Craig Renney: Setting the story straight on Fair Pay Agreements

Let's stop pretending that FPAs are anything other than a change to bring New Zealand in step with the rest of the developed world. Photo / 123RF

Opinion

OPINION:

This week, the fight for better working conditions continued, with the Fair Pay Agreements Bill being heard by the select committee. This step forward gave rise to another round of predictably ill-informed complaints about the bill. So to help get the record straight, can we go through what Fair Pay Agreements are and what they will do?

Fair Pay Agreements are simply a mechanism through which minimum terms and conditions can be set across an industry or occupation. FPAs don't remove flexibility for workers. Employees will continue to negotiate their employment agreement with their employer. FPAs will create a floor for issues, including pay, meaning no one gets left behind. This process helps to stop working people from being exploited. Flexibility for too many workers in New Zealand means flexibility for the company, not flexibility for them or their family.

As a worker, FPAs will not limit your pay, or force you to be paid the same as your colleagues. Again, all they do is create an industry-wide agreed upon minimum rate. This helps tackle gender pay equality and helps deliver pay equity. They don't stop you getting a pay rise because you worked hard or put in extra hours. Nor would the trade union movement want that either. Not that you need to be a trade union member – nothing in the FPA Bill requires workers to join a union or to get a benefit from joining.

FPA's are negotiated directly by employers and employees – not by so-called Wellington bureaucrats. They then must be then ratified by both sides in a vote. The International Labour Organisation (ILO) looked at this in February this year and said that the proposed system was fine. Many overseas jurisdictions have sector-level bargaining and thriving small business sectors – which helps show how FPAs can benefit small businesses

They won't add cost or take away jobs. Five of the six OECD countries with unemployment rates lower than New Zealand have some form of industry level bargaining agreements. The evidence from the minimum wage here in New Zealand is that minimum standards in workplaces don't lead to worse outcomes for workers. International evidence on industry level bargaining also supports FPAs. The OECD in 2019 said that "Bargaining systems characterised by a high degree of wage co-ordination across bargaining units are associated with higher employment and lower unemployment for all workers".

Some commentators have claimed that there is nothing wrong with the labour market in New Zealand and that there is no need for this reform. I think that speaks to how out of touch they are. The evidence speaks for itself. Max Rashbrooke's excellent book Too Much Money on inequality in New Zealand shows the gap between wages and labour productivity growing across the period between 1989 and 2020. It also demonstrates the falling share that labour is getting from the economy in New Zealand – a story that is not replicated across the rest of the world.

For the past 40 years, Australia has had national awards that cover the overwhelming majority of the workforce. Between 2004 and 2021 the median hourly wage for an Australian increased 92 per cent – from A$18.80 to A$36. Across the same timeframe in New Zealand the increase was 78 per cent. Australian workers also work fewer hours than New Zealanders – equivalent to 7 fewer days at work each year.

This pattern is not just bad for workers – the ILO measure of the output per worker shows New Zealand consistently behind Australia over the period between 2010 and 2020. R&D expenditure as a percentage of GDP has been consistently higher in Australia. Our economy doesn't just lead to poorer outcomes in terms of innovation. Our fixed capital formation as a percentage of GDP – the plant and machinery that drives growth – was lower every year than Australia between 1991 and 2019.

So why do FPAs support positive outcomes? Put simply, under the current system bad employers can drive out good employers. Competition in sectors with very similar products or services (public transport for example) pushes some firms' attempt to gain an advantage by driving down labour costs. This increases profit, but does nothing for the workforce, nor for the wider wellbeing of consumers. Where there is a wage floor in a sector – as is proposed by the bill, that competition model ends. Instead, firms compete on product, service, and value. Everyone except bad employers wins on this basis.

So, let's stop pretending that FPAs are anything other than a change to bring New Zealand in step with the rest of the developed world. Let's stop pretending that FPAs will harm the economy when the evidence from overseas shows otherwise. Working people deserve to get back dignity and respect across New Zealand, and FPAs will help deliver this.

- Craig Renney is an economist and policy director with the New Zealand Council of Trade Unions.