Ending the competition of lowering wages: the case for the Fair Pay Agreements

When the working group on the Fair Pay Agreements (FPA) released their report last January, their findings gave a stark assessment of the state of New Zealand wages in recent decades.

The working group  composed of economists, business leaders, and trade unionists found out that New Zealanders were working longer hours, but producing less per hour, compared to other countries in the OECD. Productivity in recent decades have been relatively poor, and economic growth was driven largely by increased labour force participation rather than labour productivity.

(READ: The FPA working group’s report)

While growth was observed in workers’ wages over the decades, it was at a rate much slower than labour productivity. In addition, wages for those on lower-income brackets increased slower than those on high wages – with the exception of minimum-wage workers.

In summary, the working group found out that New Zealand workers were working more, but producing less, and saw their wages increasing at a sluggish rate. This reality negatively impacted our country’s economic growth, and contributed to growing income inequality also.

New Zealand has problems with labour productivity, and income inequality. To rectify this, the working group identified factors which have led to these problems and solutions to ameliorate them.

The gist of those factors is that employers have no incentive to increase wages because workers compete with one another for good jobs, thereby bidding themselves down in terms of pay to be more employable. This “race to the bottom” is made possible by our current employment laws that yield too much bargaining power to the employer, and too little to the employee.

The working group recommended that “New Zealand must have a highly skilled and innovative economy that provides well-paid, decent jobs, and delivers broad-based gains from economic growth and productivity”. This can only happen if the scales are readjusted to give more leverage to workers – whose labour ultimately allows businesses to function and to flourish.

The objective the working group was tasked with was “to create a level playing field where good employers are not disadvantaged by paying reasonable, industry-standard wages”. To achieve that, the working group recommendations called for sector-wide collective agreements akin to the practice in European countries and elsewhere in the OECD.

As opposed to decentralised collective bargaining agreements that is the current norm, a new mechanism was recommended wherein employers across an entire industry would be subjected to collective bargaining altogether.

Under current arrangements, workers generally negotiate as individuals with their employers – allowing the latter to pit one employee against another, driving wages down. Many workers organise into labour unions and attain a much stronger bargaining power with their employers, but there is still a lot more workers who do not unionise and fall behind from those who are.

What happens is that working people compete with other working people to stymie their wage growth, people end up working hard to their own detriment.

The outcome will be different if say, all workers across an entire industry negotiate as one with every employer in that nominated sector. If workers organised as a robust unit, they can bargain more effectively with their employers than as individual workers, or as a small group of unionised workers.

This is precisely what the Fair Pay Agreements aims to do, it sets out a framework for union and non-union workers to collectively bargain with all employers in that given occupation or industry. The FPAs will set a minimum pay for workers across that entire sector, and also empower them to negotiate for better work conditions and employment benefits.

Trade unions have already identified security guards, cleaners, and supermarket workers as the top three occupations that should initiate FPA bargaining. These sectors were identified specifically because their wages have fallen in real terms since the last forty years, precisely the problem identified in the FPA working group’s report.

If successful, workers across these three occupations will be able to collectively demand higher pay and better work conditions – ending the “race to the bottom” that we see today. The working group recommended that 10% of workers in a nominated sector or occupation can trigger an FPA bargaining process, giving workers a significant boost in their ability to negotiate better compensation for their labour.

For now, the FPA is merely a working group report – it has to be adopted into legislation to have any effect. The onus, then, is on the Coalition Government to give New Zealand workers some power once again to negotiate for better outcomes.

Given their particular focus on “well-being”, the FPA should be a no-brainer for the Government. The working group already stated that New Zealand was lagging behind their OECD counterparts in terms of productivity and wages – the remedy for those problems has been put right in front of them in the form of the FPA, they only need to apply it.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.