The Case of the Dumb Council

The Watchdog is Barking This Time

Every so often the communitarian, soft-headed socialist mob that work for our daily news papers and electronic news media show that they "get it".  Economic reality--real world understanding--does not just bite, but sometimes the media shows that it understands what that reality is and how markets actually work.  To fight against market forces (which are the fruit of human nature in the final analysis) is to wage an unwinnable war.  It is to war against human nature.  It can only be won if human beings stop being human. 

Celia Wade-Brown is a greenist mayor of Wellington, the city of a million bureaucrats.  Wellington voters like Celia because she mirrors back to them their prejudices against economic markets and fundamental human nature.  Celia has talked the city council into putting up the minimum wage for all council workers to $18.50 an hour.  Why that amount?  Well, it seems like a nice number.  Celia, of course, has not a clue about the implications, ramifications, and downstream effects of this stupid council decision.  But when even the editorial writers in The Dominion show that they get it, the blame and shame upon the council increases by a large factor.
 

The stated aim of Wellington City Council's living wage policy is to reduce poverty and lift workplace morale and productivity. If only life were that simple.  It is not. Poverty can no more be eliminated at the stroke of a pen than world peace can be delivered by a beauty contestant wishing for it.

Mayor Celia Wade-Brown's council is not reducing poverty. It is simply taking money from one group of citizens – ratepayers – and giving it to another much smaller group – the 450 council staff who presently earn less than $18.40 an hour.  The gesture would be admirable if councillors were funding the $750,000 cost out of their own salaries, but they are not. It is easier to be generous with other people's money than one's own.

One of the rationales advanced for the policy is that it will have a spillover effect to other employers in the capital. Councillors do not have to look far to see the fallacy of that argument.  Newly-elected councillor Mark Peck, one of those who voted for the increase, has already said he will not be offering it to the staff who work in his Wellington cafe. There is a good reason for that. His business cannot afford the cost. If he puts up wages, he will have to put up prices, and if he puts up prices, his customers will desert him for less expensive eateries. Even if, by some miracle, all the cafe owners in the capital could be persuaded to introduce the living wage at the same time, the effect would still be deleterious.  People would eat out less and cafes would end up having to lay off the staff the wage is supposed to help. Unlike the council, businesses and households do not have the luxury of being able to pass on cost increases to someone else.

Some practical, real world reality on show.  Congratulations to the Dominion's editorial staff.  But, as an aside, we note there will indeed be a spillover effect, but not in the wider Wellington wage market.  The spillover will occur in the council wage bill, by virtue of a small thing called wage relativity.  There are plenty of council workers who are holding middle and upper middle positions, bearing greater responsibilities and bringing more work experience to their tasks than the lowest grade council workers--yet are being paid now about $18.50 an hour.  The upshot: wage relativity will cause the entire council wage bill to balloon out.  But no costings or estimates have been done.  Celia's world is a make-believe one.  

The council initiative, to be phased in from January 1, is not only naive, but also poorly targeted. Treasury modelling shows that it will be least beneficial to the struggling families Ms Wade-Brown hopes to assist and of greatest benefit to those in least need of assistance – single adults and childless couples. That is because low-income families already qualify for state assistance.  The lion's share of their extra pay will simply be transferred from ratepayers to the Government, because they will become ineligible for some of the assistance they presently receive.

How stupid, myopic, and ignorant.  The editorial writers conclude by providing some real-world wisdom.  

If the council is serious about improving the lot of the capital's poorest workers, there are things it could do. Favouring its staff over ratepayers is not one of them, however.  Things that would make a real difference are stripping unnecessary costs out of its budget and making Wellington a more attractive place to do business.

The first would allow poorer workers to keep more of what they earn. The second would fuel wage growth. More business equals more jobs. The more jobs there are, and the more competition for staff there is, the higher wage rates will be. Improving Wellington is what the council should focus on. The rest is just window dressing.

Unfortunately, it is going to be very expensive window dressing--albeit cheap, tawdry, and false, like the front of a film prop.   At least it may fit with the city's ambition to be Wellywood, film capital of the Antipodes and the Antarctic.  How about Dumb and Dumber 2, with Celia as the lead, no acting required, and for $18.50 an hour.  Perfect fit every which way.