Living Wage policies: The best of intentions but the worst of results

Seventeen parking wardens contracted by Wellington City Council were not rehired in-house, with further job losses inevitable under the Council’s living wage policy, according to a new report we've released today authored by our Research Fellow Jim Rose.

The report's key findings are:

• Seventeen Wellington City Council employees lost their jobs after being under the skill level required for the living wage.
• Councils hire on merit, so candidates under the skill level commensurate with the living wage will be crowded out by higher-skilled candidates.
• There is no consensus or scientific basis for the calculation of a living wage. Any calculations arepolitically subjective.
• Any living wage in New Zealand will be abated by up to 40% by decreases in government transfers and increased income tax obligations.
• Living wages shift the burden from means-tested taxpayers to ratepayers and business owners.
• Below-living-wage employment allows for in-work training, where employees tradeoff lower wages for the opportunity to learn skills that increase their future earning potential.

Living Wage Aotearoa New Zealand nobly want to alleviate poverty and reduce unemployment with their activism for a living wage, but the evidence to date shows they are achieving the exact opposite. This report shows that a living wage will only make it harder for low wage earners to find work.

Contrary to intentions, living wage policies actually hurt the very people they seek to help. For the first time, we reveal that seventeen parking wardens lost their jobs at the Wellington City Council as a result of its living wage policy.

Living wage policies mean higher-skilled candidates apply for jobs previously occupied by lower-skilled candidates. Of course councils will hire on merit and shortlist the candidates who previously would never have applied for the lower, pre-living wage role. That's exactly what happened when Wellington City Council brought its parking services in-house.

Minimum wage applicants do not get a shot against better-qualified candidates attracted by the higher wages. So much for the poverty alleviation and reduced unemployment.

The economic theory is clear that living wages do more harm than good, but the job losses in Wellington is the proof in the pudding. Councils should stop implementing these living wage policies which achieve so little but cost ratepayers who can ill afford it.

Living wage policies mean ratepayers pay more for less and achieve none of the intended poverty relief.

Jim's full paper (which the above summary is based on) can be viewed here.

UPDATE: Wellington City Council CEO confirms our fears

Wellington City Council's Chief Executive, Kevin Lavery, has issued a media statement confirming our key point contained in the report on their living wage policy - that it hurts the very people it seeks to support by lifting hiring standards and leaving minimum waged workers behind.

The Wellington City Council apears to be well aware that its living wage policy elevated hiring standard that toughens up shortlisted because that is exactly how its own managers interpreted that policy when 30 parking wardens were bought back in-house.

According to a report published by the Living Wage Wellington group:

Between January and July 2104 WCC began moving nearly 500 directly employed staff to the Living Wage (2013/2014 rate of $18.40). Soon after around 50 very low-paid parking wardens were taken in-house and lifted to the Living Wage, receiving a $4 an hour pay increase.

This process was fraught because the WCC HR staff mismanaged the recruitment process resulting in some parking attendants deemed to be below the skills required for the new role, losing their jobs (McIntyre 2016, p. 8).

As you'll see below, this was made clear to the Council by directly quoting from the Living Wage Wellington report when Jim Rose filed his information request.  The emails show Council officials confirmed the situation.

For more information see section 4.5 of the full paper by Jim Rose.