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.