When the adult minimum wage was progressively introduced throughout Australia in the 1920s, it was based on an income that was sufficient for a man, his wife and their three children to live in frugal comfort.

In what was a major shift from wages based on what employers said they could afford, the Royal Commission on the Basic Wage determined a worker in Melbourne needed 115 shillings per week (Reserve Bank of Australia inflation calculator determines the worth to be A$492.38 in today's money).

But there is a growing concern that minimum wages in Australia and New Zealand – the latter being the first country in the world to introduce a national minimum wage in 1894 – have not kept up with rises in the cost of living.

Unions and other workers’ rights advocates continue to push for rises in statutory minimum wages, but there is a growing push for a living wage.

“Minimum wages have been stagnating around the world,” says Lisa Heap, a senior researcher at the Australia Institute’s Centre for Future Work. “The minimum wage isn’t seen as adequate anymore to meet the basic needs of everyone. So, people are asking ‘How do we achieve a living wage?’.”

What is the living wage?

Precise definitions of the living wage vary, but broadly it is considered a wage that is enough pay to afford basic needs. Some organisations, such as the International Labour Organisation, say it also includes “a decent standard of living”.

In New Zealand, advocacy body Living Wage New Zealand says the current living wage from 1 September 2025 will be NZ$28.95 per hour. That’s about 23% higher than the adult minimum wage of NZ$23.50 per hour.

In Australia, the minimum wage is A$24.95 per hour. There are different views on what a living wage is, but everyone agrees it’s higher than the minimum wage.

For instance, in its submission to the latest Fair Work Commission decision on the minimum wage, the Australian Catholic Council for Employment Relations for the Australian Catholic Bishops Conference called for a minimum wage of A$25.20 per hour, which it said was necessary for “the prevention of low-income adult wage earners slipping into poverty in the aftermath of a generational cost-of-living crisis”.

An opt-in approach

Unlike minimum wages, paying the living wage is usually voluntary and advocates focus most of their energy on persuading employers to pay a living wage, rather than on persuading governments to make it mandatory.

This is the approach taken by Living Wage New Zealand, which was founded in 2012 when trade unions, community groups and church groups came together in the hope to reduce poverty and address the growing number of working poor.

The rate of the living wage it advocates for is calculated by independent economists and is based on the needs of a family with two adults and two children, undertaking 60 hours of work a week. The calculation averages out the costs of living in a more expensive location such as Auckland against cheaper places, such as Hastings, 400km south of Auckland.

Living Wage New Zealand asks organisations that sign up not to cut any other benefits or conditions. It has persuaded about 350 employers to pay the living wage, ranging from small and large businesses to local councils.

Major banks have also signed up. Felicia Scherrer, Living Wage Employer Program lead, agrees that the big banks are probably already paying above the living wage, but says it’s an important step nonetheless.

“The impact is on their indirectly paid workers, their cleaners and security guards, those workers who are contracted on a regular and ongoing basis,” she says.

“The businesses who step up are using their platform and their influence to say to other businesses, ‘Hey, if we can do it, you can do it too’.”

Scherrer says that businesses who pay a living wage have reported higher productivity and that workers take fewer sick and absentee days.

Breaking the cycle of poverty

Workers on the minimum wage are often less skilled and have very little bargaining power, so their wages don’t tend to grow, says Alexander Plum, associate director (economics and research) at the New Zealand Policy Research Institute. “There’s a very high persistence in low pay,” he says.

Low-earning workers often don’t have the means or opportunity to build up their skills on the job or pursue education. “A living wage can make a difference for them because there’s not many other options available,” he says.

In their book From Free to Fair Markets: Liberalism After COVID-19, professors Richard Holden and Rosalind Dixon argue for what they call “a generous social minimum wage”, which includes core goods and services such as food, shelter, health care and education.

“It’s important that we afford everyone a minimum level of dignity and existence. Part of being a wealthy, civilised society is it provides people with more opportunities,” says Holden, Scientia professor of economics at UNSW Business School and CA ANZ’s chief economist. “Who knows if some Steve Jobs of Australia is undiscovered because if you’re working for minimum wage, you get into a kind of cycle of poverty that’s hard to get out of.”

Holden says the real question is how to achieve this.

While many advocates of the living wage say employers should pay it, there are other options.

One possibility is something like the earned income tax credit in the US. This provides low-income workers with a tax credit based on their individual circumstances, such as how many children they have. Holden also points to Germany, where governments pay wage subsidies in economically challenged areas.

Another possibility is having different minimum pay rates depending on where someone lives and the location’s specific cost of living, such as the high rents of capital cities.

“They’re addressing what proponents of a living wage are rightly concerned about but doing it in a way that has fewer negative side effects,” he says of the ideas.

But each of these solutions also comes with their own problems. The tax credit and wage subsidy ideas would incur significant costs for the government, forcing taxes to be raised elsewhere or finding areas to cut spending.

And setting different minimum wage rates for workers in different parts of the country would be administratively difficult and open the possibility of gaming the system.

Double-edged sword

Holden notes that one consequence of paying higher wages than the minimum has the possibility of leading to substituting jobs with technology.

“Instead of having more people taking orders at fast food restaurants, you [replace them] with automated kiosks,” he says. “Instead of having people at checkouts at supermarkets, you have more self-checkouts.”

Indeed, one argument against the living wage is that it could price unskilled workers out of the labour market altogether. Another is that businesses would be forced to put up their prices to cover the extra cost. That could lead consumers to use less of the goods or services the business provides and it would also reduce the purchasing power of low-paid workers.

However, New Zealand economist and Acuity contributor, Donal Curtin, says the effects won’t be so clear cut. If one employer decides not to employ staff at a living wage, the workers could potentially find jobs elsewhere, particularly in a strong jobs market. “It’s not so much that people are losing jobs, it’s just that the pattern of jobs is being shifted around,” he says.

But this applies only up to a point: “There has to be some level of minimum wage increase that actually does give employers pause for thought and will genuinely have employment impacts,” he says.

This raises the question of whether employers who pay minimum wages could afford to pay the living wage.

The Australia Institute’s Lisa Heap believes they can. “In Australia, we’ve got record profits in Australian corporations. It is the representatives of these corporations who are arguing that they can’t afford to pay modest increases in the minimum wage,” she says.

---

What about a universal basic income?

The universal basic income (UBI) has a similar aim to the living wage – to ensure that everyone in society can afford the necessities and live a dignified life.

But it aims to achieve this in a different way. The idea is that everyone in a society, regardless of their wealth and income, is paid the same basic income by the government.

Proponents say it would reduce poverty and inequality. Some argue it would boost economic growth because it could give people the means to invest in education and training, leading to higher-skilled and better-paid jobs.

The idea gained currency again recently, after OpenAI founder Sam Altman funded a trial of the concept, which found that participants spent more on essential items such as food, rent and transport.

But the study also found that while there was an increase in the time spent on leisure pursuits, there were no significant improvements in the quality of employment and no significant effects on education or training, says Alexander Plum, associate director (economics and research) at the New Zealand Policy Research Institute at the Auckland University of Technology.

And he says a UBI would create a shortage of workers.

“The universal basic income fundamentally changes the incentive of wages,” Plum says. “There are certain occupations which have a low wage, and if you have a universal basic income and these jobs still need to be filled, then it might actually create a shortage to fill them.”

Then there is the question of whether the government and society could afford it.

“It’s a terrible idea,” says CA ANZ’s chief economist, professor Richard Holden. “Even at a very low level that would not provide people with a dignified existence, you would spend more money than the entire federal budget.”

Andrew Yang, a 2020 US Democratic presidential candidate, made the UBI his signature policy. He proposed a ‘freedom dividend’ – US$1000 monthly payments to every US adult – as a response to job displacement by automation. Though he did not gain many endorsements from top-tier lawmakers, the idea was not without a modicum of support.

---

Take away

CA Library's audio book (6 hrs 54 mins), by Peter Phillips Titans of Capital: How Concentrated Wealth Threatens Humanity, examines to what extent wealthy dominate decision-making in society and how wealthy transnational elites threaten human rights and the future of the planet.