Should we give Fair Pay Agreements a fair go?

Roger Partridge
Insights Newsletter
15 March, 2019

There is a lot to like about New Zealand’s labour laws. At 80.9%, our labour market participation rate is among the highest in the world. This rate compares extremely well with Australia at 77.4% and the OECD average of only 72.1%. Our unemployment rate is also commendably low. At 4.3%, unemployment in New Zealand undercuts Australia’s 5.2% and the European Union’s laggardly 6.8%.

Regardless, the coalition government is eager to re-write our industrial relations rule-book by introducing so-called “Fair Pay Agreements”. Despite advice from Treasury that more work was needed to justify the policy initiative, Workplace Relations and Safety Minister Iain Lees-Galloway set the Jim Bolger-led Fair Pay Agreement Working Group underway last June.

Of course, Fair Pay Agreements do not sound like a bad idea. No employee wants to work for unfair pay. Nor is it sustainable for an employer to offer unfair pay – especially in a tight labour market.

However, the working group’s recommendations delivered in January go far beyond creating a framework for an employer and its employees to reach agreement on a fair level of remuneration. Instead, the working group proposes a compulsory, highly prescriptive system for determining wages and other terms and conditions of employment.

The recommendations would allow the lower of 1,000 workers, or 10% of the workers in an occupation or industry, to require all employers – and all other workers (including contractors) – to submit to a compulsory collective bargaining process. Prescribed outcomes of that process include industry- or occupation-wide minimum rates of pay, criteria for pay rises, overtime rates, and redundancy provisions.

The government is considering the working group’s recommendations. It needs to do so carefully. If implemented, the changes will mark a return to the system of industrial awards that dominated labour market regulation in New Zealand in the 1960s and ’70s – a period overshadowed by widespread industrial strife.

And it is just this type of industrial awards system that many hold responsible for the current low levels of labour market participation and high levels of unemployment in both Australia and across Europe.

While the government is digesting its working group’s recommendations, at the Initiative we are doing our own research on whether the case for Fair Pay Agreements stacks up. And like Treasury, we have our doubts.

Expect to hear more from us in the coming months.

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