Trickles (the "Living Wage" and stuff...)

My wife runs a small business, and is doing a business course* to improve her policies and procedures and things. Recently, she got into a discussion with her classmates (and a separate but similar one with the small business group she's a member of on Facebook) about the Living Wage. Obviously you can go find out about the Living Wage at that link if you want to, but for my teal deer friends: it's a recommended wage, calculated based on the cost of living in New Zealand. Notably, it's about $4.50 an hour higher than the minimum wage.

My wife's course-mates and co-small-business-groupers were resoundingly against the idea, on the basis that it'll make it far too expensive to employ people and cost jobs. This is the point of view currently presented by the majority of right wing parties in New Zealand at the moment as well. Unsurprisingly to people who know me, I think they're wrong.

Now, a disclaimer: I am not an economist**. I think though, that economics is a less scientifically objective discipline than some economists like to make out - and it's certainly not immune to ideology or fashion.

The primary argument against the Living Wage (as I said above) seems to be that it will cost too much for small businesses. First off, this doesn't seem to be the case. The Living Wage people offer accreditation for businesses that adopt the Wage. They're all over the place (there's a cafe here in Palmerston North that does it) and none of them seem to be keeling over at time of writing.

I think there's a fundamental misunderstanding going on here. It's tempting for people to see themselves and their families and businesses as somehow sealed off from the rest of the world, with a little door where inputs and outputs go through. That's not quite right though. If paying your employees just meant more money in the salaries budget and nothing else, the naysayers would be right. What actually happens is more complicated.

Pretty much everyone is familiar with the concept of "trickle down" - the idea that cutting taxes would mean that the rich would spend more, and everyone would benefit all the way down the chain. It was a lie, of course. The problem with trickle down is that while some rich people might enjoy having more money, there's only so much stuff you can spend money on. Some people do buy a bunch of stuff they don't need once all their immediate needs are met, but there's a limit even to that - to put it simply, people don't need to eat twice as much just because they earn twice as much. All this money just ends up accumulating, and doing nothing much useful for anybody***.

You know who does have stuff they need but aren't buying? Poor people. Not even poor people - below-averagely well-off people. Ordinary people. The people who, for the vast majority of small businesses, make up almost all of your customer base.

"Trickle down" is a lie, but "trickle up" actually works. Measures that put money in the hands of people who don't have any are going to be more effective at stimulating people to buy stuff, because I can guarantee that there is stuff that those people want and need that they cannot currently afford to buy. Unless your business is selling multi-million dollar real estate****, these people are your customers and their lack of money is what stops them from giving that money to you.

There are other benefits - the Living Wage seems to greatly improve staff retention, and having done recruitment and discovered how badly it sucks, that seems like a major plus to me. It also seems fairly self-evident that paying employees a rate they can live on would make them less likely to dip their hands in the till or otherwise let the side down.

There's a counterargument to the effect that if you give one staff member at the bottom of the chain a raise, the other staff members will all expect a commensurate one. I think this is flawed. First off, I don't think that good staff would begrudge someone a payrise that brings them above starvation wages just because it narrows the gap between them. Secondly, the Living Wage is a base rate like the minimum wage - it's something you decide not to go below. You can still address everyone else's pay through whatever mechanism you ordinarily use, you just don't go below the Living Wage.

This is part of my grand theory "You've All Got Capitalism Wrong". More on that anon.

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*It's going well, thanks for asking. Seriously, really well - I'm very proud of her indeed.

**My Uncle Brian is, but that doesn't really mean anything useful here.

***I'm aware that some rich people donate vast chunks of their largesse to charity. This is irrelevant to my argument because a) charity is a terrible way of meeting the majority of social needs, and b) money put into charity patches holes in the social fabric - it doesn't do a great amount to push the economy along.

****Or brain-destroyingly-expensive jewellery, or painfully high fashion, etc. etc.