Fair pay will not destroy the economy

One would think the proposal to advance fair pay via industry standards will mean the end of the world when reading some commentators. The angst from many employers is predictable when the normal state of employment affairs for the last thirty years or so has heavily favoured them. The adjustment period will be a fraught one until a new and fairer normal is established.

The main arguments against what is being proposed can be easily rebutted:

1) Many businesses have low profit margins and raising wages will be unaffordable.          

Although New Zealand productivity is low, wages have not kept up with productivity gains. When productivity and profits have increased few businesses have shared gains with their employees and there has been an increase in the percentage of profits that goes to shareholders and management and a decrease in what is passed on to employees.

This has been an international trend that has also happened here. New Zealand has had the fastest growth of income inequality in the OECD and this has largely been due to stagnating wages, increased earnings for shareholders and upper management and our overly heated property market.

Businesses have deliberately focussed on reducing wage costs to increase profit margins as a business strategy and the tender process for contract work encourages this too. The public transport problems in Wellington is largely because the most successful tender relied on reducing driver wages to be competitive, if there was an award for bus drivers they would have been protected and more realistic tenders would have resulted.

New Zealand's lack of productivity is not because of a lazy workforce (New Zealanders are generally hard workers and work longer hours than many). Our low productivity is because our economy is largely based on producing and exporting high volumes of raw commodity (milk, wood chip) and open slather tourism, rather than adding value. Our current economy is not reliant on a highly skilled and educated workforce and we have not even bothered to ensure that we have enough qualified tradespeople to build the houses we need. Offshore government procurement has destroyed a good deal of our skilled workforce.

Our economy has become dependent on a low wage workforce and workers have become commodified. Too many workers are expected to survive on pay well beneath the living wage of $20.55. The Working for Families tax credit is recognition that many working families cannot survive on their wages and the credit is effectively a wage subsidy.

There are many large businesses that can afford to pay their workers far more that are making sizeable profits on the back of their low wage workforce. For example, the aged care industry is considered a highly profitable one for investors, while workers are still underpaid despite recent increases. Banks are possibly amongst the most profitable businesses in NZ and yet most bank tellers will earn less than the living wage. Supermarkets employ many at the youth rate and consequently the average checkout pay is less than the adult minimum wage, while many supermarket owners are high on our rich list.

Tourism is currently our biggest industry and low waged service workers are its backbone. Queenstown is a great example of the low value and support given to those who are at the frontline of the tourist industry. Most earn less than the living wage and living costs in our pre-eminent tourist destination make it impossible to live and work there for an extended period. Basing our major industry on a transient/casual workforce is not sustainable.

Those businesses that genuinely can't afford to pay good wages do exist and I would argue that if they can't pay at least a living wage than they clearly aren't a viable business. Some large employers that could fit this category would include some fruit growers who rely on underpaying migrant workers to remain profitable. Rather than exploiting the workforce the industry needs to look at other ways of increasing profits, perhaps getting supermarkets to pay more for their produce or adding value. There is no moral justification for basing any business on the exploitation of workers.

2) Fair Pay Agreements won't be fair to employers and won't recognise regional differences.

Currently employers hold the majority of the power in an employment relationship. Less than 20% of our workers are union members and most of them are in the public sector. The huge majority of workers in the private sector have little bargaining clout and are on individual contracts. The causal labour force is huge and despite changes in legislation zero hour contracts probably still effectively exist. New Zealand does have a slave labour problem for many migrant workers.

Many employers like to apply "divide and rule" and collective bargaining is not something that they like to encourage. Given the current low levels of worker organisation it doesn't makes sense to demand a high percentage of worker participation as threshold for establishing a sector award rate. It will take time for many workers to feel the process is safe for them to engage in without experiencing employer reprisal. David Farrar is fearful of a return to compulsory unionism but he is really just reflecting the fear that unions may re-establish themselves. I also find it a hypocritical view that employer (EMA) and farmer unions (Feds) are considered acceptable but worker unions and collective bargaining are bad.

The diminished significance of unions also increased the likelihood of unsafe and bullying working environments (Pike River, forestry, farming). It is much easier to advance and protect worker rights through collective action.

The claim that national wage rates won't reflect regional cost of living differences does not take into account multiple variables that actually support a standard award rate. It is often harder to attract workers to smaller centres and a lower cost of living would be a useful attraction. Also outside of Auckland and Queenstown there will probably be little real difference in the cost of living in the  regions.  It would make more sense to have an extra weighting or housing allowance for those having to work in places that have a high cost of living.

3) Increasing wages and strengthening unions will negatively impact on our Economy

Historically this doesn't make sense. In the US and in New Zealand raising minimum wages and supporting workers lifted both economies out of the 1930s depression. Roosevelt's New Deal and the reforms of the Savage government were hugely successful after the failed austerity measures used before. It is again recognised that austerity does not work. When ordinary workers have a reduced disposable income the domestic economy suffers.


I fully support the proposed fair pay recommendations and my only concern is that they may need to be even bolder to get the changes we need. There will be substantial push back from the National Party and their privileged business friends but we need to stand firm if we want a more equitable society and a vibrant and resilient economy.