Setting the New Zealand living wage: complexities and practicalities

ABSTRACT

This article describes the approach taken to determine the New Zealand living wage rate when it was first calculated in 2013. A two-part approach was adopted, involving estimating the weekly cost of a basic but decent life style for a target household of two adults and two children using a range of official and independent data sources dealing with household expenditure. The necessary level of gross income to be paid by an employer as a living wage was determined using a model that incorporated income tax and government transfers. The research resulted in the recommendation of an hourly living wage rate of NZ$18.40. The necessary detail of the calculation gives legitimacy to the living wage campaign but poses a challenge for on-going calculation while also highlighting the interaction between labour market and non-market policies that address the situation of the low-paid worker.

KEYWORDS:

• Disposable income
• income transfers
• living wage
• New Zealand
• tax

Acknowledgements

I wish to acknowledge the organisers of the New Zealand living wage campaign who commissioned the original work on which this article is based. I also acknowledge Charles Waldegrave, my co-author, on the original report.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. This was first calculated in 2012 for the New Zealand living wage campaign by an independent Wellington-based research agency, the Family Centre Social Policy Research Unit.

2. Full technical details of the original calculations and the first update are contained in reports to the organisers of the New Zealand living wage campaign (King and Waldegrave 2012, 2014).

3. Household Labour Force Survey: June 2012 quarter, Table 10 (http://www.stats.govt.nz/browse_for_stats/income-and-work/employment_and_unemployment/HouseholdLabourForceSurvey_HOTPJun12qtr.aspx).

4. http://www.dbh.govt.nz/market-rent.

5. http://www.dbh.govt.nz/Utilities/marketrent/market-rent.aspx?CategoryId=258&SubCatId=6&SubCat1Id=63&SubCat2Id=71&SubCat3Id=72&ArticleId=53&Version=1.2.

6. http://www.stats.govt.nz/tools_and_services/tools/TableBuilder/housing-quality-tables/crowding-occupancy-rate.aspx.

7. http://www.workandincome.govt.nz/manuals-and-procedures/deskfile/extra_help_information/childcare_assistance_tables/childcare_assistance_income_limits_and_rates-01.htm.

8. http://www.workandincome.govt.nz/manuals-and-procedures/deskfile/extra_help_information/accommodation_supplement_tables/income_cut-out_points_non_beneficiary.htm.

9. http://www.workandincome.govt.nz/manuals-and-procedures/deskfile/extra_help_information/accommodation_supplement_tables/entry_thresholds_and_maximum_rates-119.htm.

10. NZ$42,180 is 60% of the median income for this type of household reported by Perry (2012).

11. http://www.livingwage.org.nz/reports_and_research.

12. In the UK case, the Couple+2 column in Table 3 shows a target net income of NZ$694.25 per week or NZ$36,200 per annum produced from a gross income of NZ$37,371 (using the UK report’s assumptions about weeks and hours).

13 $53,976 × 1.032 = $55,703.

14. ($55,703 ÷ 52 ÷ 40) × 2/3 = $17.85.

Additional information

Notes on contributors

Peter King

Dr Peter King, PhD, MRSNZ, is a sociologist and Principal Researcher with Parallax Research in Wellington, New Zealand. He is also a Senior Research Associate with the Family Centre Social Policy Research Unit and a Principal Investigator with the New Zealand Longitudinal Study of Ageing. He was lead author of the original New Zealand living wage report and the subsequent update report.