‘Fair pay’ diminishes competitiveness

To qualify, employers must make best efforts to top up the $585 payment to a minimum of 80...
Photo: ODT files.
Although the Government’s decisions on "fair pay" agreements might take time to implement, the impact should not be underestimated.

It will mark change for large parts of New Zealand’s workforce, increasing union power and decreasing labour-market flexibility.

It will make this country less competitive internationally and more expensive. It might well see rising wages for a while, but only as long as the economy can sustain that.

It shows again that this Labour Government backs central control and is willing to enact that belief.

When push comes to shove, the Employment Relations Authority will rule on minimum pay and conditions in some occupations. This is a partial reversion to the old days of the 1970s and compulsory arbitration.

Wages and salaries in pure capitalism should be determined simply by supply and demand and what an industry or employer can afford.

In practice, it never quite works like that, although supply and demand are reasons in many instances.

The minimum wage and the protections of the Employment Relations Act come into play, as they should.

Lack of supply has helped force a minimum-wage industry like fruit picking to finally increase some wages. The shortage of teachers, nurses or whatever is also used in collective bargaining arguments.

Of course, the labour market is much more complex.

How much power does the employee/union or the employer have? It is often claimed the power imbalance is in the employer’s favour. Try telling that to New Zealand Rugby as it tries to persuade the players’ union to back the Silver Lake deal. Employees in a healthy economy also can quit their job for another. It is difficult for employers to dismiss unwanted or unsatisfactory staff.

How is the work perceived? Might predominantly women’s work, for example, have lesser status? Might the educated middle-class and the governing and executive classes have increasing sway?

How exposed is the work to internal and international competition?

Skills required, experience and relativity with other jobs all come into the mix.

As in so many other areas, we muddle along.

In pure socialism, we should all be paid the same as we train and work because all people have equal worth. That, of course, never succeeded in the real world, even in Cuba.

Executive and directors’ pay and the remuneration consultants who advise on it buttress each other. Inexorable leapfrogging takes place. Each board believes it cannot be worth less than its neighbour, and up go the rates.

Similarly, each union coming before the Authority — or threatening to do so — will have excellent arguments why its workers should be paid more. Bus drivers have lives in their hands, can be threatened by passengers and have awful split shifts. Care workers handle our most vulnerable and in close personal ways. Security guards are exposed to trouble and risk. Supermarket checkout staff were our Covid lockdown heroes and must be unfailingly helpful and polite no matter the provocation or hassles.

Well-paid Authority members, not exposed to the harsh realities of having to make money in the open market, will be sympathetic.

Fair pay agreements could well mean the shop assistant in a small Westport store is paid the same as the worker in Queen St, Auckland.

Such broad agreements, while setting "minimum" rates, tend to have a flattening overall effect.

This is seen among teachers. Weaker teachers should be paid less and the best more. But that does not happen.

Because businesses are exposed to profit and loss and potential failure, paying too much for some staff means often there is not the money to pay extra for the high performers.

"Fair pay" agreements will not help New Zealand in its need for increased productivity and higher long-term wages in a competitive world.

At a time when the likes of France are battling to increase labour-market flexibility and competitiveness, New Zealand is heading in the other direction.

Comments

New Zealand is a nanny state. You only need to look at DCC to see that. The city manager is called a CEO and paid accordingly. The airport manager is called a CEO and paid accordingly. It goes on and on. The private sector is making the same mistake and allowing itself to be forced into over-paying the least valuable and needed employees. The market has to be allowed to dictate the needs, value and compensation for employees. Otherwise it will reflect what's happened with governmental organisations like DCC where people have great tittles and great pay but nothing ever gets done! Only in New Zealand will you find somebody with maybe 30 people working for them at an airport called a CEO and paid $300k. It's a total and complete joke. The free market can sort these issues out if allowed.

Competitiveness contrasts with team efforts. It is a complete joke to state that the free market sorts out wages. Most CEO's and upper management take what they can get - not what they contribute. The profitability of a company reflects the workings of all staff, the customer market, the assets and the times - it does not especially reflect on the management other than very poor management usually show thru but there again those not in management may well be working outstandingly and yet they are first in-line when downsizing needs happen. Free-market is fairyland, no free market in NZ except perhaps generated at the upper management level where control of their pay is freely dispersed by cohorts of likeminded people having the power.

I think you are confused about what a free market is! The free market is an economic system based on supply and demand with little or no government control. It is a summary description of all voluntary exchanges that take place in a given economic environment. Free markets are characterized by a spontaneous and decentralized order of arrangements through which individuals make economic decisions. Based on its political and legal rules, a country's free-market economy may range between very large or entirely black market. It was pretty clear in labeling New Zealand a "Nanny State" that there is no free market here. Everybody here looks to the government for sustenance, support, and guidance...there can be no free market. The government has its hand in everything to ensure the free market remains ineffective. Again, you are confused, how can you have a free market at the upper level of management? That makes zero sense! The anointed are appointed to the most senior positions here. There is no quality cut, it boils down to who you know...PERIOD! We live in a country run by the least qualified, we make nothing, people live hand to mouth a nanny state!

There are a lot of unsubstantiated claims in this article that have proven over time, in many markets, to myths. Enough with the long proven false, neoliberalism please! Two examples, (for brevity).
"Decreasing labour market flexibility"
How? People will still be able to leave or join an industry the same as before. If pay rates were the only motivation to move job, we would see low paying jobs as a step up only. Clearly this isn't the case as many low paying jobs are performed by the same workforce over their career.
"Wages and salaries in pure capitalism should be determined simply by supply and demand and what an industry or employer can afford"
Which is it? Supply and Demand, or just Demand, as you suggest? What is this pure capitalism you speak of? The free market? A term INTENDED TO MEAN a market where an informed exchange between buyers and sellers is free from costs or hindrances. A truly free market is an idealistic myth, but many things help us get closer. Technology for example, and yes, unions. Addressing the power imbalance between employer and worker helps fair negotiation. Another common example for the benefit of explanation is food labelling regulation.

Set productivity back 60 years with male driven workplace competition, why don't you?

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