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
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.