And the Employment Amendment Bill will compound the problem
Auckland, February 12, 2018
While New Zealanders are proud of the ‘Number 8 Wire’ ethos that represents our ingenuity and resourcefulness, our actual productivity statistics highlight that we have a long-term ingenuity problem.
It seems that while we are Ok at working harder, we don’t do that well at the working smarter, meaning that over time our incomes are slipping compared to other countries.
Part of the new Government’s response to this problem is their proposed Employment Relations Amendment Bill. It’s pitched as a way to help create a highly skilled and innovative economy, one that delivers good jobs, decent work conditions and fair wages.
The architects of the Bill seem to be banking on the idea that increased productivity and innovation will be a natural outcome of increased collective bargaining across industries. This is because collective employment agreements (especially multi-employer ones) stop employers simply trying to undercut each other on their wage costs.
Businesses would instead be forced to compete with each other by finding better ways to make stuff, or by making new things.
Chicken and Egg
Unfortunately, this hoped-for link between higher wage levels and increased productivity is all very much chicken and egg—it’s very hard to know which comes first.
Just pushing up domestic wages can simply make a firm less competitive in a global environment, and hence less able to spend money on research and development.
Even if increasing wages does create the impetus for innovation and productivity gains, Labour’s own Future of Work project identified that the end result of all this innovation may bring about redundancies for employees as machines become cheaper than the relative cost of labour.
Small businesses struggle
Another increasingly well-defined part of our productivity problem is the large number of very small firms that find it hard to keep up with innovation trends; be it improved management practices, better production processes or even market changes.
Aiming to fix this part of our productivity problem by focusing on collective bargaining seems an ineffective tactic, when even the Council of Trade Unions acknowledges the proportion of employees covered by collective agreement falls steeply by firm size.
Certainly, the proposed Bill does offer a new lease on life for unions in New Zealand. Many of the changes in the Bill are focused on lifting wages and increased collective bargaining: mandating increased union access to workplaces and making sure employees receive more information about unions and a 30-day taste of the benefits of joining. Employers will also no longer be able to opt out of multi-employer collective agreements, and they will be under a duty (alongside unions) to conclude bargaining unless there is a “good reason” not to.
Call to government
Potentially, it would just be better for the government to acknowledge that the proposed Bill is not really that much about increasing productivity or creating a highly skilled and innovative economy.
Without serious focus on how to improve overall innovation in the economy, especially for small firms, we will increasingly be fighting over the distribution of a small pie, rather than growing the pie for everyone.
Julian Wood is a Researcher at Maxim Institute based in Auckland.