In making this submission, we have drawn on the research and recommendations in our report, Work in Progress: Why Fair Pay Agreements would be bad for labour (July 2019) (our Report). A copy of our Report is appended to this submission. We have also drawn on – and repeated as appropriate – submissions made in response to the subsequent Ministry of Business, Innovation and Employment (MBIE) Discussion Paper, Designing a Fair Pay Agreements System (the MBIE Discussion Paper) that preceded the FPA Bill.
Our Report concluded that the Government must reject the recommendations made by former Prime Minister Jim Bolger’s Fair Pay Agreement Working Group (FPAWG), or face harming our economic growth and productivity and the interests of workers, the unemployed and consumers.
The Bill ignores the risks and concerns raised in our report and, instead, seeks to implement the recommendations of the FPAWG. The policy objective of the Bill purports to be to improve labour market outcomes in New Zealand.
However, we submit that:
- New Zealand’s labour markets are performing very well, with high levels of employment, high levels of labour market participation, and one of the highest rates of job growth creation in the OECD. The Government should be very cautious before altering labour market settings that are working very well for workers and overall wellbeing.
- The economic concerns identified in both the FPAWG Report and the subsequent MBIE Discussion Paper are either false or are not problems that a system of Fair Pay Agreements (FPAs) can solve. This latter conclusion is consistent with advice to Cabinet from Treasury questioning the rationale for introducing FPAs. The conclusion is also consistent with MBIE’s Regulatory Impact Statement, which states that the government's proposed FPA system is not its "preferred" approach. Rather than throwing out the existing, flexible system of employment agreements, MBIE said it favoured favours tweaking it - strengthening the existing system and setting targeted sector-based standards where a case can be made out.
- The evidence and academic literature suggest FPAs would likely harm New Zealand’s already fragile productivity growth. A 2018 OECD study cautions that centralised bargaining systems (like FPAs) tend to be associated with lower productivity growth if coverage is high.
- While FPAs will be good for unions, they will likely harm the interests of everyone else – including workers, the unemployed, consumers, and overall wellbeing.
- New Zealand’s system of regulation already has provisions to protect vulnerable workers. These include our minimum wage laws, along with Part 6A of the Employment Relations Act 2000 (ERA). The ERA, the Holidays Act 2000, and the KiwiSaver Act 2006 also contain a suite of statutory minimum protections that apply to all There is simply no need for FPAs. FPAs are a “solution” looking for a “problem”.
- Solutions to New Zealand’s poor productivity growth, poor wage growth, and poverty problems require different policy responses, including solving our housing affordability crisis, arresting the declining educational outcomes for school leavers, and fixing other aspects of social and regulatory policy.
- Parliament will not achieve the Government’s goal of promoting a highly skilled and innovative workforce; an economy that delivers well-paid, decent jobs; and broad-based gains from economic growth and productivity by “fixing” what (the labour market) is not broken. the FPA Bill should not proceed.
- If Parliament is nevertheless intent to introduce a framework permitting FPAs, and if FPAs are to have any legitimacy, they must:
- be introduced incrementally, targeting only industries or occupations where there is evidence of labour markets failing workers and employers;
- extend only to employees, and not to independent contractors;
- have a high level of worker and employer support;
- permit both workers and employers to opt out of the FPA process; and
- be subject to rigorous ex ante and ex post market impact assessment to ensure they will not have/have not had detrimental effects on either the employment levels in any industry or occupation, or on competition and productivity in any industry or sector (both nationally and regionally).