Some links against a Living Wage

With the Living Wage idea cropping up around the place, I’ve noticed a couple of places where there have been criticisms of the result:

  1. A review by Brian Scott, where he points out that many of the defined “needs” required to get this wage are in fact not things some people in society would put in their defined “minimum” – this raises an interesting question of “what is poverty”, something we will lightly touch on here on Monday ;)
  2. An analysis from Treasury based on their arithmetic microsimulation model (Taxwell).  This essentially says “if the change in the minimum wage caused NO change in behaviour, who are the people who would see their income increase”.  So this DOES NOT rely on any employment effects or the such (although they will occur in New Zealand, given how high this would push the minimum wage relative to the average wage) – and it shows that most of the benefit in this optimistic scenario does not go to the group the Living Wage campaign wants targeted.

Now some may say that this is a suggestion to businesses, not a demand for policy.  That is fine – I remember working at the Warehouse and being paid a bit more for that role as part of their desire to build a “community” among staff.  And it was good.  But if it is just a request for firms to consider, why keep yelling at politicians?

Furthermore, part of the “gain” comes from non-pecuniary elements of the firm (the “community” bit from the Warehouse I worked in) and from the wage being “relatively” higher.  As a result, we have to be a touch careful appealing to “x-inefficiency” as a driver of improved outcomes when many of these structural elements are not being considered ;)

A broader point though, when I first heard of the Living Wage I had a non-economist rant against it.  If we care about a minimum standard in this way, why do we only want people who are employed to get it?  What is the minimum standard?  Why is the minimum standard as a “reservation” level for someone different from the minimum standard we think employers should pay for someone to work?

Now my answers to these questions bring me to a “minimum income” concept.  This isn’t necessarily correct.  They could be answered in a specific way that justifies a Living Wage.  Or we may instead believe there is a lot of scope on efficiency lines.  But the conversation needs to be had with evidence around the existence of trade-offs and a clear conception of the principles of fairness involved – factors that are obfuscated in the rallying cry to make someone else pay someone else more in order to make ourselves feel moral ;)

Note:  I’ll normally throw in a bunch of links to things I’ve thrown up on TVHE in these sorts of posts, but I found the posts on this issue over at Offsetting Behaviour more interesting and informative than anything I’ve written.  I hope Eric doesn’t mind me linking to a bundle of his posts :P

  • http://brennanmcdonald.com/blog/ Brennan McDonald

    Where’s the discussion around what sort of tasks minimum wage workers wanting more are actually doing? Far better wages on offer in farms, forests, fisheries etc but not enough takers? High marginal tax rates / loss of benefits make retraining not possible? IRD data is always interesting.
    http://www.ird.govt.nz/aboutir/external-stats/revenue-refunds/wage-salary-dist-for-ind/revenue-refunds-wage-salary-dist-for-ind.html

    • http://tvhe.co.nz/ Matt Nolan

      A combination of high EMTRs, on job risk, and job location (where households would need to severe social capital from their community – which is costly). They are all relevant factors but when it comes to discussing a “minimum standard” in a poverty sense it is a bit of a separate issue (outside of high EMTRs leading to a “poverty trap”, which is indicate of a lack of opportunity).

      Fully agree that these questions are much more complicated than they are often made out – as you imply jobs and people are heterogeneous!

  • The Distributist

    There are plenty of minimum wage sectors that are easily identifiable and deserve a living wage, like cleaners, orderlies, supermarket workers, factory workers etc. Unless we bring back the notion of ‘an honest days pay’ into the workforce where easily identifiable, the whole system will not right itself. nor be able to be corrected and inequality will continue to flourish.

    • http://tvhe.co.nz/ Matt Nolan

      Hey, thanks for your comment.

      There are a number of areas where I disagree – I think I can split them along more objective and subjective lines of difference.

      Starting on the more objective side, these things are not “easily identifiable”. We need an understanding of the trade-offs involved, and principles of fairness, before we can identify any targeting of individual groups – this is hard, and important, work. Calling something easy, or obvious (which is the more common one I hear), demeans the process of us trying to figure out what is going on and asking society what it believes is fair.

      The next one is the use of inequality when discussing relative poverty. They are very different:

      http://www.tvhe.co.nz/2014/01/06/absolute-minimums-and-relative-poverty/

      If we want to do something about poverty, let us talk about poverty.

      On the more subjective side, I dislike the inference that we can pick these specific workers as “deserving” in some way. There are two reasons why this doesn’t make sense to me:

      1) It terms those who are unable to get work, often the most vulnerable, as less deserving
      2) It mixes up the idea of a fair minimum standard of living in society with the price of labour – leading to people “misallocating” the education they get, where they decide to work, and their future opportunities.

      My preference, as I say in the post, is the introduction of a minimum income with the removal of a minimum wage.

      Your concern is that firms owners are taking advantage of people without the ability to demand a higher wage, leaving them in a position of poverty. If we give individuals an outside option, so they can decide to change their skills or leave the labour force entirely, we give them market power – if the value of the jobs you’ve identified is higher, and firms are just “extracting rent”, this will also lead to a situation with relatively high wages for this group!

      Unless we truly identify “the problem”, “the trade-off”, and “our view of fairness” we can’t say much about policy. And we certainly cannot say “just increase these wages and it will fix ‘the system’” without a description of what the system is, and what this all means.

      • The Distributist

        Agree in principle to the concept of a minimum income, would term it a basic income across the board for all citizens. The problem is the social, economic imbalances, poverty, real or relative, standards of living ,quality of life, quality of our environment/s etc etc. We even try to ‘identify’,’measure’,’quantify’ the ‘system’ with defunct theory and erroneous terminology,skewed data etc etc. The implementation of a living wage where applicable under our currently flawed system will assist in transcending the current system to a fairer and more harmonious one, ultimately with more equitable outcomes in all spheres. Most of our current and former economic theory is actually, by and large defunct, relative to a better future. Anything from socialism, capitalism, neo liberal economics, freemarket idealogy etc,etc is an anathema to a future system.

  • Pingback: Absolute minimums and relative poverty | The Dismal Science

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