Economy

Stopping the race to the bottom on wages may see us all win

New economic research has found collective wage bargaining does not result in an loss in productivity, but has the potential to improve conditions and innovation-based activity. Laura Walters looks at a new report that finds fair pay agreements will see a move towards productivity rather than short-term profitability.

Charanpreet Dhaliwal was found dead in a pool of his own blood after being beaten to death while working on an Auckland construction site in November 2011.

It was his first night as a security guard, and his training consisted of a site tour, and being handed a set of keys and a high-vis vest. He had boots borrowed from another worker, his own small torch, a cellphone, and a card with a number to call if there was trouble.

Five hours after the hasty induction, the 22-year-old computer studies student was found dead.

Since then, those in the security industry have continued to work casual and contract jobs, with a lack of training and support, for low pay.

A campaign to shine the light on the risks, and poor safety conditions and training in the security industry, has been described as late-trade union boss Helen Kelly’s last campaign.

And on Tuesday, New Zealand’s union movement named the security sector as one of three priority industries for a fair pay agreement (FPA), along with cleaners and supermarket workers.

All three sectors have seen pay decline in real terms since 1981.

CTU economist Bill Rosenberg said while New Zealand was becoming richer, workers in these industries were not seeing the benefits, in what has become well-known as the 'race to the bottom'.

"Making sure FPAs are brought in and done properly is the single biggest thing this ‘wellbeing’ Government can do to help fix the problems including income inequality, child poverty, and low productivity that have caused so many problems for so many New Zealanders for too long."

CTU president Richard Wagstaff said Kelly would have been proud to know New Zealand was moving closer to sector-based bargaining, which had the power to address some of the conditions and casualised employment arrangements that attributed to Dhaliwal’s death.

“She was a real campaigner for groups of workers who were hopelessly under-represented and hopelessly treated.”

Kelly said reciprocity was often missing from the employer-employee relationship, and that needed to change.

The tragic case of Dhaliwal's death was the epitome of cheap, contracted labour, and showed there was often little thinking beyond keeping wages down, Wagstaff said.

FPAs offer an opportunity to change New Zealand's employment environment.

"Making sure FPAs are brought in and done properly is the single biggest thing this ‘wellbeing’ Government can do to help fix the problems including income inequality, child poverty, and low productivity that have caused so many problems for so many New Zealanders for too long,” he said.

Coalition tension on employment relations

The coalition Government is currently considering how, and whether, to set up a framework for FPAs - collective agreements that would guarantee minimum pay rates and conditions for workers across an entire industry.

Labour campaigned on the policy, and a working group, set up by the Government and chaired by former Prime Minister Jim Bolger, recommended implementing FPAs that sat alongside other collective bargaining, and focused on industries that had experienced a race to the bottom in terms of wages.

Given the current coalition Government's make-up and New Zealand First’s watering down of previous employment law changes, including barring what was initially going to be a full ban on the 90-day trial period, there has been some trepidation as to whether FPAs will make it through the cross-party consultation process, and if so what they will look like.

Workplace relations Minister Iain Lees-Galloway says the wait for the Government’s response to the group’s recommendations, delivered in January, was down to the detailed framework and policy design that needed to be created.

Lees-Galloway said he wanted a clear set of examples to take to the public for consultation. The lack of Government response was not owing to New Zealand First, he said.

"It's just a bad, old-style, union way of doing things."

Meanwhile, Winston Peters wasn’t giving much away, but said he was in favour of doing what was needed in order to increase productivity and innovation.

He mentioned Singapore as an example of a country that drove up minimum wages in order to create a modern, productive economy.

But there have been promises from political parties before, and in this coalition there is no sure thing, so the union movement has been coordinating its efforts to talk publicly about what they believe are the benefits of FPAs.

Meanwhile, other sectors have won legal battles, resulting in FPAs through a different mechanism, including the landmark aged care sector case, led by Kristine Bartlett.

And earlier this week, a living wage was imposed on Mitre 10 stores in Dunedin and Mosgiel in what’s also being called a landmark case for retail workers.

The store’s owner must now pay workers at least $19 an hour after First Union took a case to the Employment Relations Authority. And the union expects the majority of employees will receive the second-tier minimum of $21 an hour – 45 cents above the living wage.

This will have wider implications for the retail hardware industry, building on an agreement last year by Bunnings to pay its workers the living wage.

"The focus has been on profitability, rather than productivity."

Regardless of what the current Government decides, what industry implements proactively, and precedent the court sets, the National Party is steadfastly against FPAs.

On Tuesday, Simon Bridges said National would never agree to support FPAs.

He said it was a “bad, old-style way of doing things”, and would take the country back 30 or 40 years, adding that it would be a move away from a flexible workforce, which had created tens of thousands of jobs.

Bridges said it would force small and medium businesses to do something they wouldn’t otherwise do, adding that the economic arguments put up by Labour, the unions, the FPA working group led by a former National Party prime minister, a new report from BERL and the OECD were all wrong.

Notable support from OECD

The announcement of the sectors that would be first off the block was accompanied by a report from economics firm BERL, which found many of the opposition arguments did not hold water.

On Tuesday, BERL chief economist Ganesh Nana unveiled a literature review, which concluded “sector wage bargaining holds no fears for New Zealanders”.

Opponents often referred to a drop in productivity as a result of collective or sector bargaining, he said.

The report found there was no consistent relationship evident between union activity and productivity.

Relative economic benefits of individual contracts over collective contracts was also inconclusive.

However, there was clear evidence a growing gap between productivity and wage increases was associated with the erosion of collective bargaining.

While there was little evidence to suggest a loss of productivity from sector wage bargaining, there was potential to shift investment focus towards non-labour elements of the productivity story, the research found.

Nana said putting a minimum standard in place, and setting up a framework, took the level of wages out of the equation and enabled businesses to focus more on things that could lift productivity, such as investment in skills and machinery.

"Most employers in New Zealand do want to do what’s right. The problem with the structure we’ve got is employers are looking over their shoulder at those ones at the margins, who continue to undercut them on wages and conditions. "If you’re an employer always having to look over your shoulder then it’s that race to the bottom."

Firms would begin competing on the good things, like training, management and technology, rather than competing on the bad things.

“The model we’ve fallen into over the last 20-or-so years – that race to the bottom – has tilted the employers into thinking they can get better profitability out of suppressing wages.

“So the focus has been on profitability, rather than productivity.”

Nana said the race to the bottom had diverted the country’s attention.

Employers had bought into the short term game of suppressing wages to gain short-term profitability, locking New Zealand into a low-wage, low-skilled economy.

“Most employers in New Zealand do want to do what’s right. The problem with the structure we’ve got is employers are looking over their shoulder at those ones at the margins, who continue to undercut them on wages and conditions.

“If you’re an employer always having to look over your shoulder then it’s that race to the bottom.”

Turns out unions aren't so bad

Notably, the OECD has now reversed its position on organised bargaining.

In the 1990s, the OECD held a critical position, but in 2006 it conceded the evidence was equivocal about the relative merits of sector and enterprise collective bargaining models.

The latest view from the OECD, published in December 2018, went further and argued there were better labour market outcomes from a system of organised decentralisation – comprising sector wage agreements providing a broad framework for firm-level bargaining of detailed provisions.

On Tuesday, media heard from economists, unions, and workers who were in favour of changing the model.

Workers told stories about long hours, minimum wage, working multiple jobs, and still struggling to make ends meet.

Businesses or sector representatives for supermarkets, cleaners and security guards also put their name to the push, saying they wanted to improve pay and conditions, but a country obsessed with keeping costs down through wages and training made it almost impossible to do the right thing and succeed.

CTU secretary Sam Huggard said workers were being “undercut, and short-changed, and ripped off”.

Now the ball was in the coalition’s court, and Huggard said there was no reason New Zealand First couldn’t back these types of agreements.