Labor will learn the hard way the folly of a living wage

The idea of a living wage is very ­seductive. Surely, if someone works full-time, then the take-home pay should be enough to cover basic living expenses.

Get some third party to work out the cost of a basket of essential goods and services and calculate the amount a worker should earn. It’s utopian stuff, but what the heck.

Mind you, viewed another way, it’s an absurd idea to think that it’s the responsibility of employers to ensure their workers don’t live in poverty. After all, the circumstances of workers vary considerably, including their family situation, their housing arrangements, where they live and the like.

What’s a living wage for one worker is not a living wage for ­another. And let’s not forget that employers have to make a buck to keep on employing and paying workers.

Labor has latched onto the idea of a living wage for essentially political reasons, but is understandably cautious. There are real dangers associated with forcing all employers to pay every worker at least an arbitrated living wage without taking into account the capacity of them to pay. Job losses and reductions in working hours are real possibilities.

In order to soften the introduction of the living wage, Labor’s position hopes to ameliorate the impact in three ways:

● The Fair Work Commission will be required to take into account the amount of tax and welfare benefits that workers receive;

● Any jump in the minimum wages that employers will be required to pay will be phased in; and

● The living wage will only apply to the lowest paid.

Bear in mind that the current national minimum wage is $37,398 a year for a full-time worker. It is estimated that about 180,000 workers are paid the actual minimum wage. (The lowest classifications in some of the big awards start above the minimum wage.)

All up, 2.3 million workers are paid award wages and their wages are adjusted according to the yearly national minimum wage decision made by the FWC.

If only the wages of those workers on the minimum wage are ­adjusted to bring them up to a living wage, an unworkable disruption to wage relativities will occur at the point where slightly higher wage workers miss out.

But at this stage Labor is less interested in the practicalities of implementation and more on the political attractiveness of the policy. There’s a lot of economic nonsense in Labor’s announcement on the living wage such as the ­assumed boost to the economy and supposedly booming company profits; it’s actually only in the resource sector.

Latest Reserve Bank research is very clear on this: wages have moved in line with productivity. The only sustainable way to increase wages is to lift productivity.

Labor will eventually figure this out, as it has in the past. But in the meantime, many employers will need to fasten their seatbelts.