MBIE seats the unions at the steering wheel

Roger Partridge
Insights Newsletter
29 November, 2019

When the government presses ahead with incomprehensible proposals, you have to ask “Why?”

A classic example is the Ministry of Business, Innovation and Employment’s Discussion Paper, Designing a Fair Pay Agreements System. Submissions in response to the Discussion Paper were due earlier this week.

Instead of answering MBIE’s 98 “How to?” questions, the Initiative’s submission focuses on a missing 99th question: “Why we should not implement a system of fair pay agreements (FPAs)?”

In our July report, Work in Progress: Why Fair Pay Agreements would be bad for labour, we demonstrated that since compulsory unionism and the former industrial awards were abolished in 1991, New Zealand’s labour market record has been strong. Unemployment sits at 4.2% – compared with the OECD’s average of 5.2%. New Zealand has one of the highest labour market participation rates of any developed nation. And since 1991, we have enjoyed the third-highest rate of jobs growth in the OECD.

We also found that the case put forward last year by the Fair Pay Agreement Working Group did not stack up. Contrary to the claims of the working group:

  • The workers’ share of GDP has not fallen overall since the 1991 reforms; it has risen.
  • Market income inequality has fallen since the early 1990s.
  • Wage growth has not lagged productivity growth overall since 1991.
  • Wages have not fallen as a result of a race-to-the-bottom in any industry. Wages in every wage decile have risen.

Despite the evidence presented in Work in Progress, the MBIE Discussion Paper repeats every one of the working group’s discredited claims. And it adds a few more misleading claims of its own, including suggesting the OECD believes compulsory collective bargaining is likely to be good for productivity growth, which it does not.

Our July report also found that FPAs will be bad for just about everyone. FPAs bring significant risk of:

  • Slower productivity growth from locking in inefficient practices and reducing labour market flexibility;
  • Job losses where firms are unable to recoup costs of higher wages brought about by FPAs; and
  • Harm to consumers from firms who are able to increase prices to recoup higher wage costs.

These adverse consequences are likely to fall disproportionately on the low-skilled and on New Zealand’s least well-off.

The only winners from FPAs will be the unions. FPAs will thrust unions into the box seat in negotiating FPAs on behalf of all workers in any industry or occupation.

And there you have your “Why?”

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