The rise in general living costs has been a relevant topic in 2021/22, with recent reports stating that inflation has increased to another high of 6.9%. The highest annual rise in 40 years. Increased living costs and business expenses create a strain on businesses and individuals across the country. At the beginning of April the minimum wage across New Zealand increased from $20/hr to $21.20/hr. However some believe the wage increase should rise further to meet both inflation and create a living wage for all New Zealanders.
As the minimum wage has risen, so has the estimated living wage amount. So what is the difference between living wage and minimum wage for New Zealanders? As a platform for jobseekers and employers searching for employers, Shopless investigates.
What is the living wage?
The living wave movement came about as a universal gauge to estimate the amount a worker should be paid to live comfortably with all the necessities. It has been floated by social and governmental groups as an alternative to the minimum wage. The Living Wage Aotearoa website says that “It reflects the basic expenses of workers and their families such as food, transportation, housing and childcare, and is calculated independently each year by the New Zealand Family Centre Social Policy Unit”
The living wage is not a concept confined to NZ, Investopedia analysed the concept stating that “Economists suggest it should be enough to ensure that no more than 30% of this income gets spent on housing. As such, living wages are often substantially higher than the legal minimum wage.” For New Zealand despite huge increases in inflation over the past two years the living wage for those employed in NZ is considered to be $23.65/hr and minimum wage in NZ is $21.20.
How is minimum wage decided?
Minimum wage is reviewed annually and looks at a number of important social aspects. They look into the demographics that primarily receive minimum wage. How an increase will affect small businesses. What the cost of living is like compared with previous years. How many people will be impacted positively by a minimum wage increase and how many people’s jobs may be reduced or lost due to increased minimum wage. Because there is such a large scope of things to consider and it has to be approved in parliament, the living wage and minimum wage are often different amounts. In the process of deciding on minimum wage, governmental benefits are also factored in as often there are certain thresholds of earning for members on a benefit. Or a massive increase in minimum wage may restrict eligibility for some members of society vulnerable to poverty.
Why isn’t minimum wage enough?
Minimum wage is governmentally considered a manageable amount for both businesses and individuals. Living wage is a wage decided by a number that would generally keep individuals out of poverty. However both numbers do not fully take into account people’s circumstances and organisations still trying to save money. Some big businesses in particular worldwide often try to avoid costs associated with minimum wage increases. This may mean cutting down the hours of staff on casual or temp contracts, or reducing the amount of staff required for some jobs.
Additionally individuals have a number of different circumstances that may impact their ability to afford to live. Such as being the sole earner of the family. Or having to pay for medical bills. Losing loved ones. Or physically being unable to work also impact each person’s earning and spending capabilities. Minimum wage increases such as this year’s increase come to try to accommodate for inflation. Or if there has been a long period without an increase. However as the living wage is set to estimate more of a comfortable living, it can better accommodate for exceptional circumstances of in-affordability.
How does this affect employers/employees?
There are always impacts when it comes to increasing minimum wage that does not solely impact low income workers. Living Wage is an ideal preposition when considering workers rights and valuing employers. However both wage options have pro’s and con’s for different groups of employers and employees.
Employers can be impacted by a rise in minimum wage through the need to raise prices due to increased cost of staffing. Additionally supplies and resources can also increase in price impacting businesses. This would be the same if the living wage we implemented. For employees as mentioned hours may be reduced. Living wage is intended to accommodate workers whose hours have been reduced or who live in low income positions. By having a way that allows for unexpected expenses or reduced hours.
For employers interested in signing up to become a living wage employer. You can find out more about the living wage movement, here. As a job listing website, Shopless encourages fair pay and valuing employers and employees.