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.