Living Wage good for employers and the economy

Posted By TEU on Jul 4, 2013 |


The amuamu (argument) that a Living Wage will push up inflation and harm productivity lacks evidence. In fact the research shows, says Te Kauae Kaimahi (CTU) economist Dr Bill Rosenberg, that higher wages lead to better motivated kaimahi (workers) who put more effort and thought into their work, raising productivity and efficiency.

The standard Stage 1 economics claim will be ‘wages will rise when productivity rises. Raising wages without raising productivity will just lead to inflation and no-one will be better off’.

“Actually, it would be great if kaimahi were paid for their increases in productivity”, says Bill Rosenberg. “They haven’t been. The average wage in the private sector would have been 30 percent higher at $31.85 in March 2011 if it had kept up with the labour productivity increases since 1989. Instead it was $23.43.”

But a poorly performing wages system is only part of the picture. While the conventional view is that higher productivity leads to higher wages, there is also evidence for the converse: that raising wages can lead to rises in productivity.

UK and US rangahau (research) of living wage employers support this. Costs for employers rise very little, if at all. There is little effect on employment.

One UK study, conducted by the consultancy firm London Economics showed “significantly lower rates of staff turnover” leading to “substantial cost savings on recruitment and induction training, lower rates of absenteeism and sick leave, enhanced quality of work, and widespread efficient work reorganisation.” This was alongside significantly boosted kaimahi morale and motivation, and reputational benefits for the employers.

If wage rises are widespread, the increased spending creates greater demand for employers’ products, encouraging them to invest in their firms, raising productivity and employment.

Finally, low incomes create big social costs as well as hardship.

“We all pay for the raru (problems) in health, education, crime, child poverty, debt and gambling that low incomes make much more prevalent.”

The Living Wage kaupapa brings community pressure on government and employers to face up to these raru and create a virtuous cycle of better pay, higher productivity, and a thriving economy.

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