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Fair Pay proposals too flawed to proceed

Wellington (26 November 2019): The Government must halt its plans to introduce fair pay agreements or face harming workers, consumers, the unemployed and the wider economy says public policy think tank, The New Zealand Initiative.

The Initiative’s submission in response to the Ministry of Business, Innovation & Employment’s October 2019 Discussion Paper reveals that the premises on which the fair pay agreement proposals are based remain deeply flawed.

The Discussion Paper asks 98 questions about how to design a system of fair pay agreements but fails to ask the most important question: whether we should introduce compulsory industry- or occupation-wide collective bargaining of the sort envisaged by the Discussion Paper.

Initiative chair Roger Partridge says the answer to this most important question is a resounding “No.” Commenting on the Initiative’s submission, Roger Partridge said:

“MBIE’s Discussion Paper repeats a series of discredited economic claims underlying last year’s flawed recommendations from the Fair Pay Agreement Working Group led by former Prime Minister Jim Bolger. The Discussion Paper also plays fast and loose with OECD labour market studies, ignoring the OECD’s warnings and misrepresenting their findings.

Turning to the risks of fair pay agreements, Roger Partridge said:

“Fair Pay Agreements would jeopardise New Zealand’s already fragile productivity growth and risk New Zealand’s strong employment growth record. They would also harm the interests of consumers and overall economic wellbeing. If the government presses ahead with its proposals, the only winners will be the unions.”

The Initiative’s July 2019 report, Work in Progress: Why Fair Pay Agreements would be bad for labour, demonstrated that New Zealand’s current labour market settings have been working very well for labour. Unemployment is low compared with our OECD peers. Labour market participation rates are extremely high. And in the nearly three-decade period since New Zealand’s labour markets were freed up, New Zealand has had the third-highest rate of employment growth in the OECD.

Despite claims to the contrary in the Discussion Paper, the Initiative demonstrated in its Work in Progress report that:

• The share of GDP going to workers has not fallen overall since New Zealand’s labour markets were freed in 1991. In fact, it has risen. As a result, market income inequality has fallen in New Zealand since the early 1990s.

• Wage growth has not lagged behind productivity growth.

• Wages have not fallen as a result of a race-to-the-bottom in any industry. Indeed, wages in every wage decile have risen.

A system of fair pay agreements will place unions in the box seat, with workers compelled to have unions represent them in negotiations for a fair pay agreement even if they do not belong to a union.

“It is little wonder the Council of Trade Unions has so vocally advocated introducing FPAs since the working group’s report was released last year,” Roger Partridge said.

The Initiative supports the government’s stated aim of creating a highly skilled and innovative workforce, and an economy that delivers well-paid, decent jobs and broad-based gains from productivity and economic growth. But FPAs will not help achieve this goal.

Despite the overwhelming evidence against FPAs, if the government nevertheless introduces a framework permitting FPAs, and if the FPAs are to have any legitimacy, the Initiative submits they must:

• be introduced incrementally, targeting only industries where there is evidence of labour markets failing workers and employers. No such evidence has been presented either by the working group or MBIE to date.

• have a high level of worker and employer support.

• permit both workers and employers to opt-out of the process.

• be subject to rigorous ex-ante and ex-post market impact assessment.

FPAs constructed along these lines would be a very different solution than MBIE has been incubating for the past 10 months. But if the government discards the flexible labour market settings that have served New Zealand so well and presses ahead with its plans, the unions will have won, and the nation will have lost.


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