Bernard Hickey looks at the initial signs the Living Wage campaign is working to help companies and the economy alike

Bernard Hickey looks at the initial signs the Living Wage campaign is working to help companies and the economy alike

By Bernard Hickey

I had an unusual experience at a branch of The Warehouse last weekend that told me something had changed for the better at the 'Red Sheds', where 'Everyone gets a bargain'.

A surprisingly chirpy shop assistant asked me if I was having a good day. I was initially baffled, wondering if I had done something wrong.

As a man who tries to avoid shopping at the best of times, a trip to The Warehouse is something I think of as a chore.

I have become used to messy aisles, fruitless searches and cheap tat.

So a pleasant shopping experience was low on my list of expectations. Yet that's what I got.

The assistant actually seemed to be enjoying her job and was particularly efficient and helpful.

I actually found what I wanted. I won't dread my trip to The Warehouse quite so much in future.

The Warehouse is one of a growing number of companies and organisations who have started paying a 'Living Wage'.

Starting from August 1, The Warehouse began paying 4,100 of its workers a 'Career Retailer Wage' of at least NZ$18.50 an hour.

To qualify, they must have full training and 5,000 hours experience and the wage represents an effective pay increase of 10-20%.

The Warehouse's CEO Mark Powell estimated it would cost almost NZ$6 million in extra wages, but it was an investment worth making to improve profits in the long run.

"The front line in retail starts on the shop floor with enthusiastic team members and the competitive reality is that if customers aren’t served well, a business will ultimately fail," Powell said.

This week union researchers Eileen Blair, Annabel Newman and Sophia Blair delivered a paper to the Population Health Congress in Auckland on the experience of those employers and workers who have adopted the Living Wage, which is currently NZ$18.80 an hour and 32% above the minimum wage of NZ$14.25/hour.

They interviewed four employers and found a variety of reasons for adopting the Living Wage, including that they thought it was the 'right' thing to do for both their employees and the wider society.

But there were more practical reasons, including that they wanted their employees paid enough to buy their products, they wanted to reduce their staff turnover rates and they wanted them motivated enough to produce a great product or service.

"We're offering a really nice product and if my employees can't afford to eat it then that's not good. It's better for us as a business if they can afford to eat there," the anonymous employer was quoted as saying.

This is an age old argument for an apparently arbitrary increase in wages for workers.

Henry Ford doubled the wages of his factory workers to US$5 a day in 1914, arguing he wanted his workers to be paid enough to buy the mass-produced cars he was making.

This kind of thinking helped drive wages substantially higher relative to profits in the developed world over the following 60 years, creating a prosperous middle class that generated strong demand for goods and services, and therefore stronger economic growth.

This week the IMF downgraded its forecast for global economic growth this year, citing weak demand from highly indebted households and low investment by companies who can't see enough future demand from cash-strapped workers.

Employers also reported paying a Living Wage changed their own behaviour, forcing them to focus more on training and management to get more from their workers, who in turn worked harder and produced more in a type of virtuous circle.

One employer with a more mercenary analysis described the thinking thus: "I think if you were taking them from a minimum wage to a living wage you'd only need them to be another 30% productive to be cost neutral, and 30% is not a big jump, in terms of people wasting 30% of their time on Facebook and texting."

The Living Wage movement is one of the responses to the growing realisation in economic policy circles that slowing economic growth is partly because of a falling share of income going to wages, which in turn depresses demand and investment.

Some circuit breakers are needed to boost productivity and wages at the same time, and this is one of them.

The Warehouse is hoping it will be a circuit breaker for their retail sales, their profits and ultimately their share price.

For now, the Red Sheds have become the place where everyone gets enough of a Living Wage to buy those bargains.

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A version of this article first appeared in the Herald on Sunday. It is here with permission.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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... if the government chose to , they could assist the " liveable wage " idea by bringing in a  $ 0 - 18 000 tax free threshold , as they have in Australia ...
 
Why place so much of the onus on the productive sector , to hand out more to workers , when on the flip side of the same coin , the government could be taking less out of their wages in income tax ...

"Hand out to workers"??????????????????? What is this world coming to?

Oh shock horror it is showing signs its working.  Time to rethink GBH, oh in your case maybe not.
Yes lets have less income tax compensated by taxing those paying little or none, I am all for that.
regards
 
 

This topic needs a lot more work for the simple reason that minimum wage workers are by definition almost certain to be recipients of a number of social support payments: WFF, Accommodation supplement, in work tax credits etc etc.
 
Any increase in basic pay will immediately abate away these payments - leaving the worker(s) very little better off.
 
HIgh effective marginal tax rates have long been identified as a major impediment to the low paid and they will manifest themselves immediately with any increase in the basic hourly rate.
 
Perhaps someone more competent than I on this topic could give some detail as to the extent workers will actually benefit from basic pay increases net net in real world situations.
 
While it sounds so appealing at first cut - the reality on this issue is far more complex.

great comment JB --- the reality is that the benefits you mention not only keep people in the poverty trap and make wage rises almost meaningless, but they also remove a great deal of the desire and motivation for workers to upskill themselves and provide New zealand with the higher skilled and more productive workforce it needs.
 
To give you an idea JB -  i have a staff member who has had over 20K of payrises in the last four years -  single parent with two Children - with virtually no material benifit to her overall income until the first child reached 18.  Now she was highly motivated has improved her skills and ability and will shortly be taking up another post at a far higher salary - but for every one employee with this attitude - i have another 10 who say - why bother with overtime? who wants to manage staff? dont need the responsibility --- etc
 
Fact is for most of them - with children - they are absolutely right -- Without little immediate prospect of reaching the 90K mark that a family with two children needs before  they start losing all the State supports -- why take on all the extra hassle and responsibility -- and by the time the children are leaving home -  they will be closer to 50 and its will be very hard to retrain, upskill and find a job with significant financial benefits.
 
 

Pay _rises_ motivate.  Pay does not.  Receive what is seen as an entitlement does not.

So when you talk to the people at the top of the Food Chain in the Warehouse again... ask them (a) where the extra $3/hr (ie the $6M) came from ... and if it was avilable before why wasn't it paid to staff in normal annual increments.

Henry Ford doubled the wages of his factory workers to US$5 a day in 1914, arguing he wanted his workers to be paid enough to buy the mass-produced cars he was making.
 
The only reason Ford double wages was because he had large numbers of workers walking off the production line into better paid jobs.  

Actually Im not aware that is the case, got a URL? from what little Ive studied of Ford he created an eco-system of fairly well paid workers loyal to him and taht paid dividends for the company though he also worked them pretty hard.  So actually ppl wanted to work at Ford because it paid pretty well, now sure Im sure there was the odd hiccup in the plan....
regards
 

I heard the other way.
To make sure workers were properly supported, not ripped off, as a small margin cash cow, and to protect IP, Ford built an entire town near his factories that workers could rent cheaply and buy subsidised products.

And the workers complained like mad, went on strikes, and demand legal action because Ford was - in their minds - trying to rip them off.   They demanded that the Ford houses and food should be free, or cost (or in between).

People employed by Ford were often headhunted.  Either for IP and production information (schedules, parts, project information for tenders) or by competitors just to create disruptions in the factory.
  To stop this Ford put his wages up a huge amount to retain staff (and sold off his houses at a significant profit - while shaking his head at the stupidity).  In order to recoup his ex-costs he forced his workers to work extremely hard and he set extremely high quality standards (for the day).
 These effects motivated people, and are some of the effects I prosetilise because they go against the common thought.

1 -People didn't want good jobs....they wanted to be able to look down on others who had not so good jobs.

2 - People didn't want cheap rent as that was seen as a cost and benefit to a landlord...they'd rather buy and sell expensive houses.  
People didn't mind long hours and insane work schedules, in fact it often motivated them! ...they felt it made a better product (feeding into ego of point 1) and as long as a carrot was dangled it made them feel like they were better off (see point 1)

3 - It was important not to let the people acheive what they wanted (best job, top wage, best product) as they would get complacent and they were used to wanting more

4- A real balance between achieving goals (to give positive feedback) and peoples opinion of whether a target was acheivable (otherwise they don't bother).  Most people needed encouragement (propoganda) to chase the carrot.

5 - US image is everything so spin it all in a way that makes it look socialist and like the boss is the best guy out.  US people like to follow a popular leader (and will ignore facts and proof of the opposite if he appears popular enough)

6 - That all added up to something desirable in the US public mindset - that meant people _wanted_ to work there and so it gave extra prestige to those who were there (and being overworked).  see point 1

The year prior to the wage rise Ford had hired no less than 52,000 workers in order to maintain a workforce of 14,000 at any one time.  That is massive turnover and the extra costs in hiring and training more than paid for the wage rise.
The whole pay people more so they can buy cars is pure ballony.  Ford sold 200,000 cars in 1914, so even if everyone of those 14,000 bought a new car every year, it's not going to add even 10% onto his sales and the wage rise would cost far more than the value of the cars sold.  That's a very good way to go bust.  If he wanted them to have cars so badly, why didn't he just pay them with a car instead?

A much more cynical explanation immediately suggests itself.
 
The Red Shed has at one stroke removed itself from the firing line from the perpetually disaffected, the chatterati, and the rent-a-causista.
 
The Shed's response can now simply be:  'Not us, buddy'.  
 
This is not, of course, the case for, say, a bakery in a struggling provincial town, where that $3/hr for each toiler thus employed, comes straight out of the owner's already pitiful return.....
 
And, further, the EMTR arguments, welfare and poverty traps etc, should not be seen as unfortunate or unforeseeable or unintended consequences.  To a certain political stripe, they are seen as swelling the electoral rolls with the Right Sort of Voter.  People who will reliably Vote for the Hand that Feeds, and can be easily swayed to Reject the Helping Hand which could guide them out of the morass.
 
As usual, the artists got there long before:  Rainmakers, Government Cheese
"They'll turn us all into beggars 'cause they're easier to please"
 

Bernard.......why all the spin in this article?
Firstly unemployment rates have been declining which simply places pressures on wages.
If you want staff retention you have to meet the market and pay higher wages or good staff will simply move on to other higher paying employers.