Auckland and Wellington councils have agreed to look into the feasibility of adopting the "living wage" of $18.40 an hour being proposed today by a coalition of union and community groups.
Wellington Mayor Celia Wade-Brown, a Green, said she "would very much like to move towards a living wage".
But she said changes would be gradual, subject to a feasibility study and after consulting ratepayers on small rates increases to fund it.
"I think that's what we have to ask ratepayers," she said.
Auckland's Labour Mayor, Len Brown, said his council would consider a report by the Anglican Family Centre in Lower Hutt providing a detailed methodology for calculating the wage required for a couple with two children to "live with dignity and to participate as active citizens in society".
Initial Auckland Council figures show it would cost $2.5 million a year to raise the wages of 1544 people paid under $18.40 an hour as direct employees of the council and all except two other council-controlled organisations (CCOs).
Figures were not available at short notice for the two biggest CCOs, Watercare and Auckland Transport, or for the cost of requiring all contractors to pay the living wage.
But it seems likely the total cost may be under $10 million, or 0.7 per cent of last year's $1.4 billion rates bill.
Mr Brown is trying to keep this year's rates increase down to 2.9 per cent and said higher wages needed to be balanced against jobs.
"My overwhelming focus is on creating good jobs for Aucklanders and lifting young people's skills and education," he said.
"We want Auckland to be a high-wage community, but we also have to be a high-job community."
"With more than 25,000 young Aucklanders not in jobs or training, we've got a big job to do providing better pathways for young people into work."
Council figures show that 1171, or 21 per cent, of its 5598 direct employees, excluding CCOs, currently earn under $18.40 an hour.
Living Wage Campaign coordinator Annie Newman said the city could fund the living wage by cuts in other areas, such as the $194 million the council spent last year on "consultancy and professional services".
"Twenty per cent of the councils in the UK are delivering or working towards a living wage already," she said.
"What they are saying is this is an ethically important step, and they are making it clear to ratepayers how they are going to pay that money.
"One said we are reducing the bonuses of senior managers in this council in order to pay for this. Another said we are reducing the amount put into consultancy.
"I don't believe the Auckland Council has to increase rates to pay for this."
But a spokesman for Mr Brown said bonuses had not been "part of the scene" at the Auckland Council since the single regional council was formed in 2010, and the current draft annual plan proposed "considerably cutting contractors and consultants and using council staff instead".
The Family Centre report acknowledges that even its proposed national living wage of $18.40 an hour is not enough to live on in Auckland.
The $18.40 figure is based on the cost of Otago University's "basic" food diet for a couple with two children ($226 a week), the national lower-quartile rent for a three-bedroom house of $275 a week, and other costs totalling $537 a week based on the average spending by families earning below the median household income for couples with two children.
An alternative calculation using the lower-quartile rent for a three-bedroom house in Auckland of $438 a week, and higher childcare costs, produced an estimated living wage for Auckland of $24.11 an hour.
But the report does not recommend adopting a higher Auckland rate because this would be higher than the national median hourly rate of $20.86 and almost as high as the national average rate of $25.07.
Instead, it argues that higher rents in Auckland should be met through the accommodation supplement, which is currently available in full for families earning below $536 a week and at reducing rates on incomes of up to $1468 a week ($76,336 a year) in the Auckland isthmus and North Shore.
However, it notes that the gross household incomes required to cover a basic family budget - $57,432 nationally and $75,213 in Auckland - are at levels where the current accommodation supplement would be minimal. "An appropriate loosening of eligibility criteria for the accommodation supplement is an obvious avenue for state participation," it says.
The living wage campaign is backed by 126 union and community groups including Anglican, Catholic, Presbyterian, Methodist and Congregational church groups.
Eight of Auckland's 22 local boards have passed resolutions endorsing it and three others have supported a feasibility study on the costs and benefits. Campaigners intend to ask all candidates in this year's local body elections to endorse it.
But AUT University economist Dr Gail Pacheco, who wrote her doctoral thesis on the minimum wage, said the single $18.40 figure ignored the reality that different households had widely differing living costs.
"What about a youth worker who is just trying to get some experience in the labour market and build skills [and human capital]?" she asked.
"If an employer is expected to adopt a living-wage policy and therefore can't hire someone with productivity below that wage, will that policy force the youth worker into periods of unemployment, with potentially long-term scarring impacts?"
Dr Pacheco said employers ultimately had to pay wages that were justified by the productivity of each worker.
"Employers cannot simply raise wages to a level of the living wage [in this case $18.40 nationally, $24.11 in Auckland] without productivity for affected workers also rising to the level necessary to permit that."
On the web: www.livingwagenz.org.nz