We blogged yesterday about the important and growing influence of trade unions on the Labour Party. Affiliated trade unions support the Labour Party with cash, promotion and labour, and the Labour Party responds with union-friendly policies.
3News reports a development which, whilst it will be welcomed by the unions, will be less favourably received by employers:
3 News has learned Labour is planning to lift the minimum wage from $14.25 to $16 an hour in its first year.
Unions have been lobbying Labour on the issue, but the pressure is still on; they want much more.
Labour leader David Cunliffe is comfortably nestled between Labour's union affiliates.
"Colleagues, comrades – we are part of a broad labour movement," says Mr Cunliffe.
The unions are strong within that movement. They are pushing hard for a jump in the minimum wage.
Labour has already indicated two increases in its first year – one before Christmas from $14.25 to $15 an hour, and today came the details of the second.
"Even that's starting to look a bit stingy, so we're looking at a further increase within the first year," says Labour's labour spokesperson Andrew Little. "I expect it will be up around $16 an hour."
So $16 an hour by April next year – for the unions leaning on Labour, it's a pay-off, but just a start.
Increasing the minimum wage from $14.25 per hour to $16 per hour represents a 12.3% increase, by April next year. But that's just the start; read on:
"It needs to be more, above $18, but it certainly would be a big boost," says president of the Auckland Service and Food Workers Union (SFWU) Jill Ovens.
"I think the second increase needs to be more than $16; it needs to start moving to two-thirds of the average wage over the term of the Government," says CTU president Helen Kelly.
Two-thirds the average wage is $18.80. It's also the ideal minimum for Labour's man in charge of wages.
"It's a good target to have, yes," says Mr Little.
But it's a high target, even more than Australia's minimum wage of $18.10.
We've blogged in the past about rises to the minimum wage and the proposed Living Wage. Rises of the magnitude suggested by Labour and its union affiliates are quite simply unaffordable for many employers.
Let's say for example a business here employs an office junior on $15.00 per hour, administration and customer services staff at $17.50 per hour and an office manager on $20.00 per hour. The immediate decision is the pay rate of the office junior; does the employer then pay her just the new minimum wage of $16.00 per hour, or continue to pay her around 5% above the minimum wage? If the employer decides to preserve the margin, the office junior's pay is immediately going to go up to $16.80 per hour.
The employer now has a dilemma. The admin. and customer services team (let's say for argument's sake there are five in the team, working 35 hours a week) are paid $2.50 per hour more for a reason; the value they add to the business, and the greater complexity of their work. So the boss has the choice; increase their hourly rate to $19.30, or have an unhappy staff.
Then there's the admin manager; (s)he too is paid $2.50 an hour more than the staff (s)he manages because of the added responsibilities that go with the role. So the admin manager's hourly rate is increased to $21.80.
Just like that, the weekly wage bill has increased markedly. The cost of the office junior has increased by $54 per week (30 hours at $1.80 per hour), the cost of the administration and customer services team has increased by $437.50 (35 hours at $2.50 per hour times five), and the cost for the admin manager has gone up by $100 per week (40 hours @$2.50 per hour). In the office alone, the wage bill has just gone up by almost $600 per week, without a thought give to wage rises for the technical and sales staff!
The business owner has two choices. He either puts his prices up by 12% which in a competitive, price-sensitive market risks loss of market share, or he cuts his staff costs by either reducing hours, or deciding that four staff can do the work currently being done by five staff in the administration and customer services team. Who wins then?
The unions may see Labour promising them a 12% rise in the minimum wage in return for their cash and kind support as a very good return on their investment. But the unions will also be the first to complain when our hypothetical business owner decides he has to let one of his staff go because wage costs have become prohibitive and he simply does not have the cash to pay his staff.
Increasing the minimum wage by this kind of margin is a simplistic solution to a complex problem. Given that more New Zealanders are employed by small and medium businesses than by the super-rich corporates and John Key's Rich Mates the solutions proposed by Labour and its union affiliates will impose a disproportionate burden on businesses which cannot afford that burden. There will be job losses, and some businesses will fail. Again we ask; who wins then?
The unions may be demanding a higher minimum wage as quid pro quo for their cash support. But Labour needs to take a far wider view of the economy as a whole, and not make promises to its affiliates which will damage the wider economy.
