image: Peter Galbraith (stock.xchng)
Hamilton town council have jumped onto the latest trendy bandwagon and will institute a “living wage” policy over the next two years, lifting the wages of a minimum wage worker from $13.75/hr to $18.40/hr. This will cost Hamilton ratepayers a further $170,000 a year, according to council management. Sadly, their estimate is almost certainly far, far too low and has not taken into account that all the people currently getting more than the minimum wage are going to want their salaries increased as well to reflect their added responsibility, skills or training. This is one of the major faults of the minimum wage/living wage argument – that none of the advocates consider the knock-on effect. I know this because these folk are always going on about income inequality as the main driver for this “living wage” idea but, apart from the very top salaries (CEOs and upper management) the income distribution will eventually settle into the same pattern (yes, this will make things marginally more equal). The point being that stepping up the wage at the bottom of the ladder costs way more than the initial increase in wages – it signals a very expensive increase in wages across the board.
Aside from the inevitable high cost, there is the question of the ethicality of taking money forcibly from ratepayers in order to pay more to low-income workers. Many of these ratepayers are not a great deal better off than minimum wage workers. Some of them are minimum wage workers and now have to pay extra for people who are earning more than they will be...
The living wage argument is identical to the minimum wage argument, just couched in more emotively-charged tones. The idea of a “living” wage is, of course, complete nonsense. No matter how sophisticated your budgeting data is, there is no help for the fact that a Twinkie couple (Twin Income, No kids) will do substantially better out of a living wage than a single parent with six kids. For which family is this wage “living”? Though the living wage is voluntary at present (unlike the minimum wage) the proponents of the living wage leave us in no doubt that there goal is to make the living wage the minimum.
Regardless of whether they achieve this goal, the same arguments against the minimum wage can be made against the living one, namely that elevation of the minimum wage puts pressure on business to do one of three things:
- Reduce profits
- Increase prices
- Reduce workforce
When the minimum wage is increased slowly, the usual response is to increase prices, as gradual price creep is expected by the consumer (so-called inflation increase). If it is increased rapidly, the normal response is to initially take less profit (possibly even a temporary loss), then, in the longer term, shed workers. Left-wingers think that there is a magic bucket of profits that businesses can dip into at will. Would that were true. Profits are the result of careful business management and can easily disappear into the black hole of unanticipated costs. Particularly when the unanticipated costs are being generated at the behest of people who have never been in business themselves and have no idea of the meaning of words like “wage bill”, “productivity” and “knock-on effects”.
Take the average cafe, for instance. Lots of minimum (or near minimum) wage workers and a few duty managers and the like. Most of the expenditure of the business lies in wages, shop rental and, in the case of a branded cafe, franchise fees. The profit margin is usually thin, netting the owner a small salary (well-off franchisees usually have several franchises, single franchisees often have very modest incomes). Enter the living wage. Suddenly all of his/her workers are getting more wages and the owner is making less. For many cafes this means closure. For some, it means less staff (most would shed workers by natural attrition and then not rehire, the cost of redundancy being too high). For all cafe owners it will mean marked reluctance to take on untrained staff who will not be able to cope with the additional work-load. And you thought the recession was bad? Just bump up everyone’s salary by $4.65/hr and watch the blood-bath…
All of this is an economic argument, of course, But the real argument is to be had at the social front (left-wingers do not understand economics and tend to ignore sound economic reasoning). The proponents of the living wage say that this wage will provide dignity to the minimum wage worker. The MacDoctor says phooey.
You call this living? $18.40/hr? What a frightening demonstration of the socialist lack of vision. As the MacDoctor has said before, the sole purpose of a minimum (or a living) wage is to set the first rung on the job ladder low enough to get on. It is NOT meant to be a place for one to park comfortably for the rest of one’s life. As such, it does not matter what the wage is on the lowest rung of the ladder, so long as it is easy to get on to. Let’s face it, most people on the benefit are surviving on a lot less than $13.75/hr ($550/week for a 40 hr week). Bear in mind that people on the minimum wage will still attract accommodation supplements and working for families and the like, so the minimum wage worker is usually better off than the beneficiary, even with additional beneficiary supplements. Being on a benefit is barely surviving. Being a minimum wage worker is marginally better. Why would we ever want to make people comfortable in their misery? Surely it is better to encourage them to climb the the ladder and free themselves from poverty?.