Labour will keep the controversial 90-day trial period in place if it comes into power in September but it will give workers the ability to challenge an unfair dismissal.

Any worker who feels they have been unjustifiably dismissed will get access to a "referee" service, a non-legal mediation service which will have powers to reinstate them or award damages.

The initiative was announced as part of Labour's new industrial relations policy, which leader Andrew Little said was designed to ensure workers received a bigger slice of New Zealand's growing economy.

Labour does not oppose trial periods, but is concerned about the abuse of "fire at will" provisions which allowed employers to sack workers without good reason during a trial.

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Finance Minister Steven Joyce said the proposed creation of a mediation service effectively "did away with the whole concept of a trial period".

"Lots of people today have jobs, particularly young people, who wouldn't have had them if it wasn't for that trial period system that we set up," he said.

Another key plank of Labour's policy is to lift the minimum wage by 75c to $16.50, and over the longer-term lift it to two-thirds of the average wage - around $20.

Little said businesses had told him that wages needed to rise in New Zealand, and that they wanted the Government to take the lead.

Any increases in the minimum wage would be signalled well in advance so they had time to adjust, he said.

"The reality is households are facing increasing costs... It's right that people get paid and get pay increases that reflect the increasing cost of households."

Labour also wants to give all core public sector workers a Living Wage, which is based on the cost of basic necessities and is currently set at around $20.20 an hour - compared to the minimum wage of $15.75 an hour. It would later be extended to Government contractors.

The Government said such an increase to the minimum wage would cost thousands of jobs.

Prime Minister Bill English was also critical of Labour's proposal to pay a different minimum wage to the public sector and the private sector, saying it was "unfair and unacceptable".

The policy package was applauded by unions, who described it as a fairer system which would benefit workers.

Businesses and employers, on the other hand, said it was a backward step.

Business NZ and the Employers and Manufacturers Union were particularly worried about a Labour proposal to introduce Fair Pay Agreements, which included negotiating minimum standards of pay and conditions within each industry.

Little said the agreements would stop bad employers from undermining wages and working conditions to undercut good employers.

"Fair Pay Agreements will lay out the basic pay and working conditions in an industry, and prevent a race to the bottom."

The policy was partly influenced by the historic pay equity settlement for aged care and residential workers, which Little said was evidence that businesses and workers could co-operate to set base pay rates and conditions.

It was particularly welcomed by the Wellington Tramways Union, which said its bus drivers were facing a cut of $200 a week as a result of the council's re-tendering of bus services.

Business New Zealand chief executive Kirk Hope said it was a return to the national awards of the 1970s, which he said would mean less flexibility for companies to innovate and pay productive workers more.

To keep a check on employers, the number of Labour inspectors will be doubled to 110, at a cost of $4m, if Labour is in Government