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Current as of 23/05/17 07:40PM NZST
Bernard is an economics columnist for the NZ Herald

Bernard Hickey: Living wage is good for everyone

Money in workers’ pockets gives them cash to spend and boosts the economy.

The Warehouse believes paying a living wage will make workers happier and be good for the bottom line. Photo / Michael Bradley
The Warehouse believes paying a living wage will make workers happier and be good for the bottom line. Photo / Michael Bradley

I had an unusual experience at The Warehouse last weekend that told me something had changed for the better.

A surprisingly chirpy shop assistant asked me if I was having a good day. I was initially baffled. I try to avoid shopping at the best of times and see a trip to The Warehouse as a chore. I am used to messy aisles, fruitless searches and cheap tat.

So I didn't expect a pleasant shopping experience. Yet that's what I got. The assistant seemed to be enjoying her job and was particularly efficient and helpful. I actually found what I wanted. I won't dread a trip to The Warehouse so much in future.

The Warehouse is one of a growing number of companies paying a "Living Wage". From August 1, it started paying 4100 of its workers a "Career Retailer Wage" of at least $18.50 an hour. To qualify, they must have full training and 5000 hours' experience. It represents a pay increase of 10-20 per cent.

Warehouse CEO Mark Powell estimated it would cost almost $6million in extra wages, but it was an investment worth making.

"The front-line in retail starts on the shop floor with enthusiastic team members and the competitive reality is that if customers aren't served well, a business will ultimately fail," Powell said.

This week, union researchers Eileen Blair, Annabel Newman and Sophia Blair delivered a paper to the Population Health Congress in Auckland on the experience of employers and workers who have adopted the Living Wage, currently $18.80 an hour - 32 per cent above the $14.25 minimum wage.

They interviewed four employers and found a variety of reasons for adopting the Living Wage, including that it was the right thing to do.

But there were more practical reasons, including wanting employees paid enough to buy their products, reducing staff turnover and having staff motivated to produce a great product or service.

"We're offering a really nice product and if my employees can't afford to eat it then that's not good," one employer said.

This is an age-old argument for an apparently arbitrary increase in wages. Henry Ford doubled the wages of his factory workers in 1914, arguing he wanted them paid enough to buy the cars he made.

This kind of thinking helped drive wages substantially higher relative to profits in the developed world over the following 60 years, creating a prosperous middle class and stronger economic growth.

This week the IMF downgraded its forecast for global economic growth this year, citing weak demand from indebted households and low investment by companies.

Employers also reported paying a living wage changed their own behaviour, forcing them to focus on training and management to get more from workers, who in turn worked harder and produced more.

One employer described the thinking: "You'd only need them to be another 30 per cent productive to be cost neutral, and 30 per cent is not a big jump, in terms of people wasting 30 per cent of their time on Facebook and texting."

The Living Wage movement is one response to the growing realisation that slowing economic growth is partly because of a falling share of income going to wages, which depresses demand and investment.

Circuit breakers are needed to boost productivity and wages, and this is one of them. The Warehouse is hoping it will be a circuit breaker for their sales, profits and share price. For now, the Red Sheds have become the place where everyone gets enough of a Living Wage to buy those bargains.

- Herald on Sunday

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Bernard is an economics columnist for the NZ Herald

Bernard Hickey is the publisher of Hive News, a Wellington-based political and economic subscription news email service. He also writes for and appears regularly on Radio New Zealand, Radio Live, TVNZ and TV3. He has been a financial journalist for 25 years, having worked for Reuters, the Financial Times Group and Fairfax Media.

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