I’m doing this post knowing that it will send the right wingers scurrying to their keyboards in a high dudgeon, but it’s a risk I’m prepared to take. Because, like it or not, we have to have the conversation about the how the inequality of bargaining power has contributed to NZ’s low wages.
I was surprised to find this article in the NZ Herald which very succinctly outlines the link between weakened collective bargaining rights and low wages. The authors, Andrew Gawith and Susan Guthrie, describe how the era of the 1930s and 1940s were labelled the “Great Compression” because the gap in incomes between the haves and the have-nots narrowed significantly.
“The policies that delivered this compression – including a strengthening of collective bargaining regulations, which provided a floor to wages and high tax rates on capital – were follow by unprecedented income and output growth that persisted until the 1970′s.”
By contrast, economist Professor Paul Krugman describes the post-1980s as resembling the “gilded age” of the 1920′s – one characterised by a high and rising concentration of income in the hands of a narrow elite.
Gawith and Guthrie ask :
“Do our current labour market laws and institutions deliver the wage “floor” that Krugman (and the IMF) see as valuable to lifting output and incomes?
The fact that we have had to introduce a significant income subsidy – Working for Families – suggests not.The Employment Contracts Act 1991 undermined the bargaining power of workers, which probably goes some way to explaining why from 1992 to 2009 average real output per worker rose on average by 2% a year, but real wages rose at less than half that price…….”
They go on to describe how the Labour Government recognised that wages were too low, particularly for those trying to raise a family and how Working for Families was introduced to top up the incomes of low and middle income wage workers.
Gawith and Guthrie acknowledge that Working for Families has definitely alleviated financial stress among low and middle income families, but they say it has distorted “market signals”.
“Low paid jobs are a traditional route for younger workers to get more experience. However, under Working for Families, low-paid jobs are more likely to be accepted by older workers with dependents; their living costs are higher and not normally covered by a low wage, but unlike younger workers, their take-home pay (thanks to Working for Families) can far exceed what the employer pays.“
That’s an interesting proposition. Not sure if I totally agree, because my experience of low wage workers is that’s it’s far more complex than that. However, they make the point that experienced workers being employed in jobs that don’t use their full potential detracts from productivity growth and because of Working for Families, they are employed at “artificially” low wages to the detriment of workers without dependents.
And I like this :
“Rather than chasing the dream of matching Australian incomes, let’s first make sure workers with families can live with dignity from the wages their employers pay them instead of having to rely on selective income subsidies from the Government. That may involve giving workers more bargaining power to negotiate an increase in their share of national income. That should be a step towards narrowing the distribution of income and wealth in New Zealand which has broadened over the past three decades and may be cramping our ability to grow.”
And this :
“Joseph Stiglitz states that ….”growing inequality is the flip side of something else : shrinking opportunity. Whenever we diminish equality of opportunity, it means we are not using some of our most valued assets – our people – in the most productive way possible.”
Expect to hear more from Labour on these themes.
Taxpayer funded Working for Families is the easy way out for non beneficiary families to try and stay afloat. I support such reforms rather than not having them, but middle income and ultimately all workers, would be better off organising in unions via collective and industry bargaining to obtain wage increases from employers rather than the general taxpayer. Look at the current account deficit, (several lower quarters recently due to lower activity) but generally representing exported million$ profits to offshore corporates that operate in NZ. They do not willingly hand over the dosh created by the physical and intellectual labour of kiwi workers.
During the 1990s many smaller businesses creamed it while wages and the minumum wage were held down or eroded, and the owners splurged on property, baches and toys rather than training, upskilling and research and development. I know many instances of this from personal observation.
The residual circut breaking effect of the ECA on unionised workers and a generation of neo lib individualism needs to be rolled back with strongly weighted empowerment of union led bargaining inclusive of the right to strike in the absence of good faith bargaining. That is a point of difference Labour could aim for.
Hope so Darien. A clear call to the workers would rally us I hope. But the denigration of Unions here and overseas has diminished the power to develop higher minimum wages via union help. The above article outlines the policy. But the call must be simple and clear to the population. “Tax Cuts for the Rich.” Resonates. “STOP ASSET SALES” is another. Look forward to a new one from Labour “You Deserve to Wage Bargain.” Not quite right but…..
And over on the Standard the Mana Party launch is tomorrow and Mike Treen quotes Hone :
“We certainly need an agreed mechanism to set minimum terms of pay and conditions for workers. But given the private unionised workforce is small we think we should probably focus on union building first. The two practical steps would be any bargaining unit covering workers would take a vote……..
Sort of fits your call Darien.
Interestingly Brash is talking up closing the income gap with Australia. Not surprising given this is ACT policy even though it was a cornerstone of the NATS 2008 campaign. iAt the same time he and others of similar thinking are keen to lower minimum wage…
It appears the theory is that if we lower the rates further we will have even MORE competitive advantage for our companies, and they will reward their workforce by paying above the minimum wage? Hmmmmm more trickle down economic theory.
Thanks for the edit function
Good post Darien!
ianmac is onto something. The new Mana Party seem to have the same goals as Labour just like Act are similar with Nationals .. good to see the main parties having natural bedfellows available to contest the election.
One issue is that both will be competing for the fighting funds against each other.
jabba. Don Christie on Public Address says the Mana Party will be too late to access to State funding for adverts.
Oops. Remove the previous post. Wrong Name wrong blog. Sorry.
Who are Gawth and Guthrie?
Lecturers at Waikato University is my guess but please enlighten us with their background and qualifications.
“Everyone knows that your income directly corresponds to your worth to our country. those on low incomes must be lazy, stupid people of little worth, and those on benefits are even worse.
Why should we close the gap in income for these people.”
Above is my take on what alot of right wing people actually beleive, and the beleif that national has been fostering.
Great post Darien. We really need WFF just so that low income families can try to survive. WFF is a necessity built out of the greed of the wealthy.
The article is correct in thinking that workers should be paid a fair amount for what they do and ideally wages should not be subsidised by WFF.
However, it seems that what a lot of people don’t seem to realise is that again this type of corporate welfare means that less of your tax is able to be paid on other social, health, education etc services.
Having worked in a bank and viewing balance sheets and financial accounts I am pretty sure that most employers manage to jig their expenditure so that they don’t pay a heck of a lot of tax. This means that the cost of WFF is coming out of the pockets of wage earners and taxpayers who are unable to hide their income.
Waged people pay more than their share of everything and cannot hide their earnings because most don’t have tax write offs as do companies and trusts. On top of that most of their income attracts GST because they have to spend it all.
Lets make changes Labour!!
pdm, careful about disparaging academics, the former leader of ACT was a lecturer in his only real job outside politics.
@pdm – actually Andrew Gawith is the executive director of Gareth Morgan investments and Susan Guthrie is an economist and finance writer. If you had bothered to read the article you would have seen that.
Thanks for the feedback everyone. Some great thinking going on in Labour and you will see the fruits of that in our policies.
@Darien some interesting propositions in this but the logic is still predicated on redistributing a limited economic resource without any suggestion of increasing the size of the pool available for redistribution. Increasing the cost to employ by enforcing high minimum wage levels on employers will reduce the employment level which seems counter productive to your argument. Funding increases in schemes like WFF, which do little to improve real productivity, also require ongoing high levels of government spending which we simply cannot afford if we are to balance the books and reduce debt levels.
The issue of inequality will not be addressed by short term policies aimed at injections of either profit that could be used to grow business or borrowed govt money. It will require a commitment from all NZ’ers to a medium to long term programme of productivity driven economic growth, saving and resulting investment in economic development and a reduction in government spending to a level that enables debt reduction.
Where regulation will assist is in policies that protect workers and employers from the poor behaviours of the other (it cuts both ways). This framework for safe and growing business environments is critical to sustainable development and should be a joint focus for both business and worker advocacy groups.
A good balanced debate with the intention of developing a broad long term policy platform for growth and prosperity for all is what we need. Without a significant shift in behaviour from both ends of the political spectrum that has driven short term populist policies we will continue to face the instability and inconsistencies that have caused the current situation.
The problem is that the debate is welcomed by the right as part of a campaign to build support to gut WFF.
Their solution of restoring youth rates, holding down the minimum wage and getting rid of WFF – returning many working families to the poverty known to beneficiary families all for the hope that via trickle down in a decade or two will return to the same state they have now (when their families will have known poverty all their lives until then).
I am on a collective agreement, but my current union (withheld on purpose) leave a lot to be desired. Agree we need stronger unions, partly from my experience!
To Ian, You are the only one who can make your Union strong by recruiting lots more people to give you strength in your workplace. Unfortunately, your Union cannot do it alone. Cheers