The godfather of the NZ living wage, Charles Waldegrave, conceded that different people are hired after a living wage policy is adopted. That is precisely my critique of the living wage in my recent report for the Taxpayers’ Union.
I summarised that report at public hearings on the living wage at the Hutt City Council last night where the living wage movement also made submissions.
My critique is that higher calibre people will crowd out minimum wage workers from vacancies for which they were previously hired because they are paid the living wage of $20.20 per hour rather than the minimum wage of $15.75 per hour. Employers expect better recruits if they pay more.
The living wage movement and the Taxpayers’ Union are in complete agreement on the minimum wage being crowded out of living wage vacancies in the future by high-calibre applicants attracted by the $20.20 pay. My submission to the Hutt City Council last night is below:
Remarks to the Hutt City Council Finance Committee
The Achilles heel of a living wage at councils is they still must hire on merit. Employees at the time of the living wage rise to $20.20 per hour gain, but their replacements will come from jobs on a similar pay rate to merit short-listing.
Ratepayers pay above-market wages forever for a one-time poverty reduction for existing council employees. A living wage will not lift recruits from poverty because they will be earning a similar pay in their last job to merit shortlisting.
The practical upshot of a living wage is a council is raising its hiring standards. The lower-paid breadwinners currently hired for council jobs are shut out by a living wage policy. Seventeen out of 33 Wellington City parking wardens were not rehired when their service was brought in house as living wage jobs.
The experience with large minimum wage increases in service jobs in American malls and restaurants is employers respond to the wage increase by being choosier in their hiring. Employers expect recruits to be more experienced and arrive with the necessary skills rather than be trained on the-job.
Living wage advocates happily concede that the quality of recruitment pools improves after a living wage policy is adopted. They call this professionalisation of entry-level jobs. They do not ask what happens to the workers who are no longer shortlisted for living wage jobs. They should.
A living wage is linked to the sum of money needed to raise a family. Yet 40% of a living wage increase for workers with families will be lost to income tax and reductions in Working for Families.
The cruel reality is low income families are worse off, not better off, after the introduction of a living wage. Their breadwinners are no longer shortlisted for council jobs because of the raised hiring standard. While advocates have the best of intentions, they hurt the very families they earnestly want to help.
1 March 2017