Living wage promises little to the poorest

A reader has kindly sent me a copy of the Treasury report which analyses the proposed living wage.

Below is a table from it showing how much more the living wage will provide to various earners. The red section however will benefit the government, not the earner.

Take the first row. It is well known that sole parents are proportionately the poorest families in NZ. If a sole parent with two children (in a 3 bedroom home paying $380 in rent)  moves from $15 an hour to $18.40 he or she will only be better off by around $24 because of losses in accommodation supplement and other tax credits.

The report goes on to comment on the research that developed the $18.40 living wage:

    Treasury questions whether the methodology used to arrive at $18.40 is robust, for the following reasons (A more detailed explanation is provided in Appendix 3):

·                The research is based on a family composition of two adults and two children.  The research acknowledges that while it is possible in principle to identify different wage levels for different numbers of dependants, this is not done because it would make the Living Wage estimate unhelpful as a communication tool.

·                Families comprising two adults and two children represent only 6% of families earning below the Living Wage. Those who have the highest deprivation level (i.e. absolute, not relative) are sole parents and this analysis generally does not apply to them.

Treasury can't call the Family Centre Social Policy Unit research nonsense, but I can. Why base a calculation on an atypical low-income earner?

The report goes on:

" The research is inconsistent with Household Economic Survey which finds that at least 70% of people in even the lowest income band say that their current income is either just enough or better."

And here are two more noteworthy tables showing that 1/ internationally NZ has a relatively high minimum wage, and 2/ NZ has a low proportion of its population earning low incomes. 

Going back to the first graph, there is a question nagging at me. Could a strictly voluntary living wage be a good thing if it reduces the burden on the unrelated party (taxpayers) and shifts it to the party who gains the benefit of the labour paid for? If an employer can pay more (acknowledging all the 'ifs' that entails) isn't that preferable to taxpayer subsidies?




The answer is yes. Problem is though, most of the people who would benefit from the living wage aren't currently subsidised (my inference from other data provided). So the living wage does not provide an efficient solution to reducing working welfare.