Free labour market best for everybody

By ROGER KERR

Labour markets in large parts of the United States are operating at close to full employment.

Far from destroying jobs, advances in technology are creating a seemingly insatiable demand for labour in the technology industries. Wages are rising, even for those with the lowest skills. Immigration restrictions are being eased.

The lengths to which some firms are going to obtain staff are extraordinary. When one Silicon Valley firm announced a large layoff, another in the same industry hired a plane to fly over the first firm's headquarters hauling a banner with its name and website offering employment.

Is this a picture of a labour market operating on the principle that employers have monopoly power over employees, as Labour Minister Margaret Wilson asserts?

Of course not. The whole notion that employers can force wages down is a marxist fallacy. If it were not, how did wages ever get above subsistence or regulated levels for the vast majority of workers? The reality is that competition and productivity force wages up. No individual employer can stop competitors from offering jobs at the going rate or above.

Like any other market, labour markets are affected by fluctuations in supply and demand. At times there may be a buyer's market or a seller's market for particular skills in particular locations. But neither employers nor employees have systematic, long-run bargaining advantages in well-functioning labour markets - the notion of "unequal bargaining power" is a hoary myth.

The Employment Contracts Act is based on this understanding of labour markets, but the Employment Relations Bill is founded on quite different premises. Essentially it aims to counter a purported monopoly on the employer side of the market by monopoly structures on the other side.

The upshot is a strong push towards collective bargaining in the bill, although collective agreements now cover a relatively small proportion of the workforce. New employees in a firm covered by a collective agreement must be members of it for the first 30 days, and collective agreements have numerous advantages under the bill that individual agreements do not have.

Even if the flawed logic for favouring collective agreements were accepted, there is no reason any bargaining agent could not negotiate them, as is the case under the Employment Contracts Act. And here's the next rub: under the Employment Relations Bill, only unions can negotiate and be party to a collective agreement. The bill's hidden agenda is to restore privileges to unions.

Monopoly pressure on wages can be exercised by unions only if they can restrict the supply of labour. They can do this in two ways. One is to make it harder for non-union labour to get jobs at all. Thus, for example, the bill prevents firms from employing non-striking labour, and outsourcing and fixed-term contracts are made more difficult.

The other is to stop anyone from undercutting the cost of union labour - hence the device that prevents new workers from starting on a lower package than the collective package and the concept of coverage, which means that an agreement covers certain work rather than being a relationship between particular people. These are blatant attempts to fix prices and deny new employees freedom of contract.

Restoration of union privileges will have predictable consequences. "Insiders" - those in secure jobs - may benefit, at least until the impacts on economic performance are felt, and their position will be reinforced by provisions that make dismissals more difficult.

"Outsiders" - those seeking jobs - will find it harder to compete. The labour market will move in the direction of those in Social Democratic countries in Europe where unemployment remains stuck at around 10 per cent. The chances of achieving US-style full employment or the Prime Minister's goal of a 3 per cent unemployment rate will be negligible.

In the labour market, by far the best protection for a worker against a "bad employer" is the ability to quit a job, subject to the terms of a contract, and readily find a new one.

An employer's best protection against a "bad worker" is the ability to dismiss, subject also to contractual terms. These protections are best afforded by free and open competition which drives labour markets to high levels of employment, not by extensive regulation which undermines that goal. That is the lesson from the US economy today.

By contrast, the Employment Relations Bill, based as it is on the concept of a class struggle between workers and owners of capital, completely overlooks the need to protect workers, firms and the unemployed from the abuse of state-conferred union privileges. It is regrettable that a Labour-Alliance Government is putting union interests ahead of the interests of all other parties.

* Roger Kerr is executive director of the New Zealand Business Roundtable.