An important perspective on Working For Families by one of our supporters…….
Working for Families: Entrenching poverty and low wages
Why the need for ‘Working for Families’?
President Franklin Delano Roosevelt, stated “It seems to me to be equally plain that no business which depends for existence on paying less than living wages to its workers has any right to continue in this country. By “business” I mean the whole of commerce as well as the whole of industry; by workers I mean all workers, the white collar class as well as the men in overalls; and by living wages I mean more than a bare subsistence level-I mean the wages of decent living.” Franklin Roosevelt’s Statement on the National Industrial Recovery Act (16 June 1933)
New Zealand was the first country to implement a national minimum wage, enacted by its government through the Industrial Conciliation and Arbitration Act 1894 and there can be no doubt that Michael J Savage, in the 1930’s, would have agreed with FDR’s sentiments.
The Helen Clark Government, by introducing ‘Working for Families’ (‘WFF’) instead of increasing the minimum wage, as they should have, produced long-term adverse effects for the weakest in our society.
Transferring responsibility
By creating ‘WFF’ the Government transferred the long established responsibility of employers to provide sufficient income for their workers, to the State. The Government effectively said, “We will lower our expectations of your role and provide the shortfall (or at least part of it) ourselves”.
In so doing the State added to its own costs. It also enabled right-wing parties to claim that there was an increase in welfare and dependency, when in reality it was a subsidy for (mainly overseas) corporates.
Adding to the income gap of the unemployed
By deliberately excluding the unemployed from ‘WFF’, in order to continue to “provide an incentive to work”, the Labour Government not only took on the burden of what should have been the increase in the minimum wage but they prevented those without work from receiving any increase that could have eventuated from such an increase. (Not least because the State would have had the money they were now spending on the low paid available to pay the unemployed).
It would be appropriate to pause for a moment to remember that Government requirement of a low inflation economy has meant that for 30 years the Reserve Bank has endeavoured to keep the unemployment rate at a minimum of 5% (what Monetarists call the “natural rate of unemployment”). Thus ensuring that whatever upskilling, education, or effort was involved, there would always be at least 5% without work.
Entrenchment of the status quo
By creating a welfare buffer for the low paid, the Government has ensured that, even if they gained the power to do so, the lowest paid would find little benefit in increasing their wages because whatever they obtained by way of an increase would be lost through a reduction in ‘WFF’.
Furthermore, job insecurity has increased, because a loss of employment also means a loss of ‘WFF’ so that workers accept worse conditions in order to avoid the bigger drop.
Those who have zero hour contracts, or are in and out of work, are forced to complete many pages of forms each time their income changes in order to claim the correct amount of ‘WFF’. Should they fail to do so (or miscalculate) then they face the prospect of paying back overpayments at the end of the financial year and/or penalty interest. This can result in insecure workers failing to claim income they are entitled to, at the time.
As a result we have both working and non-working poor in New Zealand. The non-working poor are in the direst straits but Governments will not assist them for fear they will lose the incentive to search for the jobs that don’t exist.
Working for Families New Zealand
In 2011 the National Government advised that ‘the cost of Working for Families has grown from about $1.5 billion in 2005/06 to $2.8 billion a year’.(Beehive Fact sheet: Bill English19 MAY, 2011).
We were subsidising employers, not employees, this amount. Much of this subsidy has ended up as profits that are then exported in overseas dividends, further aggravating our balance of payments.
Closing the Gap encourages all socially concerned political parties to prepare to replace ‘WFF’, as quickly as possible, with increased minimum wages. We encourage them to also push, in quick instalments, for FDR’s “wages of decent living”.
We further call upon such parties to make good the 20% cuts that were made to welfare (in the early 1990’s) for those 5% that we condemn to be unemployed, by using the $2.8 billion or so that they are saving.
Such moves could have a significant impact on the numbers in poverty in our country.
Part 1
The question is has Working for Families (WFF) implementation resulted in businesses exploiting employees, encouraging them to use staff simply as a tool to maximize profits for their shareholders. I would argue WFF has been introduced as a tool to bridge the gap, until such time that our government can introduce legislation to allow minimum wage rates to be increased successfully in a manner that all stakeholders’ interests are considered in line with Freeman’s stakeholder theory being “Corporations shall be managed in the interests of its stakeholders, defined as employees, financiers, customers, employees, and communities” (Freeman, 1988). Under the stakeholder theory the role of management is to balance the interests of all stakeholders, not just the owners, taking into account stakeholders opinions and the consequences on all stakeholders, as part of the decision making process. Under the stakeholder theory, maximizing profits for owners is not the only objective of management, making it a more ethical way for business to operate and will ultimately result in the best outcomes for society as a whole.
You have stated “By introducing Working for Families (WFF) instead of increasing the minimum wage, as they should have, produced long-term adverse effects for the weakest in our society”. I would argue that WFF has been implemented with the objective of protecting the weakest in our society, as WFF has the core intention of protecting the welfare of our nation’s children. Currently one in four New Zealand children live in poverty (Child Poverty Monitor 2015 Technical Report), without WFF this statistic would be even higher. WFF is not simply a transferring of “responsibility of employers to provide sufficient income for their workers, to the State”, it is our democratically elected government being proactive in looking out for our future leaders until such time a living wage is a reality. Increasing the minimum wage, unless it was a dramatic, immediate increase to a “living wage” would not be as effective as WFF, as WFF takes into account the income of the family and the number of children in that whanau.
New Zealand as a country can be thought of as a business, trading with all other countries worldwide. Mismanagement on our government’s part could lead to devastating consequences, as seen in Greece who are in financial crisis. By increasing the minimum wage slowly, and bridging the gap with the WFF legislation our government is acting in accordance with Freemans “Stakeholder Obligation Theory”, considering the impact of their decisions, not only for business owners and their ability to operate profitably, but on other affected stakeholders.
You argue that WFF entrenches the status quo for employees entitled to WFF, I argue that intrinsic rewards and peoples natural desire for self-improvement will motivate people to endeavor to improve their employment situation to an extent that they fall outside of the WFF criteria for eligibility. Another area for consideration is that monetary compensation is not the only thing which results in effective employees. Intrinsic rewards such as increased knowledge, job satisfaction and also acknowledgement can be motivating and contribute more towards long-term organisational success than increasing wages along, “happiness at work equals productivity, performance and bottom line results” (Pryce-Jones & Lutterbie, 2012, cited in Robbins, Judge, Millett & Boyle, 2014 p.111). With that in mind, people working for a living wage and therefore not being exploited are likely to be happier, less stressed and ultimately more productive which will contribute to flourishing organisations leading to growth for New Zealand and decreasing unemployment.
Part 2
I agree that the current minimum wage in New Zealand is too low for a healthy society and that many organisations are using that as a tool to increase their own self-interests and profit margins. I argue that balance is required so that stakeholders including employees are not exploited, however unless organisations are profitable and run efficiently, there would be no incentive for shareholders to invest their assets in corporations, causing businesses to fail increasing unemployment.
Transitioning the minimum wage to a living wage would be the ideal outcome, improving the balance for the employee stakeholders in line with the stakeholder’s theory philosophy. Ways to do this could include thresholds for minimum wage levels, based upon the number of employees within an organisation in a similar way that trial periods for employees has been implemented. Incremental timeframes for pre-determined increases toward a minimum “living wage” may also be an option as has been done with employer kiwisaver contributions. Another option, could be to cap owners/shareholders salaries to a specified level until it becomes possible to pay employees the agreed “living wage”, ensuring organisations do not operate unethically, as may result under Friedman’s profit maximization theory which believes the only role of managers is to make maximum profit for businesses owners so long as laws are not broken in the process.
I believe that the goal of every New Zealander is for every person to be healthy, happy and employed (where appropriate) in a rewarding role that allows them to “thrive not just survive” in an environment where employers treat employees with respect, “as an end and never simply as a means”. (Kant, 1785). I argue WFF helps families in a way that does not negatively affect businesses ability to operate profitably in the short term, which is a requirement for increased job opportunities for both employed and unemployed people in the future.
I agree that we should implement instalments for FDR’s “wages of decent living” but I argue that WFF should not be removed until we as a country are successful at reaching the goal of the “living wage” which will result in WFF becoming redundant naturally.
References
Child Poverty Monitor 2015 Technical Report. Retrieved from http://www.childpoverty.co.nz/resources
Freeman, R. E. (2004). A stakeholder theory of the modern corporation. In T. L. Beauchamp & N. E. Bowie (Eds.), Ethical theory and business (7th ed., pp. 55–64). Upper Saddle River, NJ: Pearson Education.
Kant, I. (1785). Groundwork for a metaphysic of morals (T. K. Abbott, Trans.). Retrieved from http://www.swan.ac.uk/poli/texts/kant/kanta.htm).
Open Polytechnic of New Zealand (2015), 71203 Business ethics course. Lower Hutt: Author
Robbins, S., Judge, T., Millett, B., Boyle, M. (2014). Organisational Behaviour (7th ed.) French Forest NSW, Australia: Person Australia Group Pty.
In my opinion, WFF has had the effect of making workers dependent on government welfare and, as you say is really a subsidy for the employers. This is apt to decrease one’s self esteem and further contribute to inequality.
There is also the inefficiency of using a significant amount of the available resources to administer and operate the system whereby some of ones income tax is returned as a benefit.
Almost all government initiatives of the past few decades seem to effectively favor the self employed and highly paid over the lower paid workers. GST is a prime example as it effectively increased the tax paid by low wage earners by an additional 15%.
Relying on governments to use tax revenues to solve our social problems has little hope of success because politicians and civil servants are driven more by their own selfish agendas than serving the best interests of the people.
Why else, for example, would the current government be making such a great effort to convince us that we need a new flag and show so little concern for the 25% of our children who live in poverty?
If employers should realize that workers require a reasonable living wage in return for the portion of their lives that they contribute to the success of a business then surely the governments that are supposed to serve the people should realize that workers require sufficient after tax income to provide for themselves and their families.
If this were the case then there should be an appropriate cost of living tax exemption for workers and their dependents just as there are tax exemptions for “business expenses” of their employers.
If more government income is required to manage (mis-manage) the country then tax rates on higher incomes could be increased.
When we look to politicians and civil servants to improve our society we should first remember that these are the people who have stood idly by watching and even contributing to its deterioration over the past 40 years.
It seems to me that we, the people, are becoming more and more controlled by our governments which are supposed to be serving our best interests. If the democratic system was working properly then the interests of the majority of the people would served rather than those of the minority elite.
If we are going to improve our society then we must all participate more in the democratic and elect people for whom an egalitarian society is a priority. This is certainly not the case for our current representatives.