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Living wages, dying fiduciary responsibility

I had a short piece in today’s Dominion Post on Wellington Council’s living wage policy. After walking through the standard reasons why this is a bad way of helping the working poor, I touched on some of the likely consequences:

Contractors bidding against council-owned agencies for provision of services that could be outsourced will lose some of their ability to compete on price. Council-provided services will become more expensive not only due to the direct effect of the higher wage bill but also because of the reduction in competition and outsourcing. I expect more services will then be provided by in-house unionised council staff.

If security guards working for a contractor earn more when rostered onto a council job than when sent off onto a private job, those workers will all prefer the council jobs. If I were a company contracting workers to council under that kind of arrangement, I’d slot workers into the more lucrative positions as reward for having provided a couple years’ exemplary service in the hard-to-roster hours on other contracts. The net benefit to workers then winds up being a bit less clear.

Finally, we should worry a little here about precedent. Whenever council decides to pay more for some good or service than it really needs to, that comes at a cost: higher rates, fewer services, or more debt. Council’s fiduciary duty to ratepayers should not lightly be abandoned.

I’ve often covered living wages and minimum wages over at Offsetting Behaviour; hit the posts there if you’ve an interest in the area.

About Eric Crampton (88 Articles)
I'm Head of Research with the New Zealand Initiative.

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