Wednesday, July 30, 2014

A bottom-up plan for inequality

Labour released its "work and wages" policy today. The headlines? Abolishing the 90-day law and increasing the minimum wage by $2 to $16.25 an hour by April 2015. Those are fairly obvious ways of delivering to their core constituency, but there's more: imposing a "good employer" requirement on all government contracts, and running a commission of inquiry into industrial relations, which will (eventually) mean a rewrite of the Employment Relations Act.

Overall, this looks to be a significant move to tackle inequality and the low-wage economy. Traditionally, we've done this by supplementing low incomes with government transfers, but that breaks down when wages are so low that you need schemes like working for families to keep the middle classes afloat. Increasing wages, both directly through the minimum wage, and indirectly through the ratchet effect and better employment law, achieves the same effect from the bottom up. It costs the government a lot less, but the downside it its potentially more unstable - people recognise immediately if a government is cutting their working for families payments (which is why National has been very careful about doing so and is instead just eroding them through inflation), but they're not so quick to notice when it effectively cuts their wages by strengthening the power of employers.

And on the gripping hand: all these policies did last time Labour was in government was stop the rise of inequality. If we want to see it actually drop, we need stronger measures, such as sharply more progressive tax rates. Labour is not committed to those measures. What they're offering is a more tolerable business as usual, not change.