Wednesday, June 04, 2014

The living wage effect and EMTRs

Two parking wardens who will receive $4 an hour extra under the Wellington City Council's adoption of a living wage each have a partner and a 4 month-old baby. Both say that they will be able to reduce their work hours due to the increase, and spend more time with their families. One from 75 hours down to 40 and the other from 50 down to 40.

That sounds nice. Though some might think, wouldn't you take the opportunity to earn the extra money with a young family to support?

Except there may not be any extra money. Both of these men will be receiving WFF and possibly an accommodation supplement. At the higher pay rate, if they work longer hours they may lose their other subsidies. In fact, they may be working for nothing. That doesn't make any sense.

What these two men may be is a prime example of is how high effective marginal tax rates reduce work effort.

But it also shows that their original wage (combined with state subsidies) was a livable =  living income.

Some of the support for the living wage was based on the assumption that government wouldn't have to subsidise workers to the extent they do now. In fact Bill English said:
The analysis shows that the “living wage” would least help low-income families whose welfare support would abate as their income rose. In those cases, the main beneficiary of the living wage would effectively be the Government because it would receive more in tax and pay out less through abated transfers.
Who picked that these struggling low wage families would simply reduce their hours?

On the upside, at least they are parking wardens.


JC said...

And of course that means another person will have to be employed to make up for the lost 45 hours plus the increase in overheads that comes with each employee.. and all at the increased wage rate too.

How clever.


Brendan McNeill said...

Nice touch of humour Lindsay. :-)

Anonymous said...

I worked this out for us before National decreased the tax rates. For every 5K additional income, we only got to keep about 1K. Similarly for every 5K decrease in income we only lost 1K. Not worth me working for that small benefit – better to stay home with children and spend time finding ways to decrease expenses. My time was more valuable than the reward. It might not be so bad since National’s tax cuts. Fortunately my husband’s income has increased so that we no longer qualify for WFF. Now I work because the reward is worth the effort.