A living wage – not at crazy as the right says

I’ve just seen a very backward and unusual article that Rodney Hide has written for the New Zealand Herald. It talks of the left’s “latest cause” for a “living wage”. Personally, I disagree with both the left’s “let’s raise the minimum wage” stance on a living wage, and the right’s “the market doesn’t agree so neither do we” stance. But more on that later. In the article, Hide slams the left for asking for a “living wage” because the left have never run businesses so don’t know what they’re talking about. He also said:

We are very lucky to have [business owners]. The income they generate pays all our wages, either directly or indirectly.

as well as:

Lefty politicians pay lip service to small business. And then attack big business. But big business is just a small business that succeeds.

It’s incoherent to be for small business but against small business succeeding.

I don’t think there’s any other way of looking at this, other than to say Rodney Hide is just plain wrong. Let’s look at this point-by-point.

Firstly, it’s absurd to say no person on the left has ever run a business. It’s simply not a fact.

Secondly, to the comment that business owners are generating the income that pay wages. Again, absolutely absurd. Try running a successful medium to large business without any staff. Yeah, that income the business owner is supposedly generating isn’t there without their staff. The staff and management both have a role in generating income, neither has the sole bragging rights on that one. If anything, the people lower down the food chain create more of the income than those higher up.

Thirdly, to the big business = successful small business comment. Yes, it is true that a big business had to once be a small business. However, it is unfair to small business owners to say that a big business is a success and a small business is not. Some small businesses don’t have the staff to move to the larger scale. In others, the owners don’t want to get bigger, because the bigger the business gets, the less control they have, or another of a huge range of reasons for not wanting your business to grow.

Finally, to the actual concept of a “living wage”. Let’s go with some basic economic principles there.

  1. Businesses increase wages to a “living wage”
  2. Workers can afford to increase expenditure and savings
  3. Increased savings mean banks can lend more allowing for greater investment, creating more jobs. Increased expenditure creates higher profits, allowing either greater investment or greater returns for the investors.
  4. More jobs means more money for workers.
  5. More money for workers means they can increase expenditure and savings
  6. Repeat from step 3.

It’s a cycle of mutual betterment. The only problem is no one in business wants to be the first to hit step one, because if everyone’s not doing it, it doesn’t work. The left says it should be done by the Government, by increasing the minimum wage. The figure floated around is usually around $15 per hour. However, that won’t work. Businesses will see that as a compliance cost, rather than investing in their workforce. Because they see it as a compliance cost, they will raise their prices. That will mean nobody is better off, because the increased wage is just offsetting the price increases.

Business needs to take the lead on this. Government simply can’t do it. What Government can do is encourage businesses to increase wages. A bit of an education campaign might help. Raising the minimum wage, however, won’t.


About Daniel Farrell

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Posted on March 10, 2013, in New Zealand Politics and tagged , , , , . Bookmark the permalink. 2 Comments.

  1. Daniel,

    You are writing about things you don’t quite understand. Did you take Economics 101 yet? If you did take Economics 101 already, you better do some review.




    • Any chance of an example of what you think it so drastically wrong? I have gone further than Economics 101 actually, and I see no reason why this is wrong. If you would care to explain, that might be helpful.

      Thanks for reading.

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