Today's Top 5 in tax is a guest post from Andrea Black, who is the Policy Director and Economist for the Council of Trade Unions. She is also a Senior Associate of the Institute of Governance and Policy Studies..
As always, we welcome your additions in the comments below or via email to david.chaston@interest.co.nz.
And if you're interested in contributing the occasional Top 10 yourself, contact gareth.vaughan@interest.co.nz.
Essential workers - remember them?
The supermarket workers, cleaners, security guards, bus drivers, nurses, doctors, home support workers, disability workers and others who all went to work in Level 4 while the rest of us stayed home. People doing these jobs who are over two thirds women and a significant number in minimum wage jobs.
We were all very grateful for them during Level 4 and the Prime Minister and others would regularly applaud them as the unsung heroes of the lockdown. Applause was great but here are five other things that would make a difference to their lives.
1. Living Wage.
When Rose Kavapalu was singled out by the Prime Minister for her role in cleaning the Otahuhu Police Station she said:
“To pick me to say thank you – it’s huge. It’s almost like a gift from the Prime Minister. But she also said: ‘One more favour to ask – the living wage. We have been crying out for so many years’.
On 1 September the Living Wage for 2020/21 will be $22.10. The Living Wage is independently calculated and is set at a rate to ensure someone is paid enough to meet the necessities of life and participate as an active citizen in community. While the Living Wage is above the minimum wage it is hardly high - and the average wage at March 2020 was $33.14[1]. As well as a recognition of the value of such critical and - let’s face it – life sustaining work, it will reduce the stress of being able to provide for their families. And in doing so the extra money will recirculate into local businesses.
2. Fair Pay Agreement.
Fair Pay Agreements are designed to promote a level playing field for an industry or occupation. They ensure that employers offering good wages and conditions do not find themselves undercut by other employers who compete through driving down terms and conditions – that is where competition is based on ever decreasing labour costs rather than on increasing quality or productivity.
Many of the essential workers of Level 4 are in exactly these industries.
A Fair Payment Agreement would give certainty of training, development, and health and safety so employees would face standard conditions across the industry or occupation thereby driving sector-wide improvement in health and safety outcomes. For employees there is certainty that their health and wellbeing will be looked after, that they will be able to access information and that they will be involved in workplace decision making.
As was seen through level 4, without such arrangements in place employees can be left in the dark adding to the stress of an already incredibly stressful situation.
3. Lower rents.
Everyone needs a safe, dry, warm place to call home.
High rents are a key driver of poverty for those in low paid work as seen by the 2019 work commissioned by the Human Rights Commission at times almost doubling the poverty rate before and after housing costs.
This makes complete sense as rents have increased by 35% in the last 10 years while the CPI had only risen by half that.
4. Reduced abatements for Working for Families and Accommodation Supplement.
Every dollar earned over $42,700 by a household with children has Working for Families tax credits reduced by 25 cents while every dollar earned over $36,504 has the accommodation supplement reduced by 25 cents. This is on top of tax of 17.5%, child support and/or student loan repayments. This means any increase even to the Living Wage will be reduced by between 42.5% and 80.5% if the low paid essential worker has a student loan.
5. Support if employers make people redundant.
Everyone deserves to live in dignity.
There is no good reason why anyone should be living in poverty in Aotearoa. When employers choose to make people redundant - low paid essential workers are at particular risk of falling into material hardship.
To address this we need:
- The recommendations of the Welfare Expert Advisory Group implemented including raising benefits and assessing them on an individual rather than a household basis.
- Statutory Minimum redundancy to help cushion any sudden economic shock from losing your job of 4 weeks.
- Redeployment, retraining and active labour market policies to get people back into paid work as soon as possible. Especially into jobs which are environmentally sustainable and long term and;
- Exploration of social insurance and longer-term structural reform consistent with the approach taken in European countries paid for by workers and employers which would pay out at a rate more consistent with that earned in paid work.
If these five things were able to happen – then we could truly say we appreciate, recognise, and applaud our essential workers in lockdown.
Because we do remember how important they were – don’t we?
[1] Stats NZ QEX 2020Q1
67 Comments
This 'Living wage' is a nonsense. Wages reflect the value of the production of the person employed. Anything above that is inefficient and unsustainable and is a 'tax' on the employer. A disincentive to employ.
Workers need incentives to better themselves via skills and education - not by legislation decreeing they have a higher value than what they are actually producing.
Simply incorrect. Wages decoupled from productivity in the 80s.
https://www.epi.org/productivity-pay-gap/
https://www.bloomberg.com/opinion/articles/2017-12-04/workers-get-nothi…
https://www.bls.gov/opub/btn/volume-6/pdf/understanding-the-labor-produ…
Quite frustrating to see a Top Five like this, and a comment like yours, this late in the piece.
Firstly, you cannot have 'rights' of any kind when you are running unlimited numbers of people, unlimitedly consuming within a finite system. This is as true for 'living wage' as it is for the UN SDG's. Both are bollocks, as proposed.
What we do is extract, consume and excrete resources, using another extracted resource; energy. Money is merely the socially-agreed (and often fought-over) proxy for future purchase of same. Increasing money, while reducing the resources of the planet, only reduces the purchasing-power of money. And the poor, even if they earn $1 less than you, will be outbid by you.
And productivity was labour - 200 years ago. That's where economists (and all their mantra-chanting followers, media included) get it wrong. Energy was what labour really was, and labour is down to less than 1% of the energy used on the planet. So productivity is about energy efficiencies, not labour. As such, it runs into diminishing returns via the Second Law. (All else we call 'work' - and Guyon Espiner dropped that ball big-time recently - is actially socially-agreed churn, as to who gets those resource/energy proxies.
If the writer wants more per-head access to resource and energy at the bottom end, either she has to advocate less people (it will never have occurred to her, is my guess) or she has to spread what is around more equitably. That will improve the bottom-end, a bit, temporarily. But of course we are reducing those resources rapidly (we burn around 100 million barrels of finite fossil oil a day; a rate which is having a global atmospheric impact) so equality measures will never keep pace from here on in.
Yes, I realise the economists have very obviously got it wrong, so instead I think we need to ask what the ethicists would do/are saying. I think this author is more an ethicist than an economist. Therefore, your comment about, if even just temporarily, does have moral merit.
In most practice, I'd agree with you.
But historically, economics as a sub-discipline grew out of the discipline of moral philosophy. - and then the sub-discipline (and in particular lead by economic theorists such as Milton Friedman) lost it's way;
https://theconversation.com/oh-the-morality-why-ethics-matters-in-econo…
Every year we train more and more in other perspectives (i.e., oddly these other ways are generally referred to as unorthodox, when ethical matters - such as public interest and social improvement - were originally the aim of the discipline). So I'm still hopeful that the economics profession at large will make itself morally relevant again.
I like to draw a distinction between working and having a job. Work is closer to the meaning in physics, the application of energy which in this instance results in the production of something. If you don't produce something then you don't work you have a job.
It could be broken down further. The average adult male needs/consumes perhaps 2200 calories per day. If they are not producing those calories then someone else has to. I assume what you are saying is that 95% of that calorie production is done using a finite resource rather than sustainable human input that is producing it's own needs as part of that production.
If that individual was more productive than other labor units he would be paid more. If he is not, then the efficiencies in production have nothing to do with his labor, but to other improvements in production methods.
Strip it away and to business the labor unit is a machine. You buy the most efficient machine. You do not expect govt to add a premium to the price of the machine because govt thinks that machine is worth more - even though there are plenty of idle machines available.
Brutal but true. But this is what we are up against in the big wide ugly world. A social mechanism to counter it is another matter
Well put Rastus. Our whole society was on a track, trying to offload 'costs'. Some were environmental costs like CO2 from our energy-use. Some were 'labour' energy costs, and we duck-shoved them towards slave-labour. Bangladesh, China, Mexico - we live in an 'economy' structured around taking from them and returning diddly-squat. Even stealing, in many cases. Fait Trade is a good stab at redress, but not everyone can 'afford' to pay the premium - due to overall shortage. So again, less people is better, it equals more resources and energy per person.
Scarfie is on the right track - guaranteed minimum calories is better than guaranteed minimum artificial proxy.
And some are away back in the dark ages, wittering on about NZ's productivity-gains being 'woeful'. Who said you could increase energy efficiencies ad infinitum? Only economists, it seems. Pity everyone else treated then as all-knowing.
Why are you quoting US data?
NZ's productivity growth over the previous 10 years has been absolutely woeful.
Since then wage growth at the lower end has significantly outpaced increases in labour productivity.
Rastus' comment is correct. If you are paying arbitrarily high wage rates you are always going to be chasing the living wage fantasy.
We should be addressing the causes as to why the living wage is determined to be so high. Not suggesting we rectify the issue by paying people ever increasing wages.
I think housing costs are indeed one of our outliers;
https://www.worlddata.info/cost-of-living.php
Point #3 in the article.
Okay. So hedging your bets.
Pretty much a capitulation to the fact that you dont know what's actually best. So the answer is we should do a little bit of everything.
I've got a better idea. How about, instead, we just be decisive, pragmatic, and efficient and address the fundamental issue driving the need for a'living wage' - the extremely high cost of housing.
So you'd agree then that accommodation supplements are a subsidy to employers as they no longer have to pay market wages - given the government is underwriting a large chunk of the living costs for employees and would otherwise have to pay more? Or have I got this wrong and that's somehow acceptable?
That's just the thing GV.. employers ARE paying "market wages", the market being set by the workforce. If they paid over the market, yes they would have happy and engaged employees. They would also have to charge more for their production and then lose customers, with the end result being liquidation. If all employers paid the "living wage" then all consumers would be paying higher prices so would be no better off (relatively speaking). Rastus is correct. Paying a higher wage for low skilled positions erodes the premium provided by higher skills thus disincentivizing self improvement.
I don't think I'm ignoring the lesson at all. Recent events have certainly provided a greater appreciation for these positions and that is overdue. However having a Govt mandated wage level that is pretty opaque in its calculation and may not be relevant outside of the bigger population centres is, in my view, a step on a slippery slope. The minimum wage is one thing, a Living Wage something entirely different. The higher the cost for a low skilled position becomes the more incentive for employers to dispense with that position. Automation in agriculture and retail are an increasing trend for exactly that reason - lower cost higher productivity
"Paying a higher wage for low skilled positions erodes the premium provided by higher skills thus disincentivizing self improvement."
Seeing wages in an industry depressed because employers have lobbied for unsustainable migration settings which also pushes up living costs to be met from already meager wages while at the same time suppressing wages hugely disincentives upskilling as well, but apparently we're pretending that the supply of labour is limited or something.
I'm not so sure about suppression of wages disincentivizing upskilling GV, I would have thought the opposite. Of course there is also an ambition factor at play in upskilling. However my point above merely aimed to say that why would someone take on student debt of many 1000s to get an entry level graduate position paying 60k or so when the same person could earn 45k straight out of secondary school? Or for that matter take on an apprenticeship with study and tooling costs for a similar annual wage (about 50k in the first year)
MM - This is a finite planet. We are an overshot species. The resource-base is about half drawn-down, and it was the best half we went for first.
So there is a definite ceiling, and it is lowering. That's a physical, inexorable, can't make it go away by adding money kind of thing.
So your 'spend more' and 'participate in' are up against a Limits to Growth problem. And an ethical one about how many future generations doi we allow for, of what population numbers, at what level of consumption? There isn't enough planet to allow for the next 7 generations to consume parts of it at the rate my generation did, yet you advocate more consumption?
Have a read of this: https://www.amazon.com/Collision-Course-Endless-Growth-Finite/dp/026252…
Not fast enough it's not.
We had three options. Birth control, famine/disease and war. We did't do birth control, we are spending zillions fighting disease - so govt has decided that;s out.
But we are spending up on the war machine....so there's the answer folks...we have picked WAR!
And the Limits to Growth problem is up against what?
Not science (it has clearly demonstrated the problem); not economics (it has clearly demonstrate the problem that the debt will never be repaid) - so what prevents us from acting on the problem? My answer would be ethics, we fail to apply an appropriate ethical lens to our species' place on the planet.
Lynn White Jr. suggested this back in 1967;
https://science.sciencemag.org/content/155/3767/1203
Right or wrong - it's worth a read.
I tried another link for you. It's one of the old classics - around the same time as Hardin.
When I retire, I'm going to devote myself to lobbying central government on the inclusion of classical ethics as part of the primary school curriculum. Last election Labour suggested they wanted to add 'civics' to the NZ curriculum but I doubt they meant to start the lesson with Aristotle. :-).
PDK, I understand this and 100$ agree with you. I'm not sure how you associated my support for a living wage with infinite economic growth, it is certainly not something I support, though I admit I was trying to sing to the capalists here. I appreciate you raising the issue. It is one of many failings of capalisim, along with privatising human needs in a way that means competition can't function and giving companies the same rights as humans in a court of law.
You have the crux of the problem right there.
That 'wage', is an expectation that it can be exchanged for 'stuff'. Call that stuff 'processed parts of the planet'. Without relating the amount of 'wage' to the availability of 'stuff', you run the risk of being exactly where we are now; depleted, overshot and increasingly in debt. The combined forward-expectation even now is unassuageable (well, I think it should be a word, even if the dictionary disagrees). So adding to it makes no sense.
Valuing things differently, and providing a safety-net at the bottom-end, does make sense. Something more akin to wartime rationing; more physical that remotely key-stroke-issued digits. Read the Carbon Diaries (there's two books) for a hint of how rationing might work. Thus a 'living age' will boil down to X kilos of butter, of flour, etc, and the Diaries raise the idea of a card-issued carbon ration. While we believe in, and talk in terms of, money, we miss the point. Scarfie gets it; we should be talking in calories.
Oh. and we have to abolish interest - although it appears to be doing a veery good job of abolishing itself.
You comment about corporate rights id quite correct. That is the illogical end-game when you try to divest 'costs', sans conscience. Parker failed us when he signed the TPPA; he was warned.
In the 1950's CEO's of large companies earned an average of about 20 times the pay of the typical worker. Now they get over 200 times that. In those years the richest 1% of Americans took home 9 to 10 percent of total income, today the top 1% get more than 20%.
So your argument is that CEO's produce 200% more value than the workers who actually create/process the product? What happens when they go to the toilet - production must plummet?
Well yes there would be - if you like management, then you would work in management. Some people really dislike the thought of being a manager - yet strive to climb the ladder anyway, just due to the increased remuneration. And that's a shame because they often make terrible managers.
One of our sons had a really interesting experience recently to do with his employment as an essential worker. He went out looking for another job during the COVID lockdown, seeking more pay. He found two jobs paying more. Went to his manager and explained he was going to resign unless the company was prepared to pay him an equivalent - she got, not only him the pay rise, but her entire staff the same pay rise.
That's a good manager.
Kate now I think YOU"RE missing the point. My post was originally about erosion of the "skills/qualification premium". many people become managers purely by virtue of no one else applying, I've seen it many a time in my industry but that's not the point I was trying to make.
Very good top five. I note many of the 'essential workers' have been told there will be no pay rise this year, as the Government will not provide the funding for it. But as indicated the vast majority, if not all, are not on great pay to start with. All well and good for a manager being paid over $100k to go without one, but the workers? And it is with the workers where the real value is generated.
I struggled with #5, as I am concerned with the segment of society who choose not to work and then expect to be given a benefit. But then as with all points of #5 there actually has to be the jobs, at decent pay rates available for people.
Excellent Top 5.
On Fair Pay Agreements the situation where "competition is based on ever decreasing labour costs rather than on increasing quality or productivity" could be no better illustrated than with the bus service debacle we experienced in the Wellington Region recently.
In accordance with the (then) National government directive to take the least cost tender - Wellington public transport spiraled into disaster. And why? Because the least cost tenderer set timetables between stops that were an absolute fiction - not even achievable on a no traffic/no customers basis. And that aspect rendering the service unable to deliver, was aside from the additional downgrading of work conditions for drivers.
And bus drivers too were essential workers.
What kind of society is it after this pandemic crisis that still argues against the true value of our essential workers? And in that I would also include all our agricultural workers.
It's a bit ridiculous to me that I am considering voting Greens, not for their environmental policy, but for their social policy. Labour needs to start representing labour, in order for the Greens to get back to what should be their core concern.
Apologies to pick on your last statement but Greens undermine labour (small l) with subsides and benefits you receive regardless of actual employment the lower the value of job. Lets take rent as an example if the greens guaranteed minimum income was to come in each person each adult is guaranteed to earning a minimum amount and the landlord can set the rents accordingly so a low wage worker will now find they have to compete with the unemployed for rentals which among other things will decrease their buying power from their labour. Yes the Greens also want to bump up the minimum wage but they are unlikely to push as hard for that as its not their flagship policy this election.
Instead we could give low wage workers more value by not panicking every time an employer can't find someone to work for the minimum wage and give low wage workers some scarcity or bargaining power that the rest of the labour force has.
You're referencing migration? If so, totally agree. The practically unfettered migration we've had the last 30 years has undermined the local market-clearing price for unskilled labour. And yet migration is supposed to be a benefit? IF so it's a trickle down benefit, trickling down to the migrant workers and not the local workers.
Primary yes. Just imagine if these essential workers could strike without there being an underemployed pool of labour available to replace them or employers asking employees to sign fixed work hours contracts because if they were not contractually obligated to work there would be no one there to step in for them.
Yes, I agree with giving low wage workers some scarcity - and that relates to immigration policy, does it not?
The point is, I don't necessarily like the policies they announced, but the point is they are the only party to announce any policies aimed at addressing inequality.
If I vote for them it would be a form of protest vote, given they seem a bit weak on environmental advocacy.
Yes, I see allowing mass low wage working visa as the main injustice being done to essential low wage workers. There would be a significant inflation increase for the rest of it but some of it would be adsorbed by lower asset prices and loan repayments. All work visa for non pacific seasonal workers should have min wage of $30 and even they should be netting more than the minimum.
The problem I have with the Greens policy on inequality is it provides nothing to these workers but more dependence on government handouts and unions. There's a few new subsidised jobs, rent subsidies and forced unionisation but increased housing costs to adsorb any pay gains. The plan looks to be to make this section of the economy centrally controlled. The low wage worker unions do seem a good job but as long as your easily replaceable there is only so much they can do. All NZ workers diverse better than this.
All I see in the Greens policy is rich to poor government wealth redistribution (with mainly Marxist justifications). But its badly done, so it will only increase housing costs until all the labour force is poorer and the landlords are richer.
NZ First has a policy of keeping regional jobs alive even if they are questionably viable and initially subsidised but keeping people employed is best thing for labour in a recession.
All excellent points. Fingers crossed COVID has done our labour market a favour. I agree the low wage worker unions have done an amazing job even given the hostile govt/immigration environment. Helen Kelly was of course a massive loss - I do hope we have more of her coming up through the ranks. Imagine what she could have achieved in a tight labour market.
Don't disagree on what the Greens policy actually is (purely re-distributive)... but your point about the high cost of housing to my mind requires much better regulation of the private rental market.
Unfettered low skill immigration has been used to generate a labour surplus at the low end. Stop that, and demand for labour will lead to a natural rise in wages.
Sure some employers will squeal. But business will adapt. Adequate wages are needed in high cost New Zealand.
Why would you aim for a low income country?
My interests are Micro-Economics and Behavioural-Economics. Most if not all of the discourse in NZ is dominated by Macro-Economists prognosticating ad-nauseum about the "productivity" of the NZ economy.
A common refrain is the need to use technology to lift productivity and break-out of the bottle-neck of declining productivity.
I do have form working for a large NZ company who set out to become competitive globally. With a number of subsidiaries in a group of allied industries it needed to convert from labour-intensity to capital-intensity, by mechanising and extensive use of technology. In most of the companies the labour costs were near 60% of total costs. To become competitive it had to get labour costs down around 30% of total costs. Bringing in low-cost unskilled migrant labour was not an option
From a NZ wide perspective labour costs in most businesses are a percentage of total costs. Particularly in the service sector. Cleaners, Aged Care, Health, Fast food. Clerical. Factory Labour. Infrastructure, Utilities. Chefs, Retail Managers
The New Zealand answer has been to reduce the macro-cost of labour by labour-intensive businesses by bringing in low cost temporary work-visas and low-cost unskilled migrant labour
I did a quick look at PGF grants to-date by sector. Really very sad how little went into manufacturing (3% of overall grants). This wouldn't have been because they (the PGF team) didn't favour manufacturing - it would have been because there just weren't the volume of applications from that sector. We will have to do better and start backing/believing in manufacturing/making stuff again.
Stop that, and demand for labour will lead to a natural rise in wages
Is migration alone to blame for low wages in NZ? By that logic, we should've witnessed record wage growth, particularly in the private sector, before 2013 when we were at a net migration loss.
Low wage employment in labour-intensive sectors leading to the bulk of job growth in the last decade or so has a lot more to do with our low income economy.
Between 2007 and 2019, low-skilled and unskilled jobs in NZ grew at roughly double the rate than the semi and highly-skilled categories: https://www.mbie.govt.nz/business-and-employment/employment-and-skills/…
Unfortunately our dear Banks and Govt don't invest in Hi Tech industries. All they are addicted to is low skilled / under qualified voluntary scape goats from developing countries who hand over large sums of money to the Universities and spend the remaining they have in the first 6 months.
Then its those same folks foraging for hard to get crappy jobs (Mind you there is a huge competition for those jobs) which only the lucky ones get. And bravo 55K per annum gets you past immigration............ what a joke ?
This country needs to invest into hi tech sectors which will attract highly skilled folks, rather than into the dumb housing market which we've made a mess of.
"They ensure that employers offering good wages and conditions do not find themselves undercut by other employers who compete through driving down terms and conditions – that is where competition is based on ever decreasing labour costs rather than on increasing quality or productivity"
How does this make any sense? if you get such massive advantage by cutting costs VS employing competent individuals to do the work, you must be producing/offering something very very low spec and easy to produce/offer. This only works in protected industries where the union decide what is to be produced, but what quality, sold for what price, with what quantity and it strives to prevent any competition to form by protecting their position.
In professional football (and other sport teams), paying the least wages attracts you the least talented squad and you will be relegated.
Sadly these are the people who are working but broke. Now who can they be ? Most locals would sit back and take a jobseekers benefit, the last thing for them is to be coerced into doing a crappy job by some work and income case manager (who does their best to dent their entitlement attitude).
In my humble experience, these poor folks are the ones who have no support ,neither do they have any other alternative except that to hold on to that crummy job for their dear lives. Too bad they've burned their boats coming to our shores.
What's more, only to be paying more that 40% of that pittance to some greedy landlord who's made a great investment (paid 200k over CV) and turned some centrally located 100 year piece of dilapidated crap into rat holes (Flat mating is what is called in Auckland for those unlucky ones, with good frolic guaranteed for those meticulous - fastidious over 35 yrs..... good luck when you expect to be called when you sign up after a viewing).
Now I don't agree that low skilled jobs need to paid on par with jobs which require experience and skill.........rather we need the damm housing issue sorted out so that the poor fellas can live reasonably well and have something to keep.
However that's not gonna happen, cause thanks to our banks and Govt we're addicted to debt and think this fools paradise is the new norm......the silver lining is we've gotten smarter at offsetting our dumb debt to the miserable ones, by getting them to pay it in the name of Auckland house rents).
The big question is, now that the tap of these voluntary scape goats is turned off for a while, what do with the remaining lot ?
Hmmm. As an essential worker who worked right on through whatever 'Levels' were applied, I see that the CTU view is of a carefully selected subset of Unionised EW's. So the comments are far from universal.
And as for the 'Living Wage', it's another one-size-fits-all, We Know Best solution. For starters, it ignores the wide disparities in living costs as between main cities, and as between urban and rural, and as between salaried vs hourly contractual arrangements.
I'll chip in one more thing here too - statutory redundancy provisions need a tool up to at least the level shown here. For too long redundancy has been the 'get out of jail free' card for employers who want a quick and easy option to restructure someone they don't want out of a job. If this charade is to continue then the ongoing erosion of redundancy provisions (experienced-based redundancies are now disappearing from contracts in favour of fixed period (e.g. two/one week(s)! regardless of how long you have been in a role) needs to be stopped and ideally reversed. This would benefit skilled workers as well as those at the lower end. Given some employers have recently had to use the broom, some will no doubt develop a taste for restructuring at short notice and go hell for leather in the coming months. Employees need more assurance and stability than that.
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