BUSINESS FORUM - ROSS WILSON
I agree with Phil O'Reilly of Business New Zealand that we should not be legislating minimum wages. We should not have to. But this action is necessary because of the entrenched low-wage legacy from the Employment Contracts era of the 1990s.
Minimum wage increases are certainly good news for more than 100,000 working New Zealanders who rely on them for a wage increase. The minimum wage has gone up by 61 per cent since 1999. Not bad compared with the 14 per cent increase in the previous decade. And it looks almost certain to go to $12 in 2008.
The increase to $11.25 will mean the minimum wage is about 50 per cent of the average wage. It is often forgotten that there is still a trainee rate (currently $8.20 and by April $9) for a person of any age who is being trained in at least 60 credits on our qualifications framework.
And Sue Bradford's bill removing discrimination against 16 and 17-year-old workers on a lower minimum wage still maintains the trainee rate, recognising the investment employers make in skill development in those cases.
But low-paid workers should not have to rely on statutory minimum wage increases to lift them out of poverty.
Though it is true that we need major change to achieve the highly skilled, high-wage economy we aspire to, there are both equity and productivity reasons for lifting wages to close the 30 per cent gap with Australia in average pay.
We need to lift our investment in modern infrastructure, skills, new technology and improving workplace practices to provide a sustainable base for continuous improvements in labour productivity. But the benefits need to be shared.
Statistics New Zealand has noted that in the measured sector, which excludes the public sector, banking and some other areas, labour productivity went up by 56 per cent between 1998 and 2005. But real wages hardly increased in that period. This is totally unacceptable. We need productivity to lift but we also need the benefits to be distributed.
Part of the solution is much more widespread collective bargaining. Only 9 per cent of private sector workers are covered by collective agreements. This is not because there are few collective agreements. There are 1800 of them. But each covers an average of only 150 workers.
We need more industry-based and multi-employer agreements which can set base pay rates and conditions for large groups of workers while still retaining flexibility for individual conditions that are not inconsistent with industry standard.
We also need a change in employers' attitudes. The labour market has been tight for six years. We have constant pressures by employers for more migrants to be brought in and we know wages are 30 per cent higher in Australia.
We have had a golden period for most of the past six years in terms of profits, increases in directors' fees, executive pay rates, and yet wages are still lagging a long way behind.
The labour market experience is in sharp contrast with the housing market. Both are markets where there is high demand. But house prices have doubled in the past five years, whereas nominal wages went up by 23 per cent.
It should also be of concern that the amount of debt held by households also doubled, as have interest payments. On average, people are using 13.1 per cent of their income to service debt. We have a current account deficit of $14.4 billion for the last year – $11.7 billion of this deficit is from the effect of investment income leaving New Zealand rather than coming in.
The twin effect of bank borrowing to fund household mortgages and remittances of profits to the overseas owners of New Zealand-based companies is the largest part of our current account deficit and dwarfs the balances on exports and imports of goods and services.
This means we need more domestic savings. But it is hard for workers to save out of a low wage packet. KiwiSaver will help. But in our submission on the Business Tax Review, the CTU argued for one part of any cut in company tax to be offset against a compulsory employer contribution to KiwiSaver.
What we need for the new year is a formula to lift wages, productivity and savings. Multi-employer collective bargaining, a cooperative approach to industry standards, a more positive attitude from employers toward lifting pay, a lift in investment in people, technology and infrastructure, compulsory employer contributions to KiwiSaver, and more effort to create New Zealand- owned companies would be good places to start.
* Ross Wilson is the president of the Council of Trade Unions.
