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Brian Scott
Living Wage: Interesting Calculations for Cost / Benefit
Assuming objective is to make sure that 2 adult, 2 dependent households have a reasonable living wage.
Example 1
Two people (and 2 dependents). Each earn $14.10. One is Council employee.
Council pays employee $18.40. Partner stays on $14.10
Council will pay extra $8944
Household will gain by $3119 (pay more tax, get less in accommodation and working for families)
Central Government claims back $5825.
Cost to Ratepayers per dollar of employee benefit is $8944 / 3119 = $2.87
Or RETURN ON INVESTMENT TO ACHIEVE OBJECTIVE is 0.348 ($1 cost produces 34cents benefit)
Example 2
Only 6% of households are 2 adults, 2 dependents. Council has 450 employees likely to be affected
by Living Wage policy.
Therefore, only 27 Council employees actually would need, according to LW assumptions, a pay rise
to $18.40.
Using Council papers, cost is $750,000 for 450 employees, average cost is $1667.
Cost to bring 27 employees up to $18.40 is 27 * $1667 = 44982 per year.
Cost to Ratepayers per dollar that achieves objective is $750,000 / $44,982 = $16.66
Or RETURN ON INVESTMENT TO ACHIEVE OBJECTIVE is 0.06 ($1 cost produces 6 cents benefit)
Example 3
20 year old living at home, pays $100 board.
Net income after tax at $14.10 ph is $474 per week.
Net income after tax at $18.40 ph is $613 per week.
I would challenge the idea that this person needs a pay rise to get out of living in poverty.
Example 4
A cleaner who works for a private company may get paid about $4 less for the same job, (about $129
per week after tax), and may pay more in rates for the privilege.
Alternatives to address inequality in the community. (For $750,000) Opportunity Costs
Subsidise health services (37,500 visits at $20)
Subsidise food banks (helps non-Council employees without affecting benefits)
Subsidise travel costs (1875 children in low income families at $2 for 400 trips each)
Subsidise low income students’ school fees. (Perhaps scholarships of $300 for 2500 children)
Providing food at schools, of which I am particularly in favour.
The above suggestions could be targeted at ALL low income households in the community, at value
of close to dollar for dollar. Point is there are plenty of other ways, if it is deemed responsibility of
Council, to help low income families.
If the objective of the Council is to reduce inequality in the community, then Councillors are required
by Statute to consider alternatives that are efficient and effective. It is not acceptable to say “we
must do something, this is something, let’s do this”.
Note: Calculations may be slightly out due to rounding and there are not exactly 52 weeks in a year.
Saturday, December 21, 2013
Opportunity cost of living wage
The living wage wage was calculated by the Lower Hutt Family Centre Social Policy Research Unit, based on a two parent, two children family. One parent works full time, the second works part-time. A correspondent, Brian Scott, sent me his analysis of their faulty research which he'd submitted to the Wellington City Council. When they asked him “what would you do then” he sent the following:
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5 comments:
His example 1 is a fine illustration of the problem you've mentioned in earlier posts - the argument "paying a decent wage is a bad idea because it will reduce the amount of welfare payments" is a very, very bad argument.
Any discussion of this "living wage" idea really should start from the principle that wages should not need topping up by welfare payments, ie it should not treat WfF as a given but treat it as something we want to do away with. If the council paying $18.40 means its workers don't get WfF any more, that ought to be seen as a highly positive outcome, not a negative one.
"Any discussion of this "living wage" idea really should start from the principle that wages should not need topping up by welfare payments, ie it should not treat WfF as a given but treat it as something we want to do away with."
Agree PM. BUT if the employer is the council and rates rise as a consequence, it's still a transfer by complusion. As I've said previously if private sector employers can pay it without shedding jobs that's a good thing.
Council will pay extra $8944
Household will gain by $3119
That's an effective tax rate of 65%.
A better argument for the immediate abolition of "communism by stealth" - WFF and the Accomodation Benefit - I could not have written myself.
if private sector employers can pay it without shedding jobs that's a good thing.
Why? NZ's "workers" have some of the lowest productivity in the welfare west. NZs pay rates need to come down to increase productivity, not go up to make companies even more inefficient!
BUT if the employer is the council and rates rise as a consequence, it's still a transfer by complusion
To the extent that charging rates in the first place is, yes. But ratepayers are generally also taxpayers, and it makes more sense to pay council workers a decent wage out of rates than to pay them low wages out of rates and then top it up out of other taxes.
NZ's "workers" have some of the lowest productivity in the welfare west. NZs pay rates need to come down to increase productivity, not go up to make companies even more inefficient!
NZ's productivity is lower than equivalent developed countries exactly beause its wages are lower. In countries where labour is more expensive, it's more attractive to invest in expensive capital equipment and automation than in labour. There is no credible mechanism by which reducing wages might increase productivity.
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