The real cost of a low wage economy

This week the government announced that the minimum wage is to go up 50 cents, to $15.25 an hour from the 1st April. How much of a difference will that make to low paid workers? 

Richard Wagstaff from the CTU had this to say about the announcement:

“Increasing the minimum wage by $0.50 to $15.25 an hour, or $610 a week (which is what a 40 hour week gross earnings would be), is simply not enough to sustain a family on,”
“The minimum wage should be enough to take your family to the doctor, buy nutritious groceries, replace your washing machine if it breaks down. The minimum wage should be a wage you can live on, not just exist on,”

In New Zealand we have low wages. Much lower wages than other developed countries. This has led to a growing group of people, the working poor. People who work 40 hours a week but still can’t make a living. People whose kids live in poverty.

Which leads me to ask who benefits from a low wage economy? Certainly not the low paid worker, struggling to pay the food and rent each week and unable to save for her retirement or to buy a house.

(Incidentally, you may have noticed I used ‘her’ to refer to the low paid worker. That’s because women are more likely to be in this low paid group, as are Maori and Pacific Island workers.)

But it means the employer benefits, you say. Their wages costs are lower. They can afford to stay in business, provide work to people and support the economy. Maybe that’s true in some cases, but research shows that if you pay your workers a living wage, their productivity increases. Not only that, but they are more likely to stay in their jobs, and less likely to take time off sick.

But surely then at least society benefits from a low wage economy? Not if you look at the consequences for children: 2 out of 5 kids who live in poverty, live in working families. Not if you look at the consequences of income inequality: increased crime, reduced social cohesion. And not if you look at the cost of subsidizing poverty wages, of treating diseases associated with poverty and of dealing with the social costs.

What would make a difference to low paid workers is a Living Wage, paid at a level which would allow a worker and their family to have enough money to live on and to allow them and their family to participate in their community.