Comment: The proposed fair pay agreement system is using a sledgehammer to crack a walnut, writes Federated Farmers employment spokesman Chris Lewis.

The drivers behind central Government's proposal to develop a fair pay agreement system are understandable, but it will come at a cost to our entire economy.

Fair pay agreements are a form of collective bargaining designed with a view to provide basic employment conditions and standards across an industry.

The Government recently put out a discussion document seeking feedback on a system to provide for these agreements following a set of working group recommendations.


The drivers for a system of collective fair pay agreements are a perceived lowering in the conditions for workers, the failure of employee remuneration in some sectors to keep up with productivity improvements and, more broadly, inequality in New Zealand.

The problem is, the proposed fair pay agreement system is using a sledgehammer to crack a walnut. In fact, it's a sledgehammer aimed at a pile of walnuts with the risk it'll crack the wrong one.

The agreements would be in addition to the minimum employment standards protecting employee rights. A focus on implementing minimum employment standards is a better approach. If there are some sectors which are constantly not meeting their obligations, throw the book at them.

Addressing remuneration is also better addressed through specific policy tools such as the minimum wage. The discussion document itself highlights how changes to the minimum wage has improved the pay for lower earners, with the average hourly wage for low earners increasing by 38 percent between 1998 and 2015, against a national average of 26 percent over the same period.

To me that looks like a bit of a win in terms of addressing earnings for those at the lower end of the earning spectrum, and I know farmers would be delighted if their net returns had increased by the same amount.

The more I read the detailed proposals contained in the discussion document, the more I realised what a convoluted and clunky system it would create.

Things like setting the limits for the number of members in order to oblige other employees to enter into these agreements underline the complexity of the proposals. There are also the costs associated with developing and negotiating these agreements, and a question of who bears those costs.

There's an absolute lack of analysis or clarity around what a fair pay agreement system will cost us as an economy. If the costs of developing and implementing a fair pay system reduce our productivity as a nation it is going to hurt all of us, including employees.


The reality is, New Zealand is not the only country where worker remuneration is 'sticky'. It's a common issue across the OECD, and there are indications this relates to specific industries rather than across all industries.

One area where New Zealand does need to do better is improving our overall productivity. We can do this by increasing our investment in new technology and providing a landscape where businesses and staff can adapt to a changing world.

This is underlined in the initial findings of a parallel inquiry by the Productivity Commission into "Technological Change and the future of work".

The proposed system for fair pay agreements reduces our flexibility, and fundamentally if we can't improve our productivity as a country then everyone loses.

Business NZ is also of the view that the proposed system is inconsistent with New Zealand's international legal obligations. We probably want to ensure we get that right.

As an employer, fair pay is a practical imperative. I know if I don't provide good working conditions and sufficient pay to employees who are delivering, there'll be a dairy farmer down the road who will, particularly in a period of low unemployment.

A system that requires good employees to negotiate as part of a collective agreement doesn't help those good employees, in fact it may hinder them.

Fair pay is a goal we can all agree with, but providing a convoluted and likely costly system is not the answer. Let's hope the government considers the range of feedback outlining concerns with the proposals prior to taking the idea forward.