Monday, December 16, 2013

Prue Hyman on the living wage

Regarding the living wage, there is one very persuasive argument for it. The employer pays more of the cost of labour instead of the taxpayer via subsidies like the accommodation supplement, family tax credit, partial welfare benefits etc.

Prue Hyman, who has heavily promoted a universal basic income  in the past, has a piece in the DomPost today which employs the argument:

The Treasury calculates that for a two-child family with two parents (one working 40 hours at $16 an hour and one 20 hours at $13.75), a living wage would increase take-home pay by $63 a week.
The government would be a bigger winner, with an additional $126 per week in increased tax and reduced benefits. But any increase in annual pay for such families is positive and $3276 is significant. Also, putting more responsibility on employers to pay a living wage allows the government to refocus spending, targeting the neediest and largest low-income families more effectively.
Further, with lower income families spending almost all their income, there will be a boost to the local Wellington economy which will itself create more jobs.
The Treasury's report argues that "adopting a living wage would rebalance the role of the employer and the welfare system towards work being the primary mechanism for people to support themselves." Isn't this a positive?
Well, yes. If the employer can absorb the increased wage bill without shedding jobs and if the employer is a private profit maker.

But if the employer is the council, and the increased wages are funded from increased rates, then the result is simply more transfer of wealth from Peter to Paul (and probably back again if, for instance, landlords raise rents as a result.) The pie hasn't grown. The size of the pieces may change slightly or even stay the same.

And while Hyman says the government would be the biggest winner from increased tax take, does anybody expect to see a corresponding tax cut?



6 comments:

Anonymous said...

But these bludgers don't pay any tax anyway. What with the highly-skewed progressive tax system, WFF, Accommodation "supplement", and so on and so forth, low-income "workers" (if they actually worked of course they wouldn't be low income) don't pay any tax.

Economically the solution is clear: a truly flat tax, something like $25,000 per person, and a withdrawl of civil rights for those who choose not to participate in the franchise.

Adam Smith said...

This Living Wage is a lovely emotive term of the sort beloved by left wing academics and politicians of all stripes, but is meaningless. As used in NZ it is a calculation by an NGO. Their report is turgid and hard to follow. Many people and media now seem to hold up the calculation as some form of holy writ. The DomPost the other day referred to the $18.40 as the agreed amount. Agreed by whom?

Apart from anything else I have yet to see anyone indicate why this sum of NZ$18.40 is higher than that calculated for UK and the USA?

My limited understanding tends to indicate that in Uk for example there is more focus on necessities than nice to haves, for example.

It is telling in my view that many implementing organisations ( overseas) are either effectively public sector, NGOs or entities that employ very few eligible for the LW.

Anonymous said...

Her two most amazingly illogical arguments

1. "It will be adopted by those employers rightly convinced that it will benefit both business and employees. Productivity gains, reduced absenteeism, and lower turnover costs are benefits found overseas when committed workers know they are valued."

If this is the case why wouldn't employers be doing this voluntarily now since they get such great benefits out of it? Effectively she is saying they don't know what is best for their business, but she does. Yeah Right!!!

2. "In fact the living wage is voluntary."

So - the Living Wage campaigners are not worried about all families below their income level, just the ones whose employers WANT to give them higher wages voluntarily? What about the rest? Do they not matter?

Gekko said...

"Regarding the living wage, there is one very persuasive argument for it."
I don't find it very persuasive at all. As Donald Boudreaux points out, the only difference between which legislative diktat enforces the wage is whether or not the state has to account for it. Taking it off-budget by getting a non-state organisation to pay for it makes it appear 'free' and therefore more desirable. What is seen and not seen...

http://cafehayek.com/2013/12/dont-like-reality-close-your-eyes-and-make-it-go-away.html

Lindsay Mitchell said...

The living wage is not dictated to private employers. In that respect it differs from the minimum wage.

Gekko said...

"The living wage is not dictated to private employers."
If it were economically advantageous for private organisations to pay a higher than market wage then they would, in general, already be doing so. The only way to achieve a 'living' wage (where it is higher than the market rate) without additional productivity is to introduce it through legislation.

I don't see what Hyman's article says other than "wouldn't it be nice if...".

I agree with you that it doesn't make it ok for the council to do it either, but simply wishing it onto private organisations won't make it so if it's not in their interests to do so. What will make it so is increasing the demand for labour through reducing the barriers to job creation and increasing productivity.