The false hope offered by talk of a living wage



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Supporters outside the offices of the Fair Work Commission in Melbourne on Friday, June 1, 2018 after it lifted the minimum wage by 3.5%
JOE CASTRO/AAP

John Freebairn, University of Melbourne

Labor is promising a “living wage” rather than a “minimum wage” if elected.

It will ask the Fair Work Commission to first determine what wage would offer a “decent standard of living for families”, and then to determine the time frame over which it should be phased in, taking into account the capacity of businesses to pay, and the potential impact on employment, inflation and the broader economy.

It is selling the idea of what would be a very big increase on the present minimum wage as “good for workers and good for the economy”.

“Consumer spending makes up 60% of the Australian economy,” its employment spokesperson Brendan O’Connor said. “When low-paid workers get a pay rise, they spend it in the local shops and help small businesses. It’s good for everyone.”

The idea harks back to the 1907 Harvester judgement, in which an arbitration court judge decreed that wages at a Melbourne factory should be based on the cost of living “for a worker and his family”.




Read more:
Budget explainer: why is Australia’s wage growth so sluggish?


To get there from the current bare minimum wage of A$18.93 per hour would almost certainly require increases bigger than the sum of productivity growth and inflation, which are running at a combined annual rate of around 3%.

Unacknowledged by Labor in spruiking the policy this week was the fallacy of its consumer spending argument, the cost of the proposal to jobs, and the likelihood that it won’t much help many of the people who need it.

The false increased spending argument

One of the claimed benefits of a living wage is that employees will spend most of their extra income, resulting in large increases in national spending, national income, and even the tax take.

An implicit assumption is that the extra money comes “as manna from heaven” with no second-round effects.

But given that other labour costs won’t come down (it is hard to see executive pay being cut), the labour cost for each affected business will climb, pushing down returns to the providers of capital, including the returns to shareholders and small business owners.

With lower returns, less capital will be put up to invest.

Where businesses can, they will pass on the increased costs not matched by increased productivity by increasing prices.

They will get away with it unless they face competition from imports or other exporters.




Read more:
‘Once upon a time, when Australia had a steel industry …’


Where import competitors and exporters face international competition, they will reduce output. In turn, the greater amount of money sent out of the country will eventually push down the Australian dollar, pushing up the Australian dollar price of import and export products.

In the short term, the increases in prices of goods and services will cut the purchasing power of the wage increase. In the longer term, it might create a vicious cycle of wage and price hikes, with adverse economic consequences.

The bad news on jobs

It is well established that wage increases above the rate of productivity growth plus inflation lead to less employment than there would otherwise be, in both the number of employees and the hours worked per employee.

Labour costs are a major expense for most businesses.

In response to higher labour costs, many employers will choose less labour-intensive ways of making their products. The large and rapid wage increases in the mid-1970s and early 1980s resulted in sharp reductions in employment. In contrast, the recent low rates of labour cost increases have helped drive significant increases in employment and a fall in unemployment.

With the Australian economy facing a likely slowdown over the next year or two, a large increase in wages might be particularly poorly timed.

The false hope for those most in need

Universal education and health care, and the redistribution of income via social security payments funded by a progressive income tax, are the most direct and effective ways to fight household poverty.

The world today is very different to the world of the Harvester case in 1907. Then, most workers were in full-time employment and needed a living wage to support a family. Now, about a third are employed part-time. Redistribution via the tax and payments system is how we support families who need it.




Read more:
A national living wage is on the table. Now let’s talk about a global living wage


A higher minimum or “living wage” would provide minimal assistance to some on low incomes, and would lift the incomes of many others not generally considered in need of support.

Many of those below the poverty line who are only employed part-time or not at all would not be lifted out of poverty. A higher living wage would provide more to those already in full-time jobs than it would to part-time workers.

And it would provide more to low-wage employees who are members of high-income families, who probably shouldn’t be our first concern.

We can do more more directly to alleviate poverty by reforming the income tax and social security systems. They are specifically designed to redistribute income according to need.

We should start by reducing income tax on low earnings, automatically indexing tax brackets, and increasing Newstart.The Conversation

John Freebairn, Professor, Department of Economics, University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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A national living wage is on the table. Now let’s talk about a global living wage



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Australia’s Harvester Judgement of 1907 defined a living wage as ‘fair and reasonable’ payment sufficient for an unskilled worker to support a family in reasonable comfort.
http://www.shutterstock.com

Shelley Marshall, RMIT University

The idea of the living wage is back on the political agenda. In the United States the Democrats are proposing to double the federal minimum wage. In Australia the federal Labor Party has promised to deliver a living wage.

“A living wage should make sure people earn enough to make ends meet, and be informed by what it costs to live in Australia today – to pay for housing, for food, for utilities, to pay for a basic phone and data plan,” Opposition leader Bill Shorten said this week.

The principle of the living wage is the subject of my book published in January. To write the book I spent five years researching working conditions in countries including Australia, Bulgaria, Cambodia, India and Thailand.

What my research underlines is that there are limits to thinking about a living wage for Australian workers without also making the principle global.

A ‘reasonable’ standard

Australia first embraced the living wage more than a century ago in what is arguably the nation’s most famous labour law case. The Harvester Judgement of 1907 defined a living wage as “fair and reasonable” payment sufficient for an unskilled worker to support a family in reasonable comfort.

In deciding exactly how much income was needed to assure this, Australia’s Conciliation and Arbitration Court examined 11 households to determine the cost of typical living expenses. These included lighting, clothes, boots, furniture, insurance, union membership, sickness, books, newspapers, alcohol and tobacco.




Read more:
Explainer: what exactly is a living wage?


Twelve years later the principle was enshrined in international labour law, when the International Labour Organisation was established in 1919. It defined a living wage as one “adequate to maintain a reasonable standard of life as this is understood in their time and country”.

A century on, Australia’s industrial relations system has long abandoned the central premise of the living wage. Around the world being paid enough to live on remains elusive. We are all intimately connected to many of these workers. They have assembled the phones we handle. They have sewn our clothes.

Women in Bangladesh who make clothes for brands such as Big W, Kmart, Target and Cotton On earn as little as 51 cents an hour, according to an Oxfam report published last month.

The report is based on interview with 470 garment workers in Bangladesh and Vietnam. Three-quarters of the Vietnam workers and all of the Bangladeshi workers earned less than a living wage (as calculated by the Global Living Wage Coalition).




Read more:
It would cost you 20 cents more per T-shirt to pay an Indian worker a living wage


Fear of capital flight

It is very hard for workers to mobilise for higher wages in many countries around the world. In January 5,000 garment workers in Bangladesh were sacked after going on strike for higher wages. During protests, police shot dead one worker. More than 50 others were injured.
Striking garment workers in Cambodia have also been shot dead by police during protests.

Especially in price-sensitive industries, globalisation exerts strong pressure on governments to keep minimum wages low, lest any increase lead to “capital flight”. This competition pits countries in a race to the bottom.

Should labour costs go up in Bangladesh, for example, its government fears garment brands moving production to, say, Ethiopia. It’s a legitimate fear; in my 15 years of research I’ve seen whole garment factories dismantled and trucked across borders to countries where the labour is cheaper.

Cooperation is the answer

The obvious solution would be for countries to cooperate and raise minimum wages collectively and incrementally (at an agreed percentage every year). This approach would help overcome “first mover risk”. Business would have less incentive to look for cheaper labour elsewhere.

For this to occur would, of course, require huge amounts of international political good will. Nation states would need to put aside the tendency to think in terms of immediate self-interest and work cooperatively for mutual benefit.

Here we face a problem with the architecture of international law in general, and labour law in particular.

Though the principle of a living wage was enshrined in the treaty that formed the International Labour Organisation, it is not codified in any of the eight fundamental international labour conventions. These cover forced labour, child labour, workplace discrimination and the right to unionise.

But even if it was, that wouldn’t necessarily make much difference. International law isn’t the same as national law. Most international treaties, conventions and agreements are not enforceable. There is no real penalty for any country that refuses to sign, nor for any signatory failing to meet its obligations. The ILO cannot enforce targets in the way needed to address a problem this big.

Emulating trade law

However, there is one area of international law that comes close to what we usually think of as law: international trade and investment law.

In addressing goals like reducing tariffs, countries faced similar coordination problems. Beginning with the General Agreement on Tariffs and Trade, which came into effect in 1948, half a dozen major multilateral trade deals were negotiated before the agreement in 1994 to establish the World Trade Organisation.

The WTO has since adjudicated hundreds of disputes in which one nation has accused another of failing to meet its WTO commitments. Investors can also take states to tribunals to seek compensation for unfair behaviour. States take these tribunals very seriously.

Why not emulate this architecture of international trade law for living wages?

Concrete targets for raising wages could be set through multilateral agreements. Countries would increase wages incrementally, by a certain percent each year, in a coordinated fashion, until they reached a living wage level.

An international tribunal would hear claims against states accused of failing to raise or enforce minimum wages as agreed. National tribunals would adjudicate cases involving corporations.

Cambodian garment workers, for example, would be able to take their government to the international tribunal for failing to raise wages or enforce minimum wage laws. A state held liable to pay compensation for wage breaches could pursue factory owners or their international buyers through national tribunals. This would be an incentive for states to police their own labour laws.

Instead of having separate national conversations about living wages, now is a good time to start the conversation at a global scale.The Conversation

Shelley Marshall, Vice Chancellor’s Senior Research Fellow, expert in corporate accountability, RMIT University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

It would cost you 20 cents more per T-shirt to pay an Indian worker a living wage



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A farmer harvests cotton in Maharashtra, India.
Shutterstock

Murray Ross Hall, The University of Queensland and Thomas Wiedmann, UNSW

If we really care about protecting the people who make the things we wear and use, we need to raise wages for workers in supply chains to above the poverty line. Our research shows that this only requires a 20 cent increase in the Australian retail price for a T-shirt made in India.

This small increase can lift wages by up to 225% in India, closing the living wage gap for the most vulnerable workers in the supply chain, such as cotton farmers. The living wage gap is the difference between a living wage and current wages.


Read more: Explainer: what exactly is a living wage?


The living wage is the income required for a decent standard of living for a worker and their family. It lifts the worker above the poverty line and is defined by the costs to meet basic needs such as food and shelter. It also limits the number of working hours per week required to meet these needs.

A living wage has long been advocated as a way to support vulnerable and exploited workers. About 42% of all workers globally are in insecure jobs and have no social protections, 29% remain in moderate to extreme poverty and about 25 million people are in slavery.

Many of the goods we now buy are part of global supply chains. Since the 1980s the production of labour-intensive products such as textiles and footwear has shifted to countries with low-cost labour.

Cost-cutting often impacts those with the weakest bargaining position, such as cotton farmers – cotton prices have been on a downward trend over the past decade. Without realising it, our demand for low prices can cause vulnerable workers in other countries to work for less than a living wage.


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Our research calculated the living wage gaps in India, broken down by region, gender, skill and type of employment. For instance, female workers on cotton farms in Gujarat earn 207% below the living wage. Casual female workers in Haryana have a living wage gap of about 34%.

It would take on average a 15 cent price increase on T-shirts in Australia to close the living wage gap for cotton workers in India. Adding another five cents would close the living wage gap for Indian textile workers, and also account for the increase in agent fees, which are a percentage of the production costs.

The living wage gap may be larger or smaller on particular farms or factories, but a 20 cent increase on average would be sufficient to lift all Indian workers in the garment supply chain out of poverty.


Read more: Why the fashion industry keeps failing to fix labour exploitation


The small cost to address poverty and climate change for producing a T-shirt in India. Murray Hall.

How we can raise the living wage

The cost to close the living wage gap in developing countries is small because wages for workers in these countries make up only a fraction of the retail price charged in countries like Australia.

Our work shows it costs about A$5.30 to produce a T-shirt in a country like India and ship it to Australia. The remaining costs embedded in a A$25 T-shirt come from warehousing, distribution and retail costs within Australia itself.

As a result, a 20 cent increase represents a less than 1% increase in the Australian retail price. It would cost only another 40 cents to cover the cost of greenhouse gas abatement. This means an ethically made T-shirt would only cost 2.5% more than current prices.


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A roadblock to implementing living wages is simply knowing the source of materials. Only about 7% of fashion companies in Australia know where all of their cotton comes from. Unless an Australian retailer specifies the source of cotton, the decision is made by the overseas textile contractor, often based on price.

Another challenge is that we need an accepted method for calculating and auditing the payment of living wages in the supply chain. The retailer needs to know how much the cotton farmer should be paid and have a system to check it has been done.

Over the past four years consumer pressure has pushed fashion companies to understand their supply chains and to consider paying living wages, but there is still a long way to go.


Read more: What businesses can do to stamp out slavery in their supply chains


In 2012 a group of the world’s largest ethical trade organisations formed the Global Living Wage Coalition.

This organisation has developed a manual for measuring the living wage and requiring? living wages to be paid to their producers. The producers are audited along the supply chain and in return can advertise their compliance with ethical standards. Shoppers will soon be able to look for a label – similar to the Fairtrade symbol – to know that living wages have been paid throughout the supply chain.

The ConversationThe famous economist John Maynard Keynes argued that consumers are not entitled to a discount at the expense of the basic needs of workers. In fact, we only need to pay a small amount more to provide a living wage and make a big difference to the world’s poorest workers.

Murray Ross Hall, PhD Candidate, School of Earth and Environmental Science, The University of Queensland and Thomas Wiedmann, Associate Professor, UNSW

This article was originally published on The Conversation. Read the original article.

Explainer: what exactly is a living wage?


Joshua Healy, University of Melbourne and Andreas Pekarek, University of Melbourne

Australia’s national minimum wage should become a “living wage”, according to a new campaign from the Australian Council of Trade Unions (ACTU). But what exactly is a living wage?

In theory, a living wage is no different to a minimum wage. Both set a binding “floor” on wages, below which no employee can (legally) be paid. But in practice there are several differences between minimum and living wages, in their value, purpose, and adjustment.

A living wage is set higher than a minimum wage and may be “pegged” to (fixed as a percentage of) some other measure of living standards, such as average weekly earnings. This ensures that the living wage holds its relative value over time.

Essentially, while the minimum wage sets a bare minimum, the living wage aspires to be a socially acceptable minimum. Typically, this is seen as a level that keeps workers out of poverty.

But the point at which workers fall into poverty varies widely, due to differences in family responsibilities, and complex interactions between low wages and welfare payments. These factors necessarily affect how the level of the living wage would be set and adjusted.

The idea to shift to a living wage follows a string of bad news about pay. Many vulnerable workers have been denied their minimum entitlements by employers. Wage growth is so slow that even the Reserve Bank Governor has encouraged workers to demand pay increases. And workers are getting less of the national income, as capital owners increase their share.

Living vs. minimum wages

Australia’s national minimum wage is set each year by an expert panel of the Fair Work Commission (FWC). The panel receives submissions from a wide range of organisations and conducts research to inform its decisions.

Increases to the minimum wage are based on objectives enshrined in law. These refer to different factors, including business competitiveness, employment growth, and the needs of the low paid. There is no specific mention of poverty in the current objectives. Nor is there a fixed relationship with any other measure of living standards.

In other countries, minimum wages and living wages co-exist. In the United States, long periods can pass without increases in the federal minimum wage, as there is no mechanism for its regular adjustment. This has led many local governments to set their own mandatory living wage ordinances, above the federal (and state-level) minimum wages.

The situation is different in the United Kingdom, where the Low Pay Commission recommends a national minimum wage increase each year. Even there, the movement for a voluntary “real living wage” has strong support from employers.

If the ACTU plan became law, Australia’s living wage would differ from the US and UK models. It would replace, rather than complement, our national minimum wage, substantially raising the wage floor. This would require the FWC’s expert panel to have different wage-setting objectives, with its primary goal being to eliminate working poverty.

Would a living wage help the poor?

Regrettably, poverty is the reality for many of Australia’s lowest-paid workers. Some struggle to make ends meet and go without basic necessities, such as meals and heating – particularly those in single-income families.

Neither our current minimum wage, nor the proposed living wage, is a pure “anti-poverty” tool. This is because the poorest people do not have paid jobs – often due to serious socioeconomic disadvantage. A living wage only helps those who rely on paid work (their own or someone else’s) for an income.

The intention of a living wage is therefore not to eradicate all poverty, but to end poverty among those who work – “the working poor”.

This laudable ambition is complicated by differences in personal and family circumstances. A living wage cannot vary from person to person, yet low-paid workers are not all alike: some live alone, some have children, and many are in dual-income families.

Who should a living wage be set for? The income needed to prevent poverty is inevitably much higher for workers with families than for those who live alone.

The Social Policy Research Centre (SPRC) produces “budget standards” that show the minimum income required by different types of families to reach a healthy living standard. Their evidence has been widely used by the ACTU and other advocacy groups in submissions to the Fair Work Commission.

According to their analysis, an employed single adult currently needs A$597 per week (before tax, and including housing costs) to live healthily. A couple with two young children needs almost twice as much: A$1,173.

The national minimum wage is currently A$695 for a full-time worker. So, according to the SPRC’s research, that worker already earns enough for a healthy life if they live alone, but not nearly enough if they have a family. This highlights the difficulty of setting a single living wage that would universally prevent working poverty.

Families with children also receive other government assistance through targeted welfare payments. This further complicates the task of setting a living wage.

What are the alternatives?

There are other ways to tackle working poverty. In the US, an “earned income tax credit” reduces the taxes of low-paid workers, so their wages stretch further. Such a scheme has been recommended for Australia.

Another very different approach to welfare is a universal basic income (UBI). This would provide a guaranteed minimum income, regardless of whether someone works, and without eligibility tests like those behind Centrelink’s recent “robo-debt” debacle.

Supporters of UBI also see it as a solution to job losses caused by rapid automation.

Living wages and UBI are radically different ways of tackling poverty. Work remains vital for a living wage, but is optional for a UBI. A living wage would raise the value of paid work, but might make life harder for some jobseekers whose labour becomes more expensive. A UBI would provide income without work, which might encourage more people to drop out of the labour force altogether.

The ConversationIn pushing to “make work pay”, the ACTU is hoping to capture both the public imagination and, for workers, a larger slice of the economic pie.

Joshua Healy, Senior Research Fellow, Centre for Workplace Leadership, University of Melbourne and Andreas Pekarek, Lecturer in Management, University of Melbourne

This article was originally published on The Conversation. Read the original article.