Thursday 7 November 2013

Len’s “living wage” has a ripple the size of a tsunami

Alan: Hey, great news.
Bruce: What’s that?
Alan: Larry’s getting a raise—up from $600 to $730 a week!
Bruce: Larry? You mean Larry Larry? For what he does?
Alan: Yeah. Living wage mate.
Bruce: But … but … that means he’s pulling down more than I am! And I’m supposed to be above his pay grade.
Alan: Yeah, shitty news, eh.
Bruce: I’m off to see HR.

If Len Brown is successful in his proposal to pay low-paid council workers a “living wage” of $18.40 per hour, that conversation above will he happening around every water cooler in all the many council buildings around the super-sized city.

Red Len reckons paying low-paid council workers a “living wage” of $18.40 per hour will cost nothing, just $3.75 million reckons Len—chickenfeed for a mayor who overspends hundreds of millions and borrows in the billions to pay for it.

But worry not, says Len, the $3.75 million cost will “be paid for through savings in other parts of the council.” 

Yeah right.  Tell me the last time Len saved you money.

But Len’s figure, that $3.75 million number, based only on what it will cost to pay 550 employees a bit more, ignores completely the very real knock-on results of paying those 550 more.

First of all, it ignores what happens to Bruce if Larry is paid more. If Larry Low-Paid is paid more, then Bruce wants to be paid more to keep rank. And there are a lot more Bruces than there are Larrys, who are being paid already just that much more. And a whole lot more just above Bruce who will want to  keep their pay rank as well. And so on, and so on, all the way up, as the effects of the first “living wage” raise ripple through the system.

Add on several million more to ratepayers’ bills to pay for those pay rises too, not to mention all the disruptions of all those heated HR meetings by council “workers” keen to keep their place in the pay scale.

Second, every new employee is going to want more too. And this is a council determined to expand.  So add on a whole lot more millions to Len’s fictional 3.75. Not to mention how every employee for every one of the council’s many contractors is going to feel about this. (Expect the cost of every council contract to go up to pay for those wage rises too.)

And what about its effect around the rest of the city? The council is already becoming one of the biggest employers around this super-sized city, so if council is paying more for all its “workers” (which will be the nett result of starting to pay lower-paid workers more) then everyone else will have to as well, or else the over-paying council will be bidding employees away from every other employer in the city. And if those other employers do want to hire employees, or keep the ones they’ve got, as a result of Len’s “this-will-cost-nothing” largesse they’ll need to pay them more as well.

imageSo the nett effect of paying low-paid council workers more will ripple through all of council first, raising wages as it goes, and thence will ripple through the rest of the super-sized city, all the way through until it eventually affects all employers everywhere. Like a butterfly flapping its wings in the Amazon, by the time that small increase in a few  council pay-packets ripples through everywhere, it has turned from a ripple to a tsunami.

Which eithers raise prices everywhere to pay for all those higher wages, or it reduces employment everywhere to allow employers to afford the higher wage bill. Or both.

In both cases, it will raise prices.

And you know the funny thing. When prices do go up to a level sufficient to cover the costs of all these nominal wage rises, and all those price increases ripple through, it will be found that the real wage that employees now get will be the same (or less) than it was before the “living wage” increase.

In other words, no-one will be better off than before.

And those who are now priced out of a job, being unable to produce more than $18.40 an hour for an employer, will all be very much worse off. (As will the taxpayers, who will have to carry them too.)

Frankly, none of this should surprise anyone. Because unlike every other wage, this so-called “living wage” is based not on how much an employee can produce, but on how much that employee can spend.

Which is to get your causality backwards.

Not that any of this will bother advocates of this so-called “living wage,” because those instigating the “living wage” campaign are not primarily motivated by making the lives of low-paid workers better. It is to enlist them in a campaign of class warfare.

In other words, it’s about politics, not economics.

Which, oddly enough, is where lies one of the solutions to the problem of low wages. In government. Because the best way government can help poorer workers is to cut their tax bill.

If Len is genuine about helping low-paid workers, then let Len go and talk to John about that.

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