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Myths busted about benefits of Fair Pay Agreements

The EMA says The New Zealand Initiative’s report on Fair Pay Agreements (FPAs) busts all myths about their benefits, and shows we simply don’t need them.

EMA general manager of advocacy and strategy Alan McDonald says the report reinforces the position the 8500-strong employer membership organisation took following the release of the recommendations of the Fair Pay Agreement Working Group (FPAWG).

"Let’s be clear these are compulsory national awards and they are just not needed. They don’t improve economic growth or productivity, as suggested by the FPAWG, and in fact will do more harm than good," he says.

"FPAs are equally disadvantageous to everyone - employers and employees - and will not achieve the highly-skilled, innovative workforce, and economy and well-paid jobs that the government is seeking," says Mr McDonald.

The FPAWG recommends replacing New Zealand’s current, relatively flexible labour market regulation with FPAs, which are a compulsory and prescriptive mechanism for setting minimum terms and conditions across whole sectors or occupations.

"Essentially, this would take us back to the 1980s when we had industrial awards which saw workers’ share of Gross Domestic Product (GDP) decline and more inequality in income than we have now," says Mr McDonald.

"Across our membership we have no anecdotal evidence that employers are cutting down their costs to get contracts by paying people less, and the EMA agree with the New Zealand Initiative’s finding that lack of productivity growth is not linked with the 1991 labour market reforms."

The EMA also agrees productivity growth could be even slower with FPAs because they mean inefficient practices, a reduction in the flexibility of labour markets and an increase in the cost and complexity of a businesses’ operation.

"We’re worried that for some businesses, if FPAs do result in higher wages, they will simply have to cut down their workforce, or in the case of SMEs shut up shop. Those at greatest risk will be the unskilled, unemployed and inexperienced - particularly our young people," says Mr McDonald.

In addition, the EMA is concerned that FPAs do not allow for voluntary negotiation and arbitration, which is currently a breach of international law. The low threshold of only 10 per cent of a sector needing to opt in also means employees can’t choose not to be represented by unions in their wage negotiations.

"So not only do a few decide what’s ‘fair’ for everyone in a sector, but with FPAs being negotiated by unions and industry organisations, businesses can no longer set wage rates that are appropriate to their own workplaces," says Mr McDonald.

"Why would businesses want organisations like ours to negotiate their pay and conditions with their staff?"

Mr McDonald says FPAs also bring unions into conflict with each other, for example where a union represents one or two workplaces in a sector but has enough members to begin an FPA they would essentially take over, bringing back the conflicts of the 1980s industrial awards era.

"The government must take The New Zealand Initiative Report seriously and stop the discussion on FPAs in favour of evidence-based public policy that builds a better future for everyone."

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