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Economy-wide benefits of Living Wage?

Written By: - Date published: 5:38 pm, February 11th, 2014 - 11 comments
Categories: cost of living, Economy - Tags:

An interesting article by Colin James in today’s ODT on the living wage proposals and how lifting wages may have wider economic benefits. He starts with the example of the supermarket boycott of low-wage New Zealand produce in Australia:

New Zealand wages are around 30 per cent below Australian wages. That makes our goods competitive in Australia — too competitive for some Australians. Their solution: a non-tariff trade barrier. So New Zealand producers and exporters will likely find here and there blockages to entry that contravene free trade agreements in spirit if not in the fine print — as the Australian supermarkets are doing with CER.

What is the answer? Bill English has in the past noted the lower-wage-cost contribution to New Zealand competitiveness in Australia. But the supermarkets’ lesson is that low wages are not always a one-way advantage. There may be an economic cost….Job losses was English’s Treasury-based line last November when he savaged proposals for a “living wage”. He treated it as a version of a minimum wage and said most of those on the minimum do not have dependents and in any case Working For Families and other programmes help families on low incomes.

James report that some American economists consider that Obama’s promise to lift the US living wage from US$7.25 to US$10.10 (NZ$8.80  to NZ$12.25) “would add $35 billion in wages up to 2016 and the resulting increase in gross domestic product would create 85,000 new jobs”. He goes on to say:

“Living wage” proponents say it is calculated to buy the “basic necessities of life and enable workers to live with dignity and participate as active citizens in society”. At $18.40 it is not exactly luxury for a one-income family of four. Backing for a living wage continues to gain momentum.

The Wellington City Council has applied it to its direct employees and aims to add employees of council-owned companies from next year and put contractors in its 2015 plan. The Christchurch City Council (positively) and some district health boards are considering it. Labour and the Greens say they will apply it to direct public service employees.

Next Monday the living wage coalition of 100-plus organisations will update the $18.40 and launch an employer accreditation scheme. A bunch of soon-to-be-accredited employers will be there. Firms joining say better pay lifts employee loyalty and gives the firms branding for socially-conscious consumers who, for example, buy “fair trade” and “organic” goods

James concludes:

The implication for New Zealand producers’ low-labour-cost competitiveness in Australia is obvious. And in the 2010s tightly enmeshed global economy there are limits to what a small export-dependent economy like ours can do without killing jobs. Also, more consumption means more imports.

But the Australian supermarket lesson is that low-wage-based competitiveness is not a one-way bet. Nor are low wages an obvious path to high-value-based competitiveness which can make us a sustainably high-wage country.

I must say I think it is a pity that Colin James can only be read these days in the ODT. Whether one agrees with him or not, he is widely read, independent, well-connected and what I like most always thought-provoking and forward-looking. I miss him from the DomPost, more particularly as we are subjected to the misanthropic rant of Karl du Fresne, who is none of the above,  on a weekly basis.

11 comments on “Economy-wide benefits of Living Wage?”

  1. karol 1

    Yes, I thought that James provided an interesting take on the Aus supermarket bans of Kiwi goods – knock-on effect of NZ’s low wage economy.

    As well as a need to raise NZ’s low wages, it seems to me that NZ should be focusing on being more self-sufficient. The ability of a small, or medium power, country to compete in the international market seems to me to be limited: a few niche markets at best.

  2. Colonial Viper 2

    I must say I think it is a pity that Colin James can only be read these days in the ODT.

    Yep. This is just another example of the narrowing of public discourse and the shutting down of any voices who might offer real alternatives to the neo-liberal agenda.

    Bearing in mind that movement towards a living wage doesn’t challenge the neo-liberal agenda, it just softens it and makes it more tolerable.

  3. Helen Kelly 3

    We do get Colins columns via email as well. I like reading them myself – they’re intelligent analysis – something that is rare in NZ MSM these days.

    [lprent: Actually that was me. Helen left my system logged in as her after I finished showing her the tricks of the posting. ]

  4. framu 4

    ” how lifting wages may have wider economic benefits”

    paying people more help economy? thats unpossible! (/ralph wiggum)

  5. Tracey 5

    So today we are like Indian, Bangladesh or Chinese made products to Australia?

    How proud we must be.

  6. captain hook 6

    It also behooves the commentariat to give some thought to those on fixed incomes.
    An item on the radio this morning says that National says kiwis have one of the best funded welfare schemes in the world but a Salvation Army spokesperson says it is not the amount of dollars someone gets but how far it goes.
    It seems to have escaped everyones notice that the cost of living has been subject to a slow but ever increasing infalation that is making it harder and harder for those at the bottom to buy the necessaries of life.
    National has a programme that is eroding the very basis of a decent life.

  7. crunchtime 7

    Correction: lifting the minimum wage WILL have wider economic benefits. No maybe, no question marks.

    So will a UBI.

  8. hellonearthis 8

    With Countdowns 100% money back and Product replacement guarantee, and the fact that they only play suppliers when items pass the checkout, one effective protest would be to buy an Ozzy product and then take it back. This would be a hit financially for twice the cost of the product to the Ozzy business. #use_their_dodgy_system_against_them

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