Submission. Ministry of Business, Innovation and Employment. Minimum Wage Review 2015 Consultation

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1 14 October 2015 Submission to the Ministry of Business, Innovation and Employment on the Minimum Wage Review 2015 Consultation The traditional role of the State in New Zealand in ensuring a basic minimum wage is utterly consistent with the teaching of the Church on "the just wage". We would recommend that the Government introduce a minimum wage which is adequate for the needs of workers and their dependents, which enables them to live in health and with dignity and recognises the right of workers to a just remuneration for their labour. New Zealand Catholic Bishops Conference: Some concerns about employment, 1998 Remuneration is the most important means for achieving justice in work relationships. Compendium of the Social Doctrine of the Church (paragraph 302) Summary of main points: The current level of the minimum wage is insufficient to keep working households out of material hardship. This is evident from the government s own reports, such as the Ministry of Social Development s Household Incomes report which shows approximately 40 percent of children living in poverty are in households in which one or more parents are in full-time employment. This also accords with the experience of Catholic social service agencies who see an increasing number of working people in hardship. We want to reduce the ratio between the minimum wage and the average wage. Caritas questions the assumptions behind the modelling of the impact of an increase in the minimum wage on employment. We wish to see a more robust discussion about the academic studies which investigate and debate these matters. We wish to see minimum wage coverage for workers not covered by the adult minimum wage.

2 Introduction 1. Caritas Aotearoa New Zealand is the New Zealand Catholic Bishops agency for justice, peace and development. We undertake advocacy, education, development and humanitarian work in Aotearoa New Zealand, the Pacific, Asia, Africa and the Middle East. 2. We appreciate the opportunity to comment on the minimum wage review. Our submission is based on previous comments made by New Zealand s Catholic Bishops on the minimum wage, as well as reflection on Catholic social teaching in relation to decent work, just wages and concern for the poor and vulnerable in our society. 3. We are informed by the experiences of Church social agencies and our interviews with community groups working with low-income families and workers as part of our 2015 Social Justice Week on family poverty. Minimum wage 4. Caritas is encouraged that the Government intends to keep increasing the minimum wage over time to protect the real incomes of low-paid workers while minimising job losses 1. There is a pressing need for a real commitment to addressing the wellbeing of low-paid workers and their families. 5. Workers employed on the minimum wage tend to be vulnerable workers overrepresented by young workers, women, Māori and Pacific people, disabled people, migrants and refugees and sole parents. In these employment arrangements, workers often have limited bargaining and negotiation power outside of collective agreements. 6. Pope Francis teaches that work conditions should prioritise the goal of access to steady employment for everyone and ensuring people s financial needs are met through work rather than other forms of financial assistance. 2 We recognise the importance of forms of social assistance that ensure family wellbeing is met, regardless of market income levels, such as family support, in-work family tax credits, accommodation supplement and other forms of social assistance. However, this does not substitute for examining the justice of low wages. Low-wages subsidised by social assistance can subsidise a low wage economy and incentivise the creation of low quality and insecure jobs. 7. It is important the ratio between the minimum wage and average wage does not increase any further than present. With consideration of other factors, this ratio should be decreased over time to reduce inequality and move low-income workers towards an adequate market income. 1 Michael Woodhouse: Letter inviting participation in the Minimum wage review, 19 August Pope Francis: Laudato Si, 2015 (paragraphs )

3 Minimum wage and Just wage 8. The Catholic Church has a long history of concern for the situation of workers and working conditions. Since the writing of Rerum Novarum On the condition of workers addressing labour conditions during the height of the industrial revolution in 1891, the Church has continued to speak out on issues of labour and work in New Zealand and internationally. 9. According to Catholic social teaching, a just wage is the just remuneration for work that provides for the current needs of a family and their future security, it is the legitimate fruit of work. 3 The minimum wage has a key role to play in ensuring that people s financial needs are able to be met through work. This is in combination with facilitating the growth of safe and secure employment for all. Support for a minimum wage which enables people not only to meet their needs for subsistence but also to participate in society has historically reflected Catholic social teaching on just wages. 10. We are concerned that families working on the minimum wage in New Zealand are struggling to keep up with the growing cost of living. The Ministry of Social Development Household incomes 2015 report shows that the current level of the minimum wage is not sufficient to move people out of poverty approximately 40 per cent of children living in poverty are in households in which one or more parents are in full time employment. The report notes that the issue of the working poor remains an issue for New Zealand, and that using material hardship measures gives a similar picture: around half the children in hardship using the standard EU threshold are from working families, and around one third using the more severe threshold. 11. This is in accord with our experience. We have heard from various Catholic social agencies about the increasing number of people struggling to afford the basics despite working full-time on the minimum wage. For Social Justice Week this year, Caritas looked at the issue of Family Poverty in New Zealand and the barriers preventing families from flourishing. We spoke with low-income families and communities across the country about the challenges they face. We discovered the issue of inadequate income surfaced as a common challenge. 12. One social service group we spoke to noted: If you re on the minimum wage it just doesn t stretch far enough, often. And that s the difference between now and probably a few years ago, where most of our people that were coming to agency were on benefits. That s not the case now, there s a lot more people that are in work that are coming for help because they re not paid enough to actually manage really. 13. A young worker we spoke with from Wellington had been working on the minimum wage for over three years. He found that after the birth of his first child, working 40 hours was not enough to support his family. He began working extra shifts for up to 70 hours a week in order to make ends meet. The lack of time to participate in other aspects of his life placed a strain on his relationships and prevented him from taking part in church life and family events. As the cost of living continues to increase, these stories are becoming more commonplace. 3 Pope John Paul II: Laborem Exercens, 1980 (paragraph 19)

4 14. Low household incomes are not the only outcome of low market wages. Some families working on the minimum wage have to make the difficult call to sacrifice spending valuable time with their family in order to provide food on the table. Rest from work is a right. People need adequate rest time that will allow them to tend to their family, cultural, social and religious life From the Survey of Family, Income and Employment (SoFIE) 24 per cent of people who were in the bottom decile of income in 2002 were still in that decile in This group has limited access to income mobility beyond the movement of the minimum wage. 16. Wages should provide enough resources not just for survival but also to participate in society. It is important for families to have a just wage that enables them to support their whole family and provide a sense of security for their future. Minimum wage and inequality 17. The minimum wage is a mechanism to ensure the lowest wages are in keeping with general trends of wage growth. In response to the growing inequality during the 90s, the New Zealand Catholic Bishops Conference highlighted the problem of a growing wage gap. While the goal is not an absolutely equal distribution, it is important that the gap between the rich and poor does not grow too wide as to encourage greed from the top and dissatisfaction from below The minimum wage plays an important function in reducing inequality. The ratio between the minimum wage and the average wage is currently approximately 50 per cent of average wage and we believe this ratio could be narrowed further. 19. Both New Zealand and international public health research indicate that inequality results in negative social outcomes for everyone in society. The OECD report Focus on Inequality and Growth released December 2014 notes that inequality has held New Zealand growth back by more than 10 percentage points over the last thirty years. This is more than any other OECD country. There would be great social and economic benefits in actively reducing inequality in New Zealand. 20. The minimum wage creates an equalising effect between employers and employees so one party would not be so powerful to reduce the other to subsistence. Low wages are frequently a reflection of the lack of bargaining power of vulnerable groups of workers. 21. We are not satisfied with modelling by the Ministry based on assertions that international literature supports a simple linear relationship between minimum wages and employment rates. The New Zealand Catholic Bishops questioned this back in 1998, citing studies which at that time questioned those assumptions. Since that time, there have been a number of other academic studies showing a more complex relationship between minimum wages and employment rates, some of which have 4 Compendium of the Social Doctrine of the Church (paragraph 284) 5 New Zealand Catholic Bishops Conference: Some concerns about employment, 1998

5 been cited at some length by the Council of Trade Unions submissions on the minimum wage in recent years. 22. We do not see sufficient discussion of this academic debate in the Ministry of Business, Innovation and Employment s explanation of modelling the impact of increased minimum wages on employment outcomes. We request a more robust discussion of these different studies than is currently found in MBIE discussions of the minimum wage. Decent work and quality of jobs 23. The goal of creating more employment cannot overshadow the quality of these employment opportunities. It is important that we build toward an economy which provides decent work that provide a just wage, enable time and resources to participate in society, be safe and provide security to the individual and their family. 24. A variety of factors motivate people to work hard, including wages, job security, ability to progress, sense of respect and loyalty to employer. The quality of employment impacts labour productivity and the living standards of workers. The actual earning ability of a worker is impacted not only by their hourly wage but also by the nature and quality of that job. With increasing casualisation of labour, most workers are not guaranteed to have a permanent full time job. 25. It is concerning that the ongoing casualisation of labour, in particular for workers on the minimum wage, undermines the security of workers and their ability to plan for the future for their family. 26. New Zealand, similar to many other OECD countries, have responded to the challenge of the working poor by introducing social assistance measures such as In-work Tax Credit and social housing provisions. While we see this assistance as essential in addressing poverty in New Zealand, they should be a provisional solution in the face of pressing need Between 2004 and 2013, the number of families accessing Working for Families Tax credits has increased by approximately 40 per cent and the average entitlement for family tax credit has increased by about 70 per cent. 7 Working for Families Tax Credits has had a positive impact to reduce inequality between 2004 and 2007 however it cannot become a subsidy for low wages. 28. In Australia, minimum standard for wages takes into consideration of the implications of casual employment on the employee and therefore legislate a different minimum wage for casual workers with casual loading. The minimum wage for casual workers is set at a higher rate to compensate the lack of stability and access to sick leave and other entitlements. This also disincentives employers from creating insecure work unnecessarily. 6 Pope Francis: Laudato Si (paragraph 128), Inland Revenue Department: Working for Families Tax Credits, from 2004 to 2013,

6 29. We believe it is important for the ministry to consider this and other incentives that can promote the creation of decent and secure work that enables workers to provide for their family. Better employment practice and the living wage 30. The role of the Government is not only to set minimum standards but also to incentivise good employment practice and to improve the quality of employment for the benefit of the employee and the employer. 31. In response to the increasing inadequacy of the minimum wage to meet the needs of workers and the high levels of inequality, the living wage movement has offered an alternative framework to consider ways to address low wages. We note that this is not an alternative minimum wage rate, but is rather a recommended pay rate for employers who are in a position to pay above the minimum, for example, to show a commitment to ethical employment. 32. Caritas supports the Living Wage in principle and we commend the discussion to employers, government and unions. We see a significant correlation between the concept of living wage and Catholic understanding of the just wage. 33. According to the New Zealand Living Wage movement: A living wage is the income necessary to provide workers and their families with the basic necessities of life. A living wage will enable workers to live with dignity and to participate as active citizens in society. 34. We recognise that calculating a living wage is complex and there may be a legitimate debate about what justifies a living wage in different circumstances and situations. A just wage would also take into consideration whether the wage provides adequately for the just participation in labour and provides a fair portion of the fruits of that labour to the worker. 35. While appreciating these complexities, it is clear to us that New Zealand s minimum wage rate is insufficient to protect people from poverty. Employers who have been able to lift their lowest wage rates to the living wage demonstrate the dramatic difference that can be made to people s wellbeing with a relatively modest increase in their incomes. Groups of workers not covered by the adult minimum wage 36. Discussion about the minimum wage must take into account groups of workers currently not covered by any minimums. Caritas has provided significant information about the extremely low pay rates of children under the age of 16 8, particularly in leaflet and newspaper delivery work, and note that these pay rates are also paid to adults over the age of 16 who undertake this work. 8 Caritas Aotearoa New Zealand: Delivering the goods, 2007

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