Business lobby groups have been quick to question the logic of Labour's new employment policy.

Labour would lift the minimum wage to $16.50 an hour and pay core public service workers a 'living wage', says leader Andrew Little.

Labour would work toward lifting the minimum wage to two-thirds of the average wage "as economic conditions allow," Little said.

He also said Labour would introduce so-called Fair Pay Agreements across different industries, similar to what happened with the Kristine Bartlett equal pay settlement, and would promote a living wage by paying it to all workers in the core public service at a cost of $15 million.

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The living wage would be extended to contractors over time.

Business NZ chief executive Kirk Hope described the policy as "a step backwards".

"They would mean less flexibility for companies to innovate and pay productive workers more," he said.

The Employers and Manufacturers Association (EMA) also expressed "deep concerns".

"The proposed Fair Pay Agreements hark back to the days of the national awards system, which is an old fashioned approach to industrial relations," said EMA chief executive Kim Campbell.
"We've moved on as a nation and our current economic prosperity reflects this."

Labour said it would also replace the current 90-day trial periods with what it termed "fair trial periods" that would give employees recourse against unfair treatment and unjustified dismissal.

Little noted that employers have legitimate concerns that employment disputes can be time-consuming and expensive.

But there was a risk that these policies could increase unemployment, said New Zealand Institute executive director Oliver Hartwich.

"One of the countries with the most liberal labour laws in the world is Switzerland, which has lower unemployment than New Zealand, " he said. "Why? Because employers find it easier to take on staff and they know that if need be they can get rid of staff."

Under the new trial periods, people would be given reasons for dismissal and disputes will be heard within three weeks of being lodged.

Both parties would be allowed representation but no lawyers would be allowed. The referee would seek agreement between the parties but where this was not possible, they would make a final and binding decision that could not be appealed.

New Zealand's minimum wage increased by 50c to $15.75 an hour on 1 April 2017. In 2016, when the minimum was $15.25 an hour, Treasury estimated that increasing it to $16.50 would cost the government and extra $87m a year and it would have an inflationary impact of 0.1 per cent.

According to Treasury in 2016, around 2.9 per cent of the working population was on minimum wage.

"For too many Kiwis, the current employment relations system is failing," Little said. "Low wages, little say on rosters or hours of work, and an erosion of conditions have been the norm for many workers in New Zealand workplaces, especially for female and young workers."

- Additional reporting BusinessDesk