Since the Living Wage Aotearoa's campaign launched in March last year, there has been no shortage of talk about the feasibility of its implementation, and how it will affect the business of employers and the livelihood of workers. 

Last week, Jesse Chalmers - treasurer for the Auckland division of the Green Party - waxed lyrical about the positive impact the living wage allegedly had on her small-to-medium enterprise. As general manager of Chalmers Organics, she reported on the successful outcomes that had resulted, one year after its implementation. 

The living wage, currently priced at $18.80 an hour, is a voluntary wage employers can pay. With the minimum wage currently at $14.25 an hour, that is a $4.55 increase, or an increase of $182 for a 40 hour week (before tax). The idea behind it is to ensure a reasonable, comfortable standard of living for workers, thus improving the living standards of the "working poor". 

Chalmers Organics, which employs a large proportion of low-skilled food processing workers, reported an increase in staff morale, an increase staff proactive engagement and input, and greater staff retention. 

It is always inspiring to hear the goodwill of employers pay off. However, the idea that paying workers more adds value to business is hardly a radical concept. And Chalmers Organics certainly is not the first small-to-medium enterprise to pay its employees well above the minimum wage. 

Before the living wage became part of the New Zealand vocabulary, there has been the concept of efficiency wages. The idea is at least as old as the times of Henry Ford, who paid his workers more than double the market wage. 

Efficiency wages are wages priced above the market wage. They are implemented based on the rationale that they can establish a better work discipline, reduce staff turnover, recruit a more productive work force, and establish a better work morale. In other words, businesses see very real returns to their increased labour expenditure. 

Of course, extra money in the hands of workers will also improve their livelihoods and their standard of living. And consideration of the well-being of their employees may certainly influence the decision to pay an efficiency wage. 

The difference between efficiency wages and the living wage, then, is that the living wage is a blanket, one-size-fits-all figure. While it is intended to ensure a reasonable standard of living, its calculation is based on a family of two parents and two children. 
  
It also makes a range of assumptions about the hours worked and consumption choices of families including the cost of food, clothing, housing, childcare, and entertainment. 

Not all workers will fit neatly into this very-specific model. Some workers may have much greater needs than the "model" family, while some workers may have much fewer. The living wage is all but arbitrary given the different living circumstances people come from. 

Meanwhile, efficiency wages are calculated at the employer's discretion, based on what the business can afford, how a wage increase will affect others along the salary scale, the skills and experience of the employee, and whether the wage reflects the value of the employee to the business. 

In other words, efficiency wages leave much more room for flexibility to fit the circumstances of each individual business. While it is great that Chalmers Organics have found the means within their budget to support the living wage, not all businesses can. 

But more pertinently, not all businesses will see the same gains that Chalmers Organics has. At the very least, there would need to be considerations about the productivity and attitudes of workers, the size of the business, other business expenses, and the nature of the industry. 

It would seem, then, that proponents of the living wage want to distinguish it from the efficiency wage by pointing to apparent motivation, namely, the need to address poverty and the tribulations of the working poor, rather than being motivated solely by profits and labour productivity. 

But not all workers are in poverty, or face financial hardship. Moreover, while an increase in wages is one way of increasing staff morale and livelihood, it is not the only way. 

For those new to the workforce in general, or new to a specific industry, there is much more value placed on gaining job experience, receiving industry-specific training, and gaining new skills. 

Rather than simply giving cash in the hand, the employer invests time and money into training, and takes on the risk of employing workers whose reliability is not yet backed up by a solid work history. 

Although this may not alleviate the short-term financial circumstances of the employee, it is an essential step to addressing long-term poverty. 

As the debate rages on about the living wage, the effectiveness of efficiency wages is clear. As a tried and true method of rewarding employees and seeing returns to business, efficiency wages see results. 

Living wage proponents are not only reinventing the wheel, but are trying to apply a one-size-fits-all solution, like attaching bicycle wheels to a car.  

Source: Living wage reinvents the wheel