The Living Wage has an admirable purpose;
"A living wage is the income necessary to provide workers and their families with the basic necessities of life. A living wage will enable workers to live with dignity and to participate as active citizens in society.”
The general concept of a living wage is good, but we feel that there are some deficiencies in the way that the living wage currently works in NZ. There is no consideration given for:
- households with dependents vs households with no children
- single income households vs dual or multi-income households
- regional differences in the cost of living
Encouraging businesses and organisations to pay a living wage across the board requires buy-in from those businesses and the general public, and buy-in requires the perception of fairness.
Is it fair that a single person earning the living wage in a small provincial town can live a relatively comfortable life while a single-income family earning the same living wage in a large city still struggle to make ends meet?
It's true that most people have the option of living further and further away from their work and commuting long distances, but that goes against the purpose of a living wage to "enable workers to live with dignity and to participate as active citizens in society", and eventually increased transport costs could outway accommodation savings.
Leaving aside the issues of single vs dual-income and no-kids vs large family, it's worth taking a look at regional cost of living differences to determine how much of an impact a person's residential address will make on their disposable income.
To do that we'll work through an example with the following assumptions:
Current living wage: $21.15
- Family with 2 kids
- One parent is working full-time on the living wage
- The other parent is working half-time, also on the living wage
- 21.15 * 40 * 52 =
- $43,992 gross annual income
- $35,342 net annual income
- (+ $1320 Kiwisaver @ 3%)
- -> $680 net weekly income
- 21.15 * 20 * 52 =
- $21,996 gross annual income
- $18,161 net annual income
- (+ $660 Kiwisaver @ 3%)
- -> $349 net weekly income
Before benefits this family will receive a combined:
- $65,988 gross annual income
- $53,502 net annual income
- $1,029 net weekly income
WFF Tax credits on that income will yield an additional $98 per week
Combined net weekly Cash-in-Hand: $1,127
How much cash would that family be left with each week after paying for accommodation in a selection of different areas around the country?
Since this is a 4-person family earning a combined 1.5x the living wage, we'll assume that they rent a 3 bedroom house in a working class suburb or town.
By sampling median rents for 3 bedroom houses on the Tenancy Services website, we have come up with the following figures:
|NetPay + WFF||Rent||Cash after rent|
|Auckland: Three Kings||1127||650||477|
|Upper Hutt, Trentham||1127||530||597|
Weekly cash left after paying rent3 bedroom house, Household income 1.5x Living Wage
And there we can see the remarkable difference that location makes to family disposable income when earning the living wage. If our example household lived in Invercargill they would have up to 73% more disposable income than a comparable family living in Three Kings Auckland. A family living in Wanganui would have 33% more disposable income that a comparable family living in Upper Hutt.
What could be done to make the living wage fairer?
Of course there are no easy solutions. There is a lot of merit in having a single national living wage as it's easy to understand and to promote - but is it really fair?
One possible solution would be keep the national living wage and to supplement it with higher regional living wages in certain higher cost areas. The national living wage would become a "minimum" living wage and would apply to much of the country. Higher cost areas would have a regional living wage supplement based on the physical location of the office or factory where employees do the bulk of their work. Remote jobs would continue to use the national minimum wage.
Let us know here at salaries.co.nz what you think about this suggestion and/or get in touch with Living Wage Movement Aotearoa New Zealand to send them your thoughts.