Bob Jones on the living wage

October 15th, 2014 at 1:00 pm by David Farrar

Sir Bob Jones writes:

Through hard work, he and his wife have built a nationwide airport and CBD lunch retail operation with more than 100 stores, supplied by his Wellington factory working through the night, its output flown out early in the morning across the land. They have about 400, mainly retail, staff.

What staggered me most, given its scale, is how marginal this operation is. Some stores do well, others badly, while many just break even in this intensely competitive field. Raise your prices, I suggested, inducing a derisive laugh. The owner told me regulars making the same daily purchase comprise a large component of their business. Apparently, even the most minor increase elicits outrage and the loss of their custom.

My inquiry as to the best employees brought an unsurprising answer – new immigrants by a country mile. What particularly interested me was the salaries for what’s essentially menial work. In most cases they’re on the minimum wage. Any more and they’re out of business, he said, and I believe him.

Margins in retail are often minuscule. So that would be 400 jobs gone.

I mention all of this in the context of the absurdly titled living wage clamour, the noise invariably coming from leftish critics not employing anyone, nor ever likely to. There are exceptions. Two leftie Wellington city councillors, respective owners of small city retail food businesses, led the charge recently for menial task council employees to be paid the so-called living wage. Inquiry however, revealed their own employees were on the minimum wage.

“We’d go broke,” they wailed when their hypocrisy was exposed. It was classic left do as I say, not as I do, double standards.

It was indeed.

The answer is elementary. If you want the $18.50 “living wage” or better, choose employment paying it, rather than complain.

Harsh but not entirely untrue. There are very very few people in New Zealand that couldn’t train to do a job that pays better than the minimum wage.

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Another non disclosure

September 4th, 2014 at 2:00 pm by David Farrar

Stuff reports:

Father of two ‘Ofa Ta’ufo’ou can’t spend more than $100 a week to feed his family.

That’s breakfast, lunch, dinner, snacks, drinks – the works. Any more and the Birkdale resident breaks the household budget.

The 43-year-old works “like an animal” for at least 40 hours a week and still struggles to make ends meet.

“At the moment I can’t afford to take my girls to the movies. So I have to ask: Who has failed my family? The system has.

“And I’m not the only one struggling. A lot of people in the community can’t function as a family because of their finances.”

The community worker says the problem is nationwide and something must be done.

I presume Mr Ta’ufo’ou is this one, who was a union delegate for the Labour-affiliated Service and Food Workers Union. That doesn’t mean he should ot be quoted, but does mean the public are not getting the full story.

Ta’ufo’ou supports the Living Wage Movement that calls on the Government, employers and society to strive for a minimum wage of $18.80 an hour to reduce inequality and poverty.

That’s the living wage movememt backed by the union movement?

Also note we are not given any details to allow us to make an independent decision on his claims. We are not told his hourly pay rate, or that of his partner. We are not told how much support they get from Working for Families, and we are not told how much money is spent on various activities, except rent (and not told how big a house it is).

Now of course there is no obligation for a person to reveal these details – unless they pimp their story out to the media about how hard it is to make ends meet for themselves. When media don’t provide enough detail for people to make an independent judgement, the story is little more than a press release.

UPDATE: Also the Herald doesn’t mention their previous story in 2011 when he got a $30,000 backpayment.

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Greens wages policy

September 2nd, 2014 at 1:00 pm by David Farrar

The Greens wages policy is here. Some extracts:

As a first step to restore workplace fairness, the Green Party will increase the minimum wage to $15 immediately, in December 2014. We will then raise it in $1 steps on April 1st each year, so that it reaches $16 on April 1 2015, $17 on April 1 2016, and $18 on April 1 2017.

They also want to abolish the starting off wage, so they want to make it illegal to hire a 16 year old for less than $18 an hour!

The minimum wage in NZ is very high compared to the median wage. It is set at 66%. This policy would see it go to close to 85% (less any increase in median wages by 2017). The Department of Labour estimates this policy would see 24,000 lose their jobs, and go onto welfare.

Treasury have said that the minimum wage in New Zealand is the highest in the OECD compared to the average wage (at 49%) and third highest compared to the median wage.

National has increased the minimum wage by 19% in six years. Combined with tax cuts, the after tax income of someone on the minimum wage has gone up 27%. Adjusted for inflation a minimum wage worker has had a real income boost of 11%.

There is no case for the massive increases in the minimum wage, proposed by the Greens. We already have almost the highest in the world compared to median and average wages.

The Green Party also supports the Living Wage Movement, which has established that a typical family needs a wage of $18.80 to buy the
basics and participate in society. In order to lead by example, the Green Party will pay the Living Wage to all core public service staff,
and require all relevant Government contractors to pay a Living Wage when their contracts come up for renewal.

This will mean a de facto $18.40 minimum wage for most of NZ. There are very few companies that don’t have a government agency as a client. If you run a photocopier business, and supply services to a government agency, then you’ll have to pay the 16 year old intern $18.40 an hour!

As another major step towards a more stable and secure future for workers, we will implement recommendations from business, Government and unions for a statutory minimum redundancy payment for all staff equivalent to four weeks’ pay

And as part of this:

These changes will give workers more stability, and discourage unnecessary restructuring. In the case of large-scale redundancies, we will also fund union delegates to work with staff for 3-6 months to support them through the transition

This is the real policy – to have taxpayers fund unions.

We will also incorporate pay ratios into Government procurement policies.

So the Greens in Government will ban companies from gaining Government contracts, even if they are the cheapest and best provider, if they think their CEOs are paid too much!!!

The Green Party will work with the Union movement to see how the terms and conditions of unionised workers can be extended to others in their industries, whether through the Council of Trade Unions’ Extension Bargaining model or other policies

De facto compulsory unionism to return!! Joy. And hey by coincidence those unions are major donors to parties on the left.

To tackle the unacceptable face of precarious work, the Green Party will introduce laws banning zero-hours agreements, as part of greater
regulation of hours of work.

This is insane. This means a company would have to pay casual staff, even when there is no actual work to do.

Increasing the minimum wage will cost $1.1 billion over three years, owing to higher Government staffing costs, especially in the health
sector. However, that will be offset by increased tax revenue from wages of $1.9 billion over three years.

This is economic failure of the highest kind. They are counting the extra tax from higher wages, yet have ignored the fact companies paying those higher wages will have smaller profits and pay less tax. And low paid workers pay tax at around 15% and companies at 28% so here’s the actual cost of this policy:

  • $1.1 billion in higher government staff costs
  • Extra PAYE tax from higher wages -$1.9 billion
  • Less company tax from lower profits – $3.5 billion

So the actual fiscal impact of this policy would be $2.7 billion, not the claimed $800 million savings.

Now think about the economic incompetence of a party that doesn’t realise that profits fall if wages increase. And think about how massive that deficit will be if these people are making economic decisions in a Cabinet!

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Pricing jobs out of existence

August 15th, 2014 at 11:00 am by David Farrar

Jazz Shat at Hot Air blogs:

McDonald’s employees who picketed for a better living wage (whatever that means) may come to regret that decision. According to a Redditor, a McDonald’s in Illinois replaced their cashiers with machines. The machines appear to be the cousins of the ones found in grocery stores, big box stores, and CVS that allow customers to complete transactions.

What are the economics?

For a location open 24 hours: The cost of human cashiers, not counting benefits, $15/hour * 24 hours * 365 days/year = $131,400

For a location open 6AM to Midnight: $15/hour * 18 hours * 365 = $98,550.

For the machine to be cost effective, all it needs to do is cost less than $100,000 a year to buy and maintain.

That’s not much. This could all happen very quickly.

Yes, as the Forbes article makes clear, it didn’t exactly require a rocket surgeon to predict that if you drove the labor costs up too far in an unltracompetitive market such as the fast food industry, automation would begin to look too tempting to ignore. You’re going to make us pay the guy at the fry machine 15 bucks and hour? Well… we decided to pass on that and pay a robot nothing instead.

A great result for the low paid workers – unemployment!

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WCC abandons living wage

June 21st, 2014 at 11:00 am by David Farrar

The Dom Post reports:

Wellington City Council is refusing to be dictated to on its commitment to a living wage policy.

By July 1, all fulltime Wellington City Council staff will be paid a minimum wage of $18.40 an hour.

That is 40c an hour less than the figure the Aotearoa Living Wage movement has defined.

Actually the living wage level should be almost $23 an hour if you use their original methodology. They basially just make up whatever figure they think they can now get away with.

Furthermore, the council’s living wage will not apply to any of the city’s cleaners, construction crews, museum guides or venue ushers.

Hilarious – looks like i will only apply to people paid above it anyway,

Moving those contracted and council controlled organisation staff to the $18.40 base would cost another $2.5 million a year.

Good to see Celia and the Council abandon their policy. The Council should pay what the market rate is, and not a cent more.

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Wellington ratepayers face another $300,000

February 24th, 2014 at 9:00 am by David Farrar

The Dom Post reports:

Wellington City Council is facing a budget blowout on its living wage policy, just two months after becoming the first council to adopt it.

Councillors voted 9-5 in December to adopt the living wage for its staff at a rate of $18.40 an hour. But Living Wage Aotearoa, the group that sets the rate, has now raised it to $18.80.

Andy Foster, who voted against the living wage in December, said the increase would lift the wage bill for the 400 staff directly employed by the council by $332,000 a year.

Forcing ratepayers to fund this.

But he warned that figure could blow out to as much as $5 million if it was extended to people working for council-controlled organisations and on council contracts, and if relativity adjustments were made for other staff.

If Employee A is on $15 an hour and Employee B on $19 an hour, and Employee A moves to $18.80 an hour then of course Employee B will want to be paid say $22 an hour to maintain the relativity as Employee B’s job is more skilled.

The latest rise highlighted his philosophical concern that the council had effectively handed control of staff pay-setting to an outside organisation.

But Family Centre social policy researcher Charles Waldegrave, of Lower Hutt, who calculated the figures for Living Wage Aotearoa, defended the latest adjustment saying that, if anything, it was on the low side.

Andy Foster hits the key point here. Those Councillors who voted to pay the living wage have said that they will allow Rev Waldegrave and his mate to determine the wages policy for the entire Council. It is a shocking dereliction of duty.

And the actual living wage based on their own original methodology should be $22.89 an hour. They just decided that such a figure was politically hard to justify, so changed their methodology. So the City Council has not even signed up to a consistent methodology (otherwise they would be paying $22.89 an hour) – they have signed uo to paying whatever figure Rev Waldegrave declares to be the correct one.

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The new living wage!

February 18th, 2014 at 12:00 pm by David Farrar

Rev Waldegrave has waved his wand and come up with a new living wage of $18.80 an hour. This means that David Cunliffe, Len Brown and Celia Wade-Brown must all implement this new wage because they have promised to ensure all government staff in their sector get paid whatever Waldegrave says they should get paid.

The stupidity of their pledges is highlighted by what Waldegrave has done. You see he has not done a full recalculation of the Living Wage. He has just increased it by 2.1% because that is how much market wages have gone up. But that is a bastardisation of his own process, as his living wage calcualtion is meant to be based on how much you need to spend – not how much other wages have gone up.

So why has Rev Waldegrave done this? What would be the living wage if he had just recalculated it based on the latest data using the methodology he used to calculate the original living wage? Well it would be a staggering $22.89 an hour. They obviously realised that figure would get them laughed out of town, so they decided to pick another figure out of thin air.

So the true living wage figure is now $22.89 an hour. Waldegrave has gone for a more acceptable figure because this is about politics, not any form of impartial calculation.

So my question to David Cunliffe, Len Brown and Celia Wade-Brown is which living wage figure are they promising to pay all government staff and contractors?

Is the $22.89 figure that it should be, based on the original living Wage methodology they signed up for. Or is it the $18.80 figure, which means that they don’t care about what the actual living age is – they will just insist all staff be paid whatever figure Rev Waldegrave determines is correct every year?

Go read the report. It makes very clear that the formula they used for the living wage last year, would produce a living wage of $22.89 if applied this year. They’be basically dumped that formula because it is so ridiculous. But that is the formula Cunliffe, Brown and Wade-brown signed up to.

So the left are effectively saying it should be illegal for a 16 year old school leave, living at home, who works in the government sector to be paid less than $46,000 a year.

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Will Christchurch City Council join the stupidity?

February 5th, 2014 at 11:00 am by David Farrar

The Presss reports:

The Christchurch City Council is under pressure to find extra money to ensure all its employees get paid at least $18.40 an hour but its finance chairman is warning it cannot afford it.

“We are going through a process of cutting costs, not adding to them,” Cr Raf Manji said yesterday as councillors met to consider a report on the implications of introducing a Living Wage.

By law, workers must be paid a minimum of $13.75 an hour, but $18.40 is what the Living Wage movement believes a family of two adults and two children, where one adult works fulltime and the other works part-time, needs to meet basic living costs.

That is the key point. It is a calculation for one specific family type. That type of family is only around 10% of families earning under $18.40 an hour. Claiming that a 16 year old boy living at home must be paid $18.40 an hour because that is the income needed to support a family with two kids is ridiculous.

A report prepared for the council’s chief executive and employment matters committee, which met publicly for the first time yesterday, estimated the cost of increasing their hourly rate to $18.40 an hour at $1.1 million, excluding KiwiSaver, overtime and penal pay.

It also warned that introducing a Living Wage was likely to have a knock-on effect for other staff as the council would need to maintain relativities in remuneration.

That could add another $1 million to the council’s wage bill.

So proponents want ratepayers to pay an extra $2 million a year. Are ratepayers in Christchurch not already struggling enough?

Also the Councils seem to ignore the very serious flaws in the calculation by Rev Waldegrave, which include:

  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 calculation 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

Any politician that advocates the living wage calculation as a serious way to do policy should not be trusted with finances.

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Living Wage to drop by $1.50!

January 30th, 2014 at 4:00 pm by David Farrar

The so called living wage is calculated by Rev Waldegrave as the amount a family with two children needs to live on, taking into account current welfare payments.

If Labour’s baby bribe gets implemented this will pay $60 a week to some families with an under three. That is $1.50 per hour, so hence the living wage drops from $18.40 to $16.90 an hour. Hooray.

Will those City Councils that have vowed to introduce the living wage, set it at $16.90 an hour instead of $18.40 an hour if Labour win?

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Waldegrave on living wage

January 21st, 2014 at 12:00 pm by David Farrar

Rev Waldegrave defends his living wage calculations:

Second, she shamelessly selects luxury categories out of the Household Economic Survey (HES) database which is used for all New Zealanders, including the very wealthy, to imply the living wage includes international travel, Sky TV and the double counting of mortgage insurance simply because the questions are there. HES data is the record Statistics NZ gathers to show movements in income and expenditure for all New Zealanders. Everyone is asked all categories, but lower income households are hardly likely to be recording owning yachts or regular international travel. People who rent houses don’t record mortgage insurance, just as homeowners don’t fill in the rent columns.

Actually many low income households have Sky TV. The point is Waldegrave could have asked Stats NZ for data that excluded the costs of luxuries, but then that would not have produced such a high number. And he states why:

A living wage, on the other hand, refers to having those necessities, but also having the ability to participate modestly in society. Examples include being able to afford a computer, especially for children in a household, and a modest insurance policy. It could also include a trip to family in Australia or Samoa for an important occasion where savings have been put aside or extended family contribute.

So Waldegrave’s living wage is designed to include overseas travel. Clear.

Waldegrave misses the key issue around the living wage, and doesn’t mention it once, because it is so fatal to his cause. Only around 10% of those who earn the living wage are in the sort of household his calculation is based on.

We see this issue also in the minimum wage. Tyler Cown blogs a recent paper on the US minimum wage:

Only 11.3% of workers who will gain from an increase in the federal minimum wage to $9.50 per hour live in poor households…Of those who will gain, 63.2% are second or third earners living in households with incomes three times the poverty line, well above 50,233, the income of the median household in 2007.

A stunning figure.

I once was earning at (actually below) the minimum wage. That didn’t mean I was poor, or in a poor household. It meant I was young.

 

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Nicola Young on living wage

January 14th, 2014 at 11:00 am by David Farrar

Wellington City Councillor Nicola Young writes in the Dom Post:

Councillors often stress the need for evidence-based, reasoned and clear decisions; correct process; and the need to avoid writing blank cheques but there was little – if any – consultation and analysis of the impact this wages policy would have on Wellington households and businesses. Ironic, considering the council has also committed to the capital being “open for business”.

Mayor Celia Wade- Brown has defended this Alice in Wonderland approach by pointing out the council didn’t consult on the chief executive’s salary either. The reality is that the CEO is paid the going rate in a competitive international market, whereas the “living wage” is an artificial intervention to boost incomes of lower paid workers who happen to work at the council.

The “living wage” proposed by the Living Wage Aotearoa New Zealand Campaign, is higher (relative to GDP per capita) than the United States, United Kingdom, Australia, and Canada. Incredibly, ours is higher than London’s; the 18th most expensive city in the world (Wellington is ranked at 74th in Mercer’s Cost of Living survey).

The Council voted to outsource their wages policy to Rev Waldegrave. Whatever he says they should pay, they will pay it. It is the opposite of evidence based policy.

A review of the research that produced the New Zealand rate of $18.40 by researcher Brian Scott concluded the rate is over-stated and questioned its method and data (as did Treasury). It also questioned whether conclusions reached from overseas research on productivity, morale and poverty could be safely applied to New Zealand’s situation.

Preliminary research by the Auckland Council came to the same conclusion. Not everyone would agree that Sky TV, pets, international travel and video games are “basic necessities”; some expenses – childcare costs, for example – are counted twice and money is allowed for building and mortgage insurance, despite the stated assumption that recipients are tenants.

Good to see politicians taking notice of the Scott analysis.

Wellington may be a comparatively wealthy city, but with an older population; much of the council’s largesse will be funded by pensioners struggling on fixed incomes, well below the “living wage”.

The “living wage” is a one-size-fits-all tool, based on a two-adult, two-child family.

The reality is that almost 80 per cent of those earning less than $18.40 have no children; many are students living at home.

The concept of a single living wage is fundamentally flawed. Each different household composition will have its own level of needed income. A family of four has different needs to a single 18 year old living at home.

Wage policies shouldn’t be based on emotional arguments; it should be based on careful analysis and facts. The lack of consultation, research and analysis of this policy is a failure of governance, and will damage our city’s economy and reputation as a place to do business. The “living wage” policy is a poor solution looking to solve a complex problem.

Well said.

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A damning critique of the so called Living Wage

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

Brian Scott has published a critique of the so called Living Wage, 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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Dom Post on living wage

December 19th, 2013 at 3:00 pm by David Farrar

The Dom Post editorial:

The stated aim of Wellington City Council’s living wage policy is to reduce poverty and lift workplace morale and productivity. If only life were that simple.

It is not. Poverty can no more be eliminated at the stroke of a pen than world peace can be delivered by a beauty contestant wishing for it.

Mayor Celia Wade-Brown’s council is not reducing poverty. It is simply taking money from one group of citizens – ratepayers – and giving it to another much smaller group – the 450 council staff who presently earn less than $18.40 an hour.

Exactly.

The gesture would be admirable if councillors were funding the $750,000 cost out of their own salaries, but they are not. It is easier to be generous with other people’s money than one’s own.

Even worse, at least one Councillor who voted for the living wage, refuses to implement it in his own business. He won’t pay it himself, but will vote to force ratepayers to do so. He is of course a member of the Labour Party.

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Wellington Employers’ Chamber of Commerce on Living Wage

December 11th, 2013 at 9:00 am by David Farrar

Raewyn Bleakley writes in the Dom Post:

Wellington City councillors today will debate at committee whether to accept a proposal to pay the living wage to council workers. It’s a decision that could have far-reaching effects on the local economy.

Further, Treasury analysis, matched with earnings information from IRD, shows that almost 80 per cent of New Zealanders earning less than $18.40 an hour, including young people and students, don’t have children. In fact, two-parent two-children households make up just 6 per cent of families earning less than $18.40. And of those earning below that, one in five have family incomes of more than $80,000.

Anyone who votes for the living wage is voting for the most badly targeted policy in recent history. The living wage is a calculation for a two parent two child family, and as pointed out they represent just 6% of families earning less than $18.40 an hour. To apply that calculation to the other 94% of families is bizarre and daft.

Giving low-paid workers a 30 per cent increase without having a well-thought- out plan for how to create a corresponding lift in performance, and while doing nothing for other workers, is not the way to go. A business wouldn’t survive operating that way. Ratepayers deserve better management of public money from the council.

How many councillors will vote for ratepayers to fund a living wage, but don’t pay a living wage themselves? Bet you there are a few hypocrites out there.

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Living Wage proposal would mainly help the Government, not low income families

November 1st, 2013 at 4:00 pm by David Farrar

Bill English has announced:

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. 

This is the point I have been trying to make. It is a calculation for a particular type of family (which are just 6% of all households) and to have politicians lemming like insist it must be a minimum wage for everyone is moronic.

Almost 80 per cent of those earning less than $18.40 are people without children, including young people and students.

When Labour says everyone must be paid the living wage, they are saying that a 16 year old starting his or her first job must be paid $18.40 an hour or over $38,000 a year!

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.

It is quite legitimate to debate how to have higher wages. But the living wage is a slogan, not a policy.

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.

You raise wages through productivity, not through legislation.

The Treasury analysis is here. Some extracts:

  • A low wage two parent family with two children would only gain $63 a week from the living wage while the Government would gain (via abatements and extra tax) $126 a week!
  • Very low incomes tend to be temporary – only 24% of those in the bottom income decile in 2002 were in that decile seven years later
  • 43% of those who earn below the living wage are aged under 30
  • The living wage would only reduce the relative poverty rate by 0.3%!!

Treasury suggests four other measures which would help low income families without the bad consequences of the living wage:

  1. Shifting Working for Families towards parents with younger children
  2. Targeting Early Childhood Education subsidies more strongly
  3. Shifting the benefit abatement regime to incentivise 3-5 days of work, and
  4. Making our system of service interventions for children aged 0-5 years more
    focused and integrated.

Treasury also point out that the calculation used for the living wage is basically not based on any empirical evidence such as need:

The figure chosen is essentially an average of  the estimated current expenditure of the lowest half of the income distribution, and close to two thirds of the national average expenditure of two adult, two child households. Thus it is a relative measure of income and not one based on
estimating need.

So Labour and Greens have trumpeted the living wage as the amount calculated that a family needs to live on, and are basing their policies on it. But it isn’t based on what a family need to live on. It is simply based on a percentage of average expenditure (which of course is based on income).

Also you know how Labour and Greens say there is a crisis in manufacturing? Well guess what the living wage would do to that sector:

Manufacturing is the biggest industry to have experienced negative employment growth over the period. With 40 percent of its workforce earning below $18.40, adoption of the Living Wage could be expected to put further downward pressure on the industry’s growth.

And on the issue of our minimum wage:

In 2011 our minimum wage was 60% of the median earnings for full-time workers. This was amongst the highest ratios in the OECD, and well above the level found in most countries which is typically around 45%. For instance, the ratio was 45% in Australia, 38% in the United Kingdom, 40% in Canada, and 28% in the United States. Increasing the rate still higher to 88% of the median wage would take the minimum wage well outside the normal range. This is likely to make employment for people with low skills difficult in an internationally focused economy.

We already have one of the highest minimum wages in the world, relative to the median wage.

And the living wage compared to other countries:

The proposed $18.40 Living Wage is also high compared to the other Living Wage rates being proposed by similar groups overseas. Compared to Australia, Canada, USA, and the UK, it is the highest proposed Living Wage relative to GDP per capita

A great way to export jobs.

Also treasury says that only 12.5% of FT employees are paid less than 2/3rds of the median wage which is one of the lowest proportions in the OECD. The US is 24.8%, UK 20.6%, Canada 20.5% and Australia 14.4%.

Excellent analysis by Treasury. The data fatally undermines the policies being pushed by Labour and Greens. Only 6% of those who earn below the living wage are in the type of family the calculation is based on. Who would you set wages for 94% based on a situation which doesn’t apply to them?

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Are Labour and Greens paying their cleaners $18.40 an hour?

October 11th, 2013 at 1:00 pm by David Farrar

Isaac Davidson at NZ Herald reports:

The Green Party says low-earning contractors at Parliament, not core public sector workers, should be first in line for a living wage.

In a speech at the Council of Trade Unions conference this morning, Greens’ co-leader Metiria Turei said her party would have a different priority to Labour in distributing a minimum wage of $18.40 an hour – known as a “living wage”. …

At present, Parliament’s cleaners earned $14.10 an hour.

Later this month, Opposition MPs will spend a night working alongside the cleaners in Parliament to draw attention to what they feet is unequal employment conditions and wages.

Will Labour and Greens walk the walk and pay their own cleaners $18.40 an hour? Will TV3 whose Campbell Live programme has been campaigning on this also. I mean surely they are not so hypocritical as to demand everyone else must pay $18.40 an hour yet not do so themselves?

Labour and Greens can go to the cleaning company that cleans their offices through the Parliamentary Service and give them some extra money from their budgets, to be given to the cleaners who work in their offices. It would mean they have slightly less money to spend on press secretaries and the like – but surely they are doing so?

It’s easy to do a photo op stunt for one night. It’s harder to do something meaningful and actually pay the higher wages yourself that you demand others do.

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Vote Labour and we’ll give you $10,000 a year

October 10th, 2013 at 9:00 am by David Farrar

Michael Fox at Stuff reports:

The Government’s lowest-paid workers are being promised a $10,000-a-year pay rise under a Labour government.

Why stop at $10,000? Why not $15,000?

However, the expected cost to the taxpayer of its proposed living wage remains unclear, with Labour claiming extending it to the core public service would cost $30 million a year and National putting it at $68m.

Labour have not made clear if their policy will apply to contractors such as cleaners? They constantly highlight how the cleaners at Parliament should get the living wage. But the cleaners are not employed by Parliament, plys Parliamentary Service is not core public service. So will Labour’s policy mean a “living wage” for Parliament’s cleaners? If not, then how cynical to use them as the poster childs for your campaign – and not deliver a policy that applies to them.

Based on a 40-hour working week on the living wage, an employee would earn $38,272 before tax, compared with $28,600 on the current minimum wage.

Insane. No 16 year old in the public sector on less than $38,000 a year full-time.

 

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Cunliffe pledges $18.40 an hour for 16 year old state sector office assistants

October 9th, 2013 at 4:00 pm by David Farrar

Radio NZ reports:

The Labour Party leader David Cunliffe has told a meeting of Council of Trade Unions that a Labour government would introduce a living wage rate for core public sector employees as matter of priority if elected.

The union movement has been running a campaign for a living wage with a minimum hourly rate of $18.40.

David Cunliffe has also said scrapping the youth wage rate would also be one of the first things a Labour government would do.

So it will be illegal for a state agency to pay a 16 year old anything less than $18.40 an hour.

The stupidity of taking a calculation that is based on w couple with two kids and saying it must apply to all employees is massive.

Equally ridiculous is the outsourcing of your wages policy to some Anglican church minister in Lower Hutt. They  are basically saying that whatever Rev Waldegrave declares to be the correct level of the living wage – they will force the state sector to pay it!

The unions get their entire wishlist as payback for voting for Cunliffe according to the Herald:

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”.

He took aim at the “fire at will” legislation, “attacks on collective bargaining”, the undermining of health and safety, and moves “taking away smoko breaks”.

So Labour will return us to being the only country in the OECD without a grievance free trial period.

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What will be the impact on Super of an effective minimum wage of $18.40?

September 9th, 2013 at 2:00 pm by David Farrar

A reader posted this question to me. NZ Superannuation is set at 66% of the average wage (for a couple).

Now if you jerk up the effective minimum wage from $13.75 to $18.40 per hour, that will increase the average wage significantly.

That will then mean the rate of NZ Superannuation will increase significantly, making it more unaffordable.

Any economists out there want to take a stab at what the extra cost of NZ Super would be if the minimum wage was $18.40?

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Pay rises for everyone!

September 8th, 2013 at 11:00 am by David Farrar

The Herald reported:

Almost half of all women and a third of men earn less than $18.40 an hour – a rate which two Labour Party leadership contenders have promised to implement as a “living wage” in the state sector if they win power.

I’m still bemused that Labour now believes the effective minimum wage should be determined by Rev Charles Waldegrave of Lower Hutt! What will they do if next year he declares it should be $27 an hour!

Would-be Labour leaders Grant Robertson and David Cunliffe promised this week to raise minimum wages for government employees and contractors to $18.40, which unions and church groups say is the minimum required to meet the basic needs of two adults and two children where one parent works fulltime and one half-time.

This is why it is insanity to use the living wage as a de facto minimum wage. The living wage calculation is based on a very specific family situation that does not represent the vast majority of workers. Why would we say a 16 year old should have the same income as a 40 year old parent with two children?

Institute of Economic Research director Jean-Pierre de Raad said the figures confirmed that a living wage would be “harmful to the employment prospects of young people”.

Yep. Who is going to hire a 16 year old on a $38,000 a year starting salary?

“The data also confirm questions about the logic of the living wage,” he said. “The $18.40 figure is based on the expenses faced by a notional median nuclear family … earning the median household income.

My point. It is voodoo economics to start insisting this should be a minimum wage across the board for all employees.

“But a large proportion of those on low wages are the young … who will improve their incomes over time as they get work experience.”

I heard a great quote on a podcast today. The best way to eventually get a higher paying job, is to get a lower paying job. Saying that every adult in the public sector (or contractors to it, which is most of NZ) must start on at least $38,000 a year is nuts.

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Labour effectively pledging a minimum wage of $18.40

September 5th, 2013 at 4:00 pm by David Farrar

David Cunliffe writes at The Standard:

I’d like to thank Lynn and the authors of the Standard for this opportunity to contribute a post here, where Labour members and the broader left come together online. The Standard is certainly one of the most respected political blogs and I am a regular reader.

I’ve always wondered if David is also an author :-)

I will introduce a living wage for all employees of Government agencies – and I will extend this policy over time to any business that seeks to win Government contracts.

This pledge goes further than what we had before. This is not saying if you are doing work for the Government, the staff doing that work must be paid the Anglican Church mandated living wage. It it saying that any business that has (or seeks) any contract with the Government must pay $18.40 (for now) an hour.

Now the Government is a massive chunk of the NZ economy. There are few businesses who wouldn’t have at least one contract with a government agency. So if you own a copy centre, and you win the contract to do the copying for say the NZ Transport Agency, then you have to pay all your staff $18.40 an hour or more – even the 16 year old copy assistant.

So the way Cunliffe (and I presume Robertson) have worded their pledge, is in fact a de facto minimum wage for all. The destruction of jobs that will follow would be massive.

Some may argue that it will only apply to those working for the Government through the contractor. But I can’t see that happening. Say you are a cleaning company. Could you pay staff $15 an hour when they clean the ANZ but $18.40 an hour when they clean the Reserve Bank? Of course not. No employment contract would allow you to pay people based on who your clients are. It would inevitably mean you would have to pay all your staff whatever figure Rev Charles Waldegrave proclaims every year to be the new living wage!!

The Herald editorial makes the point:

Everyone agrees that New Zealand needs to lift its incomes overall, to match Australian rates if possible. But the Labour Party seems to think that this can be done at the stroke of its pen. Mr Robertson in particular, is talking as though an economy is simply a job-creation scheme and all that a government needs to do is make its priority “people”.

He is surely insulting the intelligence of Labour Party audiences, most of whom appear to have been around a good deal longer than Mr Robertson and can remember when the economy was largely a job-creation scheme.

Promising to lift wages by stroke of a pen, and that there will be no impact on jobs, is a cruel hoax. If it was that easy, everyone would do it.

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The cost of just one promise

September 3rd, 2013 at 11:00 am by David Farrar

Tracy Watkins at Stuff reports:

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.

And that’s just one policy!

Someone who earned $13.75 an hour working 40 hours a week with three children would pay $4000 a year in tax on an income of $29,000. But they would get about $23,000 a year back in accommodation supplement and Working for Families payments.

The living wage calculations by the Anglican Church are unsuitable for application across the board as a minimum wage. They are based on an employee having a certain number of children. Not all employees have children, in fact most don’t. A 17 year old cleaner doesn’t need $18.40 to live on. Hell many university graduates start on less than $18 an hour.

The Dominion Post is unimpressed with the three candidate’s mad rush to the far left:

Well that didn’t take long. Labour’s American-style primary contest is only days old, but already it is apparent that in terms of policy none of the three contenders for the leadership has any more to offer than the departing David Shearer.

Caucus favourite Grant Robertson’s big idea – one quickly signed up to by party champion David Cunliffe – is to introduce a living wage of $18.40 an hour for all government workers. Meanwhile, Shane Jones, the outsider in the contest, is threatening to pass laws to regulate how much supermarkets can charge for food.

Both ideas sound great. Who doesn’t want lowly paid workers to get greater reward for their efforts? Who wouldn’t welcome a reduction in food prices? The problem is that neither proposal is remotely deliverable.

Labour’s leadership candidates are employing the rhetoric of old-fashioned class warfare. Soak the rich to feed the poor. 

I don’t know why the three of them just don’t come out and say they are deporting all rich pricks, confiscating their wealth and declaring poverty to now be illegal!

Mr Robertson will say his proposal applies only to government workers and contractors, but limiting its application only creates inequities of another sort.

Why should a cleaner mopping out a privately owned building earn several dollars an hour less than a cleaner vacuuming a government building? Why should a worker in a privately owned rest home receive less government support than would otherwise be available, because the Labour Party has decided to advantage a subset of all workers.

Oh I can answer that one! So the unions will vote for them to become leader.

Mr Robertson and Mr Cunliffe may also point out that their proposal is to introduce a living wage “over time”. However, the caveat either renders the proposal meaningless or recklessly irresponsible. Meaningless, if by “over time” they mean the amount of time it would take the minimum wage to rise to that level under the present system. Recklessly irresponsible, if they are actually intent on establishing an elite class of privileged workers.

New Zealand is a global price taker, not a price setter. The country prospers when it is nimble and flexible. It suffers when it is rigid and flat-footed.

Governments can no more raise living standards by decreeing higher wages, than they can by telling supermarkets how much they can charge for a leg of lamb or a box of cornflakes.

If Messrs Robertson, Cunliffe and Jones are serious about running the country, they should advance serious policies.

Their decision to have a US style primary has meant they are captured by the unions and activists, and hence we now have a US style pork barrel competition.

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The earth, moon and stars

September 2nd, 2013 at 11:00 am by David Farrar

Stuff reports:

Cunliffe said that he was going to deliver “the basics for families”.

“You know, it is easy for a politician to promise the earth, moon and stars. To say that everyone will have a job tomorrow and a living wage. That is what I want and I won’t settle for less.”

Umm, I’d say that is promising the earth, moon and stars.

Putting aside the economic contradiction of promising a massive increases in wages, and more jobs, what Cunliffe and Robertson are pledging is a hoax.

Can they name one country on earth which has full employment?

And note that the living wage pledge has now shifted from people working for Government and contracting to Government, to a living wage for everyone. Everyday their policies move further to the left. The Greens will soon be seen as more centrist than Labour at this rate.

When do they start pledging they also want everyone to live to be 100?

Tracy Watkins warns that their pork barrel promises may make them unelectable:

Labour’s leadership hopefuls should be wary of losing the war to win the battle.

The pork barrel style campaigning of the first two days of their leadership roadshow may or may not give one of them an edge over their rivals among the party faithful. But it goes without saying that the delegates who get to decide the next Labour leader are not the voters Labour needs to reach out to in 2014 to win the next election. To win back those swinging voters, Labour needs to grow its support in the political centre. With the exception of wild card Shane Jones, however, this leadership race has been all about the two main candidates, Grant Robertson and David Cunliffe,  racing to shore up their credentials on the Left. If they are not careful, the underdog Jones will steal a march on both of them. While his rivals have their gaze turned inward, he is reaching out over both of them to appeal to the voters who aren’t card carrying Labour members. And his smoko room politics and harking back to old fashioned Labour values are far more likely to resonate with the wider public.

I used to think Jones would get say 5% only, but I’d say he is picking up significant support, so that no candidate will win on first preferences. It will come down to who his supporters rank second.

The first day on the hustings had the candidates vying to gazump each other on policy including a living wage, repealing the Government’s industrial relations law changes, a Pacifica TV channel, raise taxes on the wealthy,  regulate food prices and raise the minimum wage.

Oh I missed the TV channel!

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WCC living wage costs explode also

July 12th, 2013 at 11:00 am by David Farrar

Stuff reports:

The price tag for a “living wage” for Wellington council workers is looking increasingly steep, with the prediction ratepayers could stump up an extra $1 million a year.

A Wellington City Council report shows the estimated internal cost of adopting a living wage will be $900,000 a year.

The figure included $575,000 for 502 council staff, and $325,000 for 257 staff across council controlled organisations.

The news comes after Hamilton City Council last week dropped plans for a living wage for its staff, when it was faced with an estimated cost blowout of $643,000 over two years.

The cost of a living wage for all Auckland Council employees has been put at more than $17 million a year.

Last month, the Wellington City Council voted to back the principle of becoming a living wage capital and the council committed $250,000 to implementing the policy by January 1, 2014.

So Councillors are sending ratepayers a bill for $1 million a year, so they feel good.

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Fiscal sanity wins at Hamilton

July 7th, 2013 at 7:00 am by David Farrar

Stuff reports:

Plans to lift the minimum wage for Hamilton City Council staff have failed.

An ambitious proposal to introduce a “living wage” of $18.40 per hour over two years was today voted down 6-5 as councillors baulked at its costs.

The council voted in May to introduce a living wage over two years, from this year, on the strength of a February estimate it would cost $168,000 to lift pay rates for 80 permanent council staff now paid between the minimum and living wages. 

But management now say the resolution covered 144 staff, and their revised estimates showed the cost would be at least $643,000.

Mayor Julie Hardaker said once the council’s “toe was in the water” on a living wage policy it would be very difficult to review it, or roll the changes back.

The weird thing with the original decision is they were outsourcing their wages policy to a couple of people in the Hutt Valley. Whatever they said was a living wage, would be automatically implemented by the Council!

 

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