A debate is brewing about inclusive growth, including lifting the minimum wage to the level of the living wage.
The Helen Clark Foundation (THCF) and the New Zealand Institute of Economic Research (NZIER) state this will encourage investment in upskilling and productivity gains.
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The New Zealand Initiative (NZI) has immediately countered the claim by stating that increasing the minimum wage should be avoided. NZI senior fellow David Law has said such a move would have minimal impacts on inequality and would likely increase unemployment.
They can't both be right.
The Living Wage Movement began in New Zealand because we have a low wage economy. Currently, we rate 18th in the OECD league tables with our average wage below the OECD average, below the UK and well below Canada and Australia.
The living wage was carefully designed to provide the level of income required to meet its definition: the income necessary to provide workers and their families with the basic necessities of life. A living wage will enable workers to live with dignity and to participate as active citizens in society.
It is not generous. It is minimally adequate to live a healthy life and interact with others. It consists of a series of essential budget items, including food, housing, energy and transport, for example. The cost of each item is transparently assessed in relation to the best available evidence.
Food costs, for example, are taken from Otago University's Department of Human Nutrition Food Cost Survey. Housing costs from the Ministry of Business, Innovation and Employment's (MBIE) Rent Bond database which has an up-to-date record of all market rents across the country.
It increases each year with average wage inflation, and every five years the methodology is reviewed to test its veracity against current databases. If new databases or information
sources improve accuracy, they are incorporated as well.
All relevant current government transfers, through tax and benefits, are also incorporated into the living wage calculations.
THCF and NZIER state the Covid-19 pandemic has changed many things and we need to rebuild our society and economy in an inclusive way. The new direction includes environmental sustainability and the wellbeing of all in society.
They insist we must not repeat the problems of the pre-Covid environment with large income, wealth and ethnic inequalities. They refer to the massive increase in wealth inequality Māori and Pasifika peoples have experienced through the loss of homeownership over three decades. They also refer to the persistently high levels of income poverty and material hardship so many families undergo.
They draw upon the OECD framework for inclusive growth to improve the chances and quality of life, particularly for young people. Inclusive growth creates opportunities for all and distributes financial and material goods fairly. This sort of smart growth with an equity approach will lift productivity, increase opportunities, focus on wellbeing and substantially reduce poverty and disadvantage.
The minimum wage, unlike the living wage, is not based on a calculation of household living costs. Its calculation was simply an hourly rate that was chosen at a point of time and has been added to since by successive governments as and when they chose to.
Given the inclusive approach of the OECD framework, the THCF and NZIER recommendation to move the minimum wage to the level of the living wage makes a lot of sense.
It has been calculated to lift working households out of poverty and enable participation in society. Furthermore, it is a path recommended by two leading global organisations, the OECD and the ILO, to a high-productivity, high-wage economy for all.
NZI disagrees, as is its right, but it is unconvincing. It opposes any addition to the minimum wage, suggesting it is likely to lead to job losses. Actually, there have not been widespread job losses as a result of previous increases in the minimum wage, despite predictions to the contrary.
It offers the conventional approach to economic growth and employment stability that has preserved the inequalities over recent decades.
Surely working people are going to be much more motivated to be productive and upskill in employment if they receive an income that enables at least a minimally adequate standard of living?
Currently, around half the New Zealanders identified as living in material hardship are from households with at least one full-time paid worker, according to the latest household incomes report. NZI appears to have no ambition to change that.
• Charles Waldegrave is co-ordinator of the Family Centre Social Policy Research Unit which calculates New Zealand's living wage and was also a member of the Welfare Expert Advisory Group