Fair Pay Working Group fit to be forgotten

Roger Partridge
Insights Newsletter
12 July, 2019

Former Prime Minister Jim Bolger burst back into public life in mid-2018 to lead the government’s Fair Pay Agreement Working Group. The working group’s report was made public on 31 January. Since then, the government has said almost nothing about the report’s recommendations. It is almost as if both Bolger and the report have been shelved.

If so, that would be a good thing. The report recommends reintroducing compulsory collective bargaining across entire industries and occupations. Yet, as we explain in our latest research report, Work in Progress: Why Fair Pay Agreements would be bad for labour, the working group’s recommendations are based on a misrepresentation of New Zealand’s labour market record. 

The recommendations also fly in the face of both empirical evidence and international trends towards greater labour market flexibility. They will hinder, rather than help, the government’s commendable goal of a high-wage economy that shares the benefits of economic growth and productivity.

Our research finds that New Zealand has fared well since the reform of labour market regulation in 1991. The reforms swept aside the system of “industrial awards” that had dominated most of the last century. Under the Employment Contracts Act (and its successor, the Employment Relations Act), the decline in employed workers’ share of GDP that had dominated the 1970s and 1980s was arrested; since the 1990s, employees’ share of GDP has trended upwards.

. At the same time, income inequality before taxes and transfers has declined. And our unemployment and labour market participation rates are the envy of most OECD countries.

While productivity growth is still the Achilles heel of the New Zealand economy, it was a problem in the two decades that preceded the 1991 reforms. It is also a problem in many advanced economies. But there is nothing in the economic evidence to suggest our productivity problems stem from our flexible labour market arrangements. Indeed, the OECD recently singled out New Zealand – and Denmark – as countries whose labour markets have been operating effectively by increasing wages in line with increases in productivity.

It should therefore be no surprise that other countries – most notably France under President Emmanuel Macron – have looked to emulate aspects of New Zealand’s flexible labour market regulation.

The government’s goal of a high-wage, high productivity economy, with broad-based gains from economic growth, is laudable. But the path to achieving it cannot be found in the Bolger report. The government should send the working group back to the drawing board.

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