Working for Families (‘WFF’) is failing. It is failing its recipients, their employers, the Government, and the poor who should be receiving it, but aren’t. Don’t get me wrong, WFF is desperately needed at the moment, and contributed to reductions in child poverty, but it was the wrong solution.
Race to the bottom
(Heath, Eric Walmsley, 1923- :Whatever happened to our dream?
Dominion, 23 February 1987. (http://mp.natlib.govt.nz/detail/?id=31506)).
When the David Lange Government gave the Reserve Bank an independent role with the principle aim to control inflation within a pre-set limit, it allowed neo-liberalism to decimate the wages of the average New Zealander and drive a huge wedge between the pay of the highest and lowest paid. The simplest way to control price inflation was to control wage inflation. The easiest way to control wage inflation was to create a continuous pool of unemployed so employers could argue “if you don’t like it, there’s plenty more folk looking for a job”. Combined with anti-Union legislation the effect was to drive unskilled and semi-skilled wages down so we became a low wage economy, or “competitive” in neo-liberal terms. Since 1985 the average pool of unemployed has been 6.29%.
By the time Ruth Richardson was Finance minister the National Government was facing a problem: unskilled wages were so low that the unemployed were receiving almost as much money. Jenny Shipley, Minister of Social Welfare, said at the time, “we need to create the gap between work and welfare”.
Instead of raising the minimum wage, or modifying the Reserve Bank’s activity, the Government instructed Treasury to investigate the income level needed for a family of four to live in New Zealand. Treasury reduced the lowest figure provided by researchers by a further 20%, even though it maintained the policy of a permanent pool of unemployed. (See clips 5 and 6 of Land of Plenty (2002))
This one act of social sabotage ensured two generations of hugely increased poverty.
The situation in 2004
Since it had barely modified the neo-liberal agenda, the Labour Government was faced once again with the same problem in 2004: unskilled wages had fallen again to within a short margin of the social security.
Instead of raising the minimum wage, or modifying the Reserve Bank’s activity, the Labour Government sought an alternative to reducing benefits still further. They came up with WFF.
The purpose of WFF
This supplement was designed to top up the income of low wage earners so that a gap was maintained with those who were not working. It was to bring working families up to a liveable wage while entrenching the 5% unemployed reservoir in poverty by ring fencing the “in-work tax credit” component.
(‘Poverty rescue – working for families’. “Maybe we should have gone even further to the left…” 3 May, 2008 (http://mp.natlib.govt.nz/detail/?id=95747))
WFF – Failing workers
Low paid workers become caught in a WFF trap. Until they pass a certain point they find that as their wages increase the WFF and associated supplements decrease by the same or greater amount. Worse still, if they lose their jobs, they not only lose their income but they also lose the “in-work tax credit” component of the WFF.
WFF – Failing employers
By removing the responsibility from employers to ensure that their level of pay is sufficient for their workers to live, WFF has failed employers by reinforcing the neo-liberal ethos of profit above everything else.
Henry Ford paid his workers well above the level of the day, because he knew that by so doing, he would reduce worker attrition and they could afford to buy his products.
By creating a culture of providing only as much as they must, all employers are impacted by people having progressively less to spend on their products, creating a vicious circle of decline.
WFF – Failing Governments
By choosing to supplement the low wage paid by the employer, instead of increasing the minimum wage to a liveable wage level, the Government has subsidised the profits of the mainly multinational companies. They have no incentive to raise the wage beyond what is required by the law.
This hits the Government at least three times as they are paying the subsidy, losing tax they would have made, and harming the balance of payments with larger profits exported.
Having gone down this route, Governments now manipulate minimum wage and WFF to cover the deficit of the liveable wage. The longer they do so, the greater the gap becomes and the harder it is to change course.
Unfortunately no Government seems prepared to consider a policy that slowly reduces the WFF to zero while increasing the minimum wage so that it is sufficient to live on.
The immorality of underpaying workers
US President, Franklin D Roosevelt, said in 1933, “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…..and by living wages I mean more than a bare subsistence level – I mean the wages of decent living.”
Whilst there may be an excuse to allow smaller companies to adjust slowly to an increased minimum wage, there is no morality in allowing any company in NZ to pay wages that need to receive a supplement from the Government, while they make millions of dollars in profits or pay their CEO’s or senior executives multi-hundreds of thousands of dollars.
The money currently spent on corporate welfare should be spent on the unemployed to ensure that every Kiwi receives a proper level of income. The Reserve Bank reservoir of 5% unemployed needs to be drained so that any unemployment is no longer a result of Government design, and wages can slowly drift up again to first world levels.