Thursday, 17 Jun 2021

Josie Pagani: No Roger, NZ wages haven’t really gone up

OPINION:

The arguments against Fair Pay Agreements (and by implication higher wages), from the New Zealand Initiative’s Roger Partridge this week only stack up if you accept that wages in New Zealand are high enough, and also that if wages rose higher, then unemployment would go up.

It’s true that wages have risen in the last 30 years. So has the country’s total income (GDP). So, too, has population – by about 1.5 million. If wages had not risen in that time then every dollar of extra income earned by New Zealand would have gone to the owners of capital, and none to wage earners. Setting the bar at whether wages have increased at all is setting the bar too low.

It may also be true that wages have kept up with New Zealand’s productivity, although this is disputed by respectable economists. Even if it were true that wages had kept pace with productivity growth, our productivity levels are dire compared to other developed countries. If you look at the top 15 most productive economies in the world, then for every $100 of value they create per hour worked, we create $60.

Our productivity has been low for decades and it’s not getting better. To put that another way, we work longer hours for less than most other developed countries.

It might be true that the best “period of productivity growth in the last half century was in the decade immediately after the old system of industrial awards was abolished”. But that was after Ruth Richardson’s austerity budget wiped out incomes, and Don Brash’s Reserve Bank and high interest rates laid waste to much of our productive economy. A period of rebound following recession is not evidence of success. Correlation isn’t causation.

There has also been a change in the distribution of wages. More of our jobs earn minimum wages and a smaller proportion earn higher wages. The middle has been squeezed, a smaller number of people have been earning much higher salaries, while much of the middle have slipped towards minimum incomes. It’s a good thing that governments have increased the minimum wage because far more people are on it.

When I worked for Jim Anderton in the last Labour government, he used to joke that he knew the first name of everyone on a minimum wage. There were comparatively few. Fast forward: According to government figures from 2018, roughly 500,000 workers were earning at the level that is now the minimum wage.

Thirty-five years ago, jobs in supermarkets and rest homes weren’t minimum wage. Then the bargaining power of staff was massively reduced. People moved off collective agreements and on to individual contracts. The wages of workers with limited bargaining power – cleaners, retails workers, care workers, hospo staff – dropped in real terms.

Author Max Rashbrooke has demonstrated that around 70 per cent of our national income went to wage earners in the 1980s. But that share has fallen under 60 per cent more recently. If working people earned the same share of income today that they received in the 1970s, then the average wage today would be nearly $12,000 higher. That’s $12,000 per worker that is not going to them and instead going to the owners of capital.

Unemployment is slightly lower here today than in the average of developed countries. But the extra jobs are at very low incomes, part-time, casual, or fixed term.

Our wages were roughly the same as Australia’s in the 1970s, but today Australians earn, on average, a third more than Kiwis.

Did we suddenly get lazy? Nope, we work longer hours.

A better explanation is that Australian unions remained strong advocates for higher wages. Tri-partite agreements between unions, business and government led to higher savings, more investment and Australian workers as well as owners of capital own more of the world’s assets than we do.

The best way to increase wages is to … increase wages.

If high wages cause unemployment then everyone in Australia or Norway should be unemployed.

Norwegians have the highest wages in the world. They own 2 per cent of the world’s stock market in their retirement funds. Every person in Norway is a US dollar millionaire on the basis of their very high pension savings. Their higher wages are helping them save more and making them richer.

The price of labour isn’t the same as the price of a tomato. If tomatoes cost more, I buy less of them. If wages go up, businesses invest in higher productivity and the economy as a whole earns more. The question is who gets the benefit of those productivity gains.

Whatever the merits of Fair Pay Agreements, if you think they are bad because wages will go up, then you have to believe that we are worse off if we are paid more and better off if we are paid less.

The real argument here is whether the share of national wealth going to people who work for a living is enough. The critics of Fair Pay Agreements claim that the share is sufficient because they say our wages have been going up since the early 1990s. I think they’re wrong about that. But even if they were right, the share of our nation’s wealth going to wage earners is still not high enough.

What are you going to do about that?

•Josie Pagani is executive director of the Council for International Development.

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