Living Wages and Raising Rivals’ Costs

By Eric Crampton 13/02/2013 4


In an impassioned plea against the unions’ forthcoming ‘living wages’ campaign, Matt Nolan deplores that unions push for this kind of thing without considering the costs:

I mean I swear to god unions, and their determination to get what they want without thinking about the consequences for other people, makes me sick.  There are people who struggle, and as a society I think we should try to help them – part of this is ignoring faux research by unions, and making sure that we actually push government to sufficiently redistribute to the poorest among ask (with the acknowledged cost that this redistribution does lead to less income/production overall).

I’m not sure that they’re failing to consider the consequences; raising rivals’ costs is a pretty established technique for improving one’s position. But that might not be everything that’s here going on either.

The Herald reports* that the campaign will first target local councils. As John Gibson showed a couple of years ago, public sector workers already earn an 18-22% wage premium over the private sector, correcting for a big pile of worker and job characteristics. His paper didn’t split Council workers from other public sector workers, so maybe Councils pay substantially less, but it hardly seems likely. They’re not the first place you’d look to push if you were wanting to raise low-band wages. But they are likely the most sensitive to political pressure from union-based campaigns.

A few things to note:

  • If Councils push wages up for Council employees, non-Council companies will start winning more of the tenders for contracted-out services. If Councils then are likely to require that companies taking tenders implement living wages, we could view this as a Union strategy for raising rivals’ costs. 
  • If the cost of Council services as a whole go up, the burden falls on ratepayers; Council service provision seems likely to be pretty inelastic to costs, and I’d expect especially so since Auckland city cartelisation.
  • Private business owners will rightly ignore the campaign, unless they think that warm glow enjoyed by customers would make the wage increase worthwhile. My bigger worry on this front is that some future government could formalise things by requiring living wages for all government contractors. 
  • In general, the burden of assisting the working poor is better born through things like Working For Families – the overall tax system – than by the firms employing low productivity workers and the people purchasing their products and services.

Chris Dillow very nicely made the case against living wage mandates last week: the costs of disemployment far outweigh the gains made by those remaining in employment. And recall as well that there is no particular reason that all wages need be sufficient for raising a family anyway: there are tons of jobs that are usefully done by high school students and other part time workers before they move on up to bigger things. Forcing those jobs to pay a lot more than they otherwise would will kill a lot of entry level positions.


As I suggested last year,

We can mandate that all wages are living wages, but we can’t mandate that all the people who’d like to have work at that pay are able to find jobs.

* I’m not sure if they’re reporting or campaigning here. A week-long series of articles timed to coincide with the Unions’ policy launch? How much did the Herald charge the unions for the advertorial? The Herald advertises the forthcoming series:

The series
Today: Who earns below $18 to $20 and why
Tomorrow: Exploited migrants
Wednesday: Cleaning wars
Thursday: Living wage unveiled

Update: Partial retraction. The “Exploited migrants” story is rather good, much of it being about what you’d expect given how immigration policy runs (though they don’t quite paint it that way). Restrict students on a visa to 20 hours work, and those willing to work more are then complicit with their employer in visa fraud. They can’t really then do much without risking deportation. Require evidence of employment for a permanent resident’s visa, and some will pay people to hire them.  


4 Responses to “Living Wages and Raising Rivals’ Costs”

  • Working for families comment.

    I gain additional support through this system of tax credits, but what about the working poor who are not supporting children. Even those who are helping to support wider family networks? Working for families is great, if you are a nuclear family, or similarly ‘normal’

    • I’d expect that the main reason would be that adults in other wider family networks would themselves have access to the various social support systems.

      And that IRD has an easier time verifying the current arrangements.

      Not saying it’s right or wrong though.

  • Well, the comment was

    “the burden of assisting the working poor is better born through things like Working For Families”.

    That highlights that the only poor worth assisting, are those with children. Or is it that people that have children could be poor?

  • I’d expect that the median voter is more sympathetic to the working poor with children. There’s no particular reason that you couldn’t have something like WFF as wage supplement for workers without children.

    On all this stuff, my argument is only “If you want to do something to raise the wages of the working poor, do it through tax credits rather than through minimum wages.” I’m not taking any position on the desirability of that goal, or how broadly it should be based.