report is appended below.

Living Wage Critique Version 1

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48 Responses to “A damning critique of the so called Living Wage”

  1. Harriet (5,132 comments) says:

    “…..but merely a proportion of the average expenditure in deciles 1 to 5…”

    With such things as deciles being promoted by government, goes the expectation of ‘leveling’. Otherwise deciles have absolutly no purpose at all.

    It’s an indication and expectation of more big intrusive government to come.

    “Fairness”

    Communism they used to call it!

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  2. Longknives (4,884 comments) says:

    “The calculation includes as a basic necessity costs such as Sky TV, pets, international travel and video games”

    All those poor people living in poverty… Oh the humanity!
    Thankfully we have our incoming Finance Minister Russel Norman to ‘redistribute the wealth’ and rectify all these terrible wrongs…

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  3. Pete George (23,687 comments) says:

    Why let a few facts get in the way of a socialist campaign?

    If a “living wage” is implemented by a Green-Labour government it may not be long before the next step – a universal “living wage” – for everyone whether in paid employment or not.

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  4. flipper (4,218 comments) says:

    Waldegrave is a mountebank, Class 1.

    He is a wealthy man, having accumulated wealth through Bruce Judge ( via Judge Corp and Renouf Corp shares sales), prior to the crash of ’87.

    At the behest of his then wife, Judge endowed Waldegrave personally to enable him to develop and continue his “crusade against poverty.”

    Anything promoted by him should be treated with the greatest caution.

    Likewise his Auckland counterpart, St John, has been a AU academic tit sucker for the past 40 years, dating back to her advocacy of such matters to Frank Holmes New Zealand Planning Council in 1975-76. St John is also a mountebank Both sell economic snake oil.

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  5. dishy (248 comments) says:

    The phrase itself is enough to make me chunder, begging as it does the question as to how to describe the wage of those earning less than $18.40 an hour. Is a worker who can’t afford Sky really dying?

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  6. OneTrack (3,233 comments) says:

    And spendthrift Len was (is still?) well on the way to implementing this in Auckland. Taking money from the productive sector and giving it to someone else, under rule of law. And all his friends in the Green party will tell him what a great guy he is. What’s not to love?

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  7. slightlyrighty (2,475 comments) says:

    The whole living wage argument is a complete crock, but represents a very difficult challenge to those who would campaign against it.

    By calling it a living wage, opponents would find it difficult to take up a contrary position without coming across as a bit of a tool. When someone say’s “I want to pay a living wage of $18.40 an hour as we have calculated this is what we need to live”, it becomes difficult to say “I am against that”.

    This study is what is needed. So next time someone says “This is the living wage”, the short soundbite argument should be employed. “Sky TV is not a necessity. International Travel is not a necessity. Food, Rent, Clothes, Power, education and health are necessities. What you do with those, determines your access to everything else. Get off your arse, and stop relying on some figures that others seem to have pulled out of theirs.”

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  8. marcw (255 comments) says:

    The evidence is overwhelming to the point of absurdity that anyone should even contemplate this daft policy. Any polititian who promotes it should be run out of office, and as this study shows, it can now be proven they are just posturing to buy votes. As usual with the left, with other people’s hard earned money. Cr. Peck of WCC is a prime example.

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  9. OneTrack (3,233 comments) says:

    “Waldegrave is a mountebank, Class 1.”

    I am not too worried about him to be honest. He is a private citizen who came up with a number.

    It is up to our elected officials to act on it or not. In this case, Labour and the Greens are just using this as an enabling mechanism for what they wanted to do anyway. Pete is right above – next step is the same thing to replace the dole and taxpayers will pay for it. If you need a Living Wage ™ when you are working, well obviously you need the same amount even if you arent working. Anybody who says otherwise is obviously a bastard and an evil neolib.

    And if you get that much money (Sky and overseas holidays) for being on the dole, why would you bother to work?

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  10. OneTrack (3,233 comments) says:

    “Cr. Peck of WCC is a prime example.”

    The underlying driver for them is taking money from some else – it isnt about giving people what they need. The politics of envy – those people have more money so the state is going to take it from them. Not too far removed from Communism.

    Which explains Pecks attitude completely.

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  11. Andrew McMillan (50 comments) says:

    It’s staggering to think that the Wellington City Council have voted to phase in a living wage of $18.40 without doing a comprehensive (or possibly any) peer review of the (now questionable) numbers.

    Good work Brian Scott.

    The next questions are:

    How overinflated is current living wage?

    Will the Living Wage Movement revise their figures in light of Scott’s findings?

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  12. tas (648 comments) says:

    If the minimum wage is to be based on such a calculation (and it shouldn’t t be calculated without considering employers), then it should be for a single childless teenager.

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  13. slightlyrighty (2,475 comments) says:

    OneTrack.

    You may not be worried about Waldegrave, but while the facts are easy to counter, in this world of soundbites and attention spans measured in nanoseconds, when a man of the cloth says this is a living wage, it becomes a hard argument to counter without looking like a bit of a tool, particularly with this MSM who will delight in making someone look like one.

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  14. Andrew McMillan (50 comments) says:

    And a further question:

    In light of Scott’s findings, will the Wellington City Council review the living wage rate that they’re applying?

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  15. Archer (215 comments) says:

    It is quite clear that any political party or politician, or local body, that wants to implement the Waldegrave Wage is not fit for any form of office.

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  16. flipper (4,218 comments) says:

    Heh folks…

    Let us not get too hung up on $18.40 per hour.

    That is just the base cost.

    To that add ACC, Kiwisaver, holiday pay, sick pay and other costs that will elevate the $18.40 to something like $23.50 per hr.

    Then there is the issue of internal pay relativity….. WHAT A MESS!

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  17. jims_whare (404 comments) says:

    Haven’t they forgotten to include 50gm of rollies, box of beer, and a couple of tinnies a month in the necessities as well?

    Maybe the ‘living wage’ needs to be closer to $20 to take these into account…

    What about a new car every 4 years? Dirty Dog sunnies for mum dad and the kids? Laptops/Ipad annual replacements?

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  18. Adolf Fiinkensein (2,922 comments) says:

    Another failed cleric who couldn’t save souls so turned to being a socialist.

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  19. Inky_the_Red (761 comments) says:

    Living wages campaigns are not limited to NZ and in the UK a prominent Conservative supports them
    http://www.ibtimes.co.uk/wage-boris-johnson-living-minimum-employment-labour-519384

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  20. Pete George (23,687 comments) says:

    It’s staggering to think that the Wellington City Council have voted to phase in a living wage of $18.40 without doing a comprehensive (or possibly any) peer review of the (now questionable) numbers.

    It’s worse in Dunedin, mayor Dave Cull admitted and defended trying to implement a ‘living wage’ in DCC without even consulting with or advising his council.

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  21. Manolo (14,070 comments) says:

    Waldregrave has been proven to be a liar and dishonest writer. What a surprise!

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  22. rouppe (983 comments) says:

    You guys have all missed the point.

    Remember how “Global Warming” was changed to “Climate Change”? This was because the globe wasn’t actually warming, so they had to come up with some generic term that could be applied to a wide range of circumstances.

    Well, the Left have learned. That’s why it isn’t called the “Poverty Wage”. Or “Base Wage” or anything like that. How can you complain about Sky TV and international travel when it’s called a “Living Wage”, as those things allow one to “live” life to the full. It’s not being pitched as what’s necessary to combat poverty (since that is based on a median anyway), it’s being pitched at a level that allows people some enjoyment of life. Anyone who resists that is mean, and a ‘nasty person’.

    And of course coming from someone who doesn’t have to concern themselves about generating income, that’s a joke.

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  23. Psycho Milt (2,419 comments) says:

    Scott makes the point that in other countries such as the UK (specifically London) the living wage is based on detailed itemised budgets, and weighted averages of a wide range of household types from single to two adults and two children. That is a far more robust way to calculate it.

    And yet no bugger is calculating it this far more robust way, which makes it somewhat churlish to bleat about it when relatively unqualified types like Waldegrave give it a go themselves.

    [DPF: yet David Cunliffe, Len Brown, Celia Wade-Brown and others have all made policy pledges based on what you call an unqualified calculation. Isn’t that appalling?]

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  24. scrubone (3,105 comments) says:

    The biggest problem has always been there: a one size fits all approach.

    Applying this “living wage” to someone with 5 kids is not going to solve their income problem. Giving it to many people currently on minimum wage is a waste of money. Yet we’re being told it must be given to all, regardless of circumstances and this will solve their problems.

    Just another example of partisan politics making intelligent people into stupid people.

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  25. radvad (772 comments) says:

    Would love to know what the Anglican church (one of the country’s wealthiest institutions) pays the staff that clean its many buildings.

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  26. scrubone (3,105 comments) says:

    radvad: you’ll probably find that the congregation do it for free so that money is not diverted from the church’s charity work.

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  27. adze (2,129 comments) says:

    “If a “living wage” is implemented by a Green-Labour government it may not be long before the next step – a universal “living wage” – for everyone whether in paid employment or not.”

    Actually Pete, the concept of a universal basic income is one that may have its time in the coming years, with technological unemployment becoming a growing problem around the developed world. It’s an idea that has shown appeal on both the left and right parts of the political spectrum because it doesn’t single out specific groups (it’s universal), and because it’s cheaper to administer than traditional welfare. Switzerland has recently voted to have a (binding) referendum on it.

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  28. Fletch (6,496 comments) says:

    According to an American blogger at The Foundry website, “income inequality” will be the big talking point by the left this year.

    Get ready to hear about “fairness”—because some people make more money than others, and this isn’t fair. How can you sit by and watch this happen? What is the government going to do about it?

    It’s a popular argument because everyone—even Warren Buffett—wants to make more money. When someone tells you that what you’re being paid isn’t fair, it’s easy to agree. And if that someone tells you that you can march in a protest and instantly make more money—well, that’s a lot quicker and easier than working toward your next promotion.

    The income inequality outrage is based on the idea that the people at the bottom of the economic ladder are stuck there indefinitely. But America isn’t “Downton Abbey”—you’re not stuck in the place where you were born. The chauffeur’s son can become…whatever he wants to be in America.

    This uniquely American advantage is called mobility. People can move up—and down—the income ladder. In fact, “the recent rise in income disparities has not caused a decline in upward mobility,” reported Heritage’s Rea Hederman and David Azerrad in an in-depth study of the issue. They debunked the foundation of the left’s assumptions:

    Standards of living have increased for everyone—as have incomes—and mobility, however one measures it, remains robust. Simply put, how much the top 1 percent of the population earns has no bearing on whether the bottom 20 percent can move up.

    A focus on minimum-wage workers can also be a red herring. Heritage’s James Sherk and John Ligon note that “Over two-thirds of workers starting out at the minimum wage earn more than that a year later.”

    President Obama and his allies in Congress are already pushing for a minimum wage increase in the new year. Heritage’s Sherk and Ligon are very clear when it comes to the possible consequences of doing this: It “would force employers to curtail hiring.”

    Less hiring. Fewer job opportunities. That does not help the men and women looking for work, who need to put food on the table and shoes on their kids’ feet.

    http://blog.heritage.org/2014/01/01/need-know-lefts-big-issue-2014/

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  29. thor42 (971 comments) says:

    Excellent stuff by Brian Scott!

    We are very lucky to have people like him (and Lindsay Mitchell) in this country. People who excel at digging into data and exposing the nonsensical policies put forward by the left-wing.

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  30. kiwi in america (2,511 comments) says:

    Superb work Brian. Likelihood of MSM reporting: low to nil.

    Inky – if you actually read the report you’d know that Scott is challenging the calculation of the NZ Living Wage and that it includes various items not covered in the more accurate basket of goods used in the UK calculation so you are not comparing apples with apples.

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  31. adamsmith1922 (890 comments) says:

    This explains why NZ @ $18.40 is higher than London figure.

    What really pisses me off is the way MSM keep saying the agreed sum is $18.40 when it is no such thing. In addition I have seen no MSM comment or question as to why NZ number is so high compared to UK and the USA.

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  32. Brian scott (3 comments) says:

    I would be remiss if I did not mention that Lindsay Mitchell reviewed drafts and gave me valuable feedback. Thanks Lindsay.

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  33. Pete George (23,687 comments) says:

    adze – I agree that a universal benefit or whatever you want to call it has some merit, but it could (should) only be done in conjunction with a major reform of tax and social welfare.

    Labour campaigned on a $15 per hour minimum wage last election. Now they seem to support a $18.40 alternative (same thing, different name). If they lose the election this year what will they be offering in 2017 I wonder.

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  34. adze (2,129 comments) says:

    “but it could (should) only be done in conjunction with a major reform of tax and social welfare.”

    Yes, that’s the general idea. It replaces social welfare with a single unconditional payment.

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  35. scrubone (3,105 comments) says:

    If they lose the election this year what will they be offering in 2017 I wonder.

    If the last time they were out of power is any indication, they’ll realise that the hard left message is putting people off and move to the center.

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  36. Left Right and Centre (2,997 comments) says:

    Fuck all of this bullshit. Give me my $18 an hour so I can be one high-riding sum bitch pleasant peasant.

    How do you expect me to breed more braindead no-hopers without the living wage ?? The argument is circular….. hel- loooooo??

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  37. PaulL (6,048 comments) says:

    @Brian: great work.

    @others who’ve pointed out the careful use of language: yes. It’s very left wing to try to frame the argument in a way that makes it emotionally difficult to argue against, instead of relying on facts/argument.

    @Psycho Milt: I think this is part of the plan here. Calculate it badly, then get people to start critiquing it or offering alternative calculations, then giving the ability to say “person xyz calculated this figure, so how can you on the right argue with it?.” To my mind part of the trap is to buy into the underlying argument that there is or should be such a thing as a living wage. To my mind employers should pay what the market determines is the right pay for a particular job. If we as a country think that we want workers to earn more than that, then we should top it up via the welfare system, not via legislating higher wages. That is far less distorting of the employment market, and leads to lower unemployment. If we were doing this via the welfare system then we wouldn’t apply the same welfare top up to a teenager that we would to a family with 2 teenage children. In short, if we’re spending our own money we’re a bit more careful than when we imagine we’re just requiring the magic money tree (OK, employers then) to pay it.

    @Pete George. I used to be in favour of a base minimum income that everyone got, then a flat tax rate. I still am in theory in favour of it, but I’m very put off by the fact that Gareth Morgan used to be a strong supporter. Given most things he’s supported recently were stupid I’m a bit more dubious. But then, he supports breathing, and I haven’t given up doing that.

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  38. OneTrack (3,233 comments) says:

    “Yes, that’s the general idea. It replaces social welfare with a single unconditional payment.”

    Just like in every communist nirvana.

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  39. SPC (5,775 comments) says:

    Should a living wage be based on 2 parents and one or two dependents. That only some households are in this category is beside the point. Weighting for households is also irrelevant.

    A living wage should be sufficient for a single adult to live alone in rented accommodation.

    The existence of these wages is based on the higher living costs of some urban areas – so that MW are not appropriate for low paid jobs in these areas (given transport costs from outer regions and congestion issues).

    General poverty of some families is not the issue and is addressed via measures such as WFF.

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  40. SPC (5,775 comments) says:

    A living wage that is claimed to be a way to address family poverty is sometimes really an attack on WFF – because some on the left attack it as a subsidy of wages.

    In New Zealand there is a case for a general LW in Auckland because of rising rents – in Christchurch an emergency AS increase to cover their shortages is more appropriate. In Wellington it is more a case of a council that supports the concept taking a position and in the wider society it is one of being seen as responsible employers who don’t require that their workers receive support from the taxpayer to provide for their families.

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  41. Brian scott (3 comments) says:

    Thanks for the positive comments on my report.
    This might sound silly, but if productivity is supposed to go up, say by 20 percent then….
    Do ticket wardens write 20 percent more tickets?
    Lifeguards save 20 percent more people?
    This is not a trivial question, as WCC officially based LW to productivity and morale benefits only.

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  42. ross69 (3,652 comments) says:

    I have yet to read Scott’s report, but is it safe to assume he supports the idea of a living wage?

    Further, does he agree that if a chief executive, for example, can do the same job for half the cost, it’s fair to say they’re overpaid?

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  43. PaulL (6,048 comments) says:

    @Ross: no, I wouldn’t say that it’s safe to assume he supports the idea of a minimum wage that is set at a level that is based on an arbitrary family grouping that may not reflect many of those who are getting that wage. I think he’s saying that since the “living wage” is getting lots of airtime, it’s worth time to look at the calculation and point out flaws. Because people are starting to implement it and they are implementing at a level that is poorly calculated.

    Further, arguably anybody could do any job for free. Does it therefore follow that they should? I think the discussion about chief executive salaries is a complete red herring, it has nothing to do with the living wage discussion.

    I think that some chief executives are grossly overpaid, because they appear to do little of use for the company, and they certainly aren’t generating excess returns. Equally, I’ve met chief executives whom are awesome and do deliver a markedly different return simply through their personal contribution, and their ability to motivate others. I think the real problem is the inability to differentiate between those chief executives. I also think many (perhaps including yourself) assume that chief executives do nothing, and that any numpty could do that job because it’s easy. It’s not, it’s very very different being the guy at the top with nobody else to look to when the going gets tough.

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  44. Port Hills Pete (5 comments) says:

    Making sensational claims that King and Waldegrave have included Sky TV, international travel and video games is great stuff for arousing right wing and redneck sentiment against the Living Wage. A very convenient untruth. If you actually take the time to look at King and Waldegrave’s “Report of an investigation into defining a living wage for New Zealand” you will find that Sky TV, international travel and video games are not mentioned. See http://www.livingwagenz.org.nz/files/embargo%20file/Living%20Wage%20Investigation%20Report.pdf

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  45. Port Hills Pete (5 comments) says:

    This also conflates two distinct questions into one, and purports to discredit the whole Living Wage concept by critiquing the King and Waldegrave calculations. However there are two separate questions:
    1) The first is a moral question, should workers be paid “the income necessary to provide workers and their families with the basic necessities of life. A living wage will enable workers to live with dignity and to participate as active citizens in society”?
    If so the second question arises:
    2) How do we calculate what a living wage should be?
    King and Waldegrave’s calculations should of course be subjected to scrutiny and other proposals suggested, and I am sure they would engage in constructive debate about that. However it is not constructive debate to try and use a critique of their calculations to discredit the whole moral position of the Living Wage, and it is deplorable that to make statements about King and Waldegrave that are blatantly untrue, see previous post.

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  46. Port Hills Pete (5 comments) says:

    Empirical studies of London and US cities where Living Wage has been implemented have found that the right winders’ predictions of economic doom, increased unemployment etc, have simply not materialised. Rather paying a Living Wage has resulted in increased productivity, and additional cost has been minimal.

    http://www.london.gov.uk/…/living-wage-benefits-summary…

    http://www.resolutionfoundation.org/…/Final_What_Price…

    http://www.epi.org/publication/bp170/

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  47. Port Hills Pete (5 comments) says:

    Vociferous arguments against the Living Wage are of course raised by those earning considerably more. One wonders how they would survive on $18.40 per hour.

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  48. Port Hills Pete (5 comments) says:

    When might Brian Scott do a review of the basis for the CEO of Mighty River Power being paid an annual salary of $1.9million??

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