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English says higher wages mean better results

Written By: - Date published: 9:01 am, November 7th, 2013 - 52 comments
Categories: wages - Tags:

National’s been working hard to keep wages down for the 5 years. They’ve weakened union laws, introduced fire at will, opposed $15 minimum wage and the living wage. And it’s worked: 46% of workers got no raise last year, another 18% got less than a 2% raise. 5 years ago, 59% got a raise above 2%. Strangely, though, English says high wages are good for the economy.

Here’s English defending the $1.9 million salary of Mighty River boss Doug Heffernan:

English was asked what he made of the coincidence in which the $1.9 million per year the Government had just put towards food in schools matched the annual salary of the chief executive of Mighty River Power.
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“He is getting paid what the market seems to need to pay,” English said.

He added that if the chief executive was paid less, and was therefore less likely to be good at his job, electricity prices would go up.

Now, there’s no empirical evidence to suggest that if you paid Heffernan half a million less that power prices would go up, or that individual executives really matter that much (especially in an infrastructure company whose basic job is to make sure the hydro turbines don’t get clogged). In fact, the evidence is rather the opposite.

But English is right in general: high wages are good and they improve growth. Higher paid workers have better morale and work more effectively. When labour is less cheap, bosses are less wasteful with it and invest more in capital and training to improve the value that it generates.

So, here’s the question: if English, rightly, believes that higher wages lead to better results, why has his government done so much to, as Key put it, “see wages drop“?

Could it be that National doesn’t really believe that higher wages lead to higher productivity, but English was just reflexively defending the privilege and extraordinary pay of a fellow member of the elite?

52 comments on “English says higher wages mean better results ”

  1. One Anonymous Knucklehead 1

    National has no cogent belief system beyond immediate political expedience.

  2. Tat Loo (CV) 2

    English’s statement is an embarrassment to reality and to inequality. There are plenty of examples in NZ and overseas where higher pay leads to absolutely catastrophic results for the economy and for companies.

    With comments like his, an 89% income tax at over 10x the average wage seems like a very reasonable step to reduce inequality.

    • Wayne 2.1

      Tat Loo,

      But of course this will not be a policy of a future Labour/Green govt – thank goodness.

      • Tat Loo (CV) 2.1.1

        Well, that’s true. It would effectively cap incomes at around the half million dollar a year mark though.

        Income tax rates at around this level helped repay a massive amount of America’s WWII debt while ushering in a prolonged and massive rise in economic and industrial prosperity in the USA. 1950’s and 1960’s.

      • thatguynz 2.1.2

        Indeed Wayne – it would be an absolute travesty if steps were taken to reduce inequality wouldn’t it! We should just leave it to “the market” right?

      • Draco T Bastard 2.1.3

        No, that means that Labour is still captured by neo-liberalism and isn’t working for the benefit of the country.

    • photonz 2.2

      It actually would make very little difference to inequality. Just 2% earn as much as an MP. And only a tiny fraction of 1% earn more than 10x the average wage.

      So it wouldn’t generate significant revenues. It might make a whole lot of people feel better though.

      But then again it could backfire and lead to massive rises for those on obscenely high pay so they keep the same take home pay.

  3. infused 3

    English doesn’t control what businesses pay their employees, apart from the min wage. Now that the economy is going to hit full steam next year, watch them increase.

    We’ve already seen a huge pickup in employment in the IT industry. Incoming work is finally consistent after 5 years.

    Also, do you have any evidence of abuse of the 90 day trial?

    • framu 3.1

      do you have any evidence that the removal of the right to face your accuser in court has led to bad outcomes?

      OK – yes an extreme example, but the principle is the same.

      good employers didnt need this law as there were trial periods already allowed (and thats not even talking about short term contracts being used to achieve the same thing). The only people who it benefits are bad employers who either dont know the law or dont have a good reason to let someone go after a trial.

      • infused 3.1.1

        Define a ‘good’ employer. What about shit employees?

        Term contracts are another thing Labour want gone, so no point using that as a defense.

        • framu 3.1.1.1

          “Define a ‘good’ employer. ”
          i did numb nuts – one who could do what they needed using the previously adequate law

          what about shit employees?
          well duh, thats what trial periods are for arent they. Are seriously saying that you couldnt think of a legitimate and useable reason for not going from trial to permanent and that you need to resort to hiding behind not having to even say anything in order to avoid keeping them on? – thats just pathetic

          “Term contracts are another thing Labour want gone,”
          – where? – pretty sure that bullshit

          “, so no point using that as a defense.” – oooh – im talking about before the 90 day bill come in , so yes, it is part of the argument

          Christ – you make this really, really easy

      • infused 3.2.1

        I’m not the one making the claim.

        Very little there in the way of abuse.

      • infused 3.2.2

        There’s also some very interesting stuff in that pdf:

        http://www.dol.govt.nz/publications/research/trial-periods/trial-periods-evaluation.pdf

        “Even though employers used trial periods so that they could if necessary dismiss
        unsuitable employees relatively easily, the qualitative research showed that
        employers did not consider that dismissal was a favourable outcome and tried to
        avoid it. This was because of the cost of recruitment and training, and for some,
        also to avoid being poorly thought of. In some cases, employers who dismissed
        employees tried to find other suitable employment or training for the employee.
        One employer (who thought the trial period had to last a full 90 days) considered
        that the duration of the trial period made it worthwhile to recruit well and work
        with employees from the beginning, to avoid a dismissal.”

        “Employers were very positive about how well the trial periods were working for
        them, as shown in Table 11 below. In the initial survey, 87% of employers
        thought trial periods were working very well or quite well and only 2% not well
        enough. ”

        31% would not have hired without trial periods.

        Employee’s view of being on a trial period

        ” [I would prefer not being on a trial period] because [of the] the security
        behind it. Like you know you’re not going to randomly lose your job for no
        apparent reason. ”

        Which cannot happen.

        The biggest issue it seems is employers knowledge of how trial periods actually worked.

        • framu 3.2.2.1

          “” [I would prefer not being on a trial period] because [of the] the security
          behind it. Like you know you’re not going to randomly lose your job for no
          apparent reason. ”

          Which cannot happen.”

          yes it can –

          no reason is required and no challenge can be made

        • Naturesong 3.2.2.2

          Employees had reasonable understanding of the bill:

          Employees interviewed did not have comprehensive knowledge about trial periods but knew they could be dismissed without reason and could not make a personal grievance claim of unfair dismissal.

          Employee views were mixed: some thought a trial period was useful to assess whether or not the job was suitable; others felt vulnerable as they lacked job security.

          … feeling vulnerable to unfair treatment and job loss …

          Added stress and uncertainty for employees – check

          Some anecdodal evidence:

          I know some employers say you’re on a trial period and they only want someone for less than the trial period…, I’ve heard of that happening.
          Employer

          Missleading employees and using the trail period to hire for short term – check

          More documented instances of abuse

          … trial periods were being used to undermine Part 6A of the Employment Relations Act 2000. Part 6A addresses the situation of businesses with ‘vulnerable employees’ (specified in Schedule 1A) in businesses that change ownership.
          Under the provisions of Part 6A the new owners are required to take on the existing employees to protect the employment of the vulnerable workers.
          However, a union official interviewed considered that new owners could pressurise employees to accept a trial period in the new employment agreement.
          In an example of this provided by the interviewee, the only employee in a firm to sign a new employment agreement was a union member, and he was soon afterwards dismissed using the provisions of the trial period. The union official believed that the employee was dismissed because of his union membership, although a note from the employer to the employee raised performance issues.
          In a further example also reported by a union official interviewed, an employee was put on a trial periodon signing her new employment agreement. Despite having worked at the firm under its previous owner for a number of years, she was dismissed on the grounds of inexperience by the new owner.

          Using the 90 trail period to circumvent the ERA – Check
          Penalising employees for belonging to a union – Check

          In a different case, also provided by a union official interviewed, an employee with disabilities was asked to sign a second employment agreement including a trial period about two weeks after starting work. After the employee signed it, she was dismissed under the trial period provisions

          Targetting of vulnerable employees – Check

          The good news though, compliance costs for employers was negligable – horay!

    • Naturesong 3.3

      IT jobs, or low wage service jobs and imported labour for the Chch rebuild?

      The Household Labour Force Survey showed the main contributors to the 2.4% or 54,000 growth over the year in employment were rises in the retail trade, and accommodation and food services industry group (up 25,200 people – 7.6 percent) and in the construction industry (up 11,200 people – 6.7 percent).
      http://www.interest.co.nz/news/67200/stats-nz-says-unemployment-rate-fell-62-sept-quarter-and-employment-rose-12-better-econom

      “These increases were partly offset by a decline in the agriculture, forestry, and fishing industry group. Employment in this industry group reached its lowest level since September 2009, down 18,300 (12.0 percent) to 138,700 people. However, this fall was exaggerated by an unusually large rise in employment in this industry in the September 2012 quarter,”
      http://stats.govt.nz/browse_for_stats/income-and-work/employment_and_unemployment/HouseholdLabourForceSurvey_MRSep13qtr.aspx

    • Draco T Bastard 3.4

      The mere existence of the 90 day fire at will bill is evidence of abuse. There was, after all, no reason for it as trial periods were already allowed for in law.

      • infused 3.4.1

        They were not really trial periods though were they? Even the law stated that.

        It’s pretty much just following normal disciplinary procedures, which is a huge waste of a time/money for both parties if you’ve been there ~90 days.

        • framu 3.4.1.1

          no they were – the only difference is you had to state a reason and you could be challenged on it

          oooh scary!! accountability! – i thought you righties had a monopoly on that shit?

          your actually arguing that an employer should be able to get rid of someone with no reason inside the 90 days, and at the same time cheering on a policy that you say doesnt allow for this. FFS

      • Wayne 3.4.2

        Since the 90 day trial period was my initiative, I know that you are not really correct. Yes the words “trial period” existed pre 2008, but there was still full recourse to all the processes of the Act. In short it was not possible to say that “this has not worked out” and for that to end the contract. Instead the employee would have all the remedies available to all other employees.

        Now I know you don’t like trial periods as currently provided, but it is worth noting that if the law reverts, NZ will be the only OECD country that does not have a trial period. So you must believe that all OECD countries are abusers to hold your position, including hellholes such as Australia under Labour, or France under Hollande.

        David Cunliffe has said he will repeal the 90 day trial period, but whether he simply reverts to the law pre 2008, or does something else during the first 90 days is not actually clear.

        • McFlock 3.4.2.1

          So you must believe that all OECD countries are abusers to hold your position, including hellholes such as Australia under Labour, or France under Hollande.

          In that regard, yes they are.

        • Draco T Bastard 3.4.2.2

          but there was still full recourse to all the processes of the Act.

          Of course there was, the whole point of that law was to prevent the abuse that the new law allows.

          Now I know you don’t like trial periods as currently provided, but it is worth noting that if the law reverts, NZ will be the only OECD country that does not have a trial period.

          Just because everyone else is doing it doesn’t make it right.

        • geoff 3.4.2.3

          Wayne, your example of NZ being the only country in the OECD is just evidence of how powerful the neo-liberal agenda is, in spite of it being a stupid idea.

    • muzza 3.5

      Now that the economy is going to hit full steam next year, watch them increase.

      You do realise that if the economy were, by some miracle improve next year, you do realise the only way that is going to happen, will coincide with increases in both private and public debt?

      I think you’re confusing general economic improvement, with specific industry, and niche components of that specific industry (IT/ChCh disaster capitalism), with an overall improvement to the well being of this country!

      Confused you are!

  4. Draco T Bastard 4

    Public servants pay should be capped at $150k to $200k. That would include people working for SOEs. We’d probably end up with better people in the job as the Greedies go somewhere else.

    • Murray Olsen 4.1

      I agree. What we have is a group of mates who have convinced each other that they are worth huge salaries, despite any evidence of their ability to earn much at all away from the government trough. $200k is plenty for any of the jobs they do, and I think we would get better people. For a start, we’d get people who concentrated on the work that needed to be done, rather than on how to ram even more public money down their snouts.

  5. Tracey 5

    Why doesnt a journalist have the balls to ask blinglish if he was joking.

    enron ring a bell bill? Scf bill? Bridgecorp? Lombard? Hanover?

  6. Higher incomes for the top 1% = good National Party politics.
    Low – nothing increases for the next 69% = better National Party politics.
    Zero – retrograde steps (losses) for the bottom 30% = extreme National Party policies at work. Their world is in balance.
    National hate admitting that giving workers a better life/work balance or a pay rise might actually improve productivity, or that society might function better.
    The Tories have always been mean buggers.

  7. Puckish Rogue 7

    They’ve weakened union laws: a good start but more needs to be done

    introduced fire at will: another good change

    opposed $15 minimum wage and the living wage: as well they should, just numbers plucked out of the air

  8. Bob 8

    Sorry James, I got as far as “introduced fire at will” and realised you have absolutely no idea what you are talking about and stopped reading. I can tell you have absolutely no idea about Employment Law, and therefore cannot take a word you say around employment seriously. Either that or you are a Labour list MP, none of them seem to know how the real world operates.

    Have you ever tried firing someone, even at the end of a 90 trial period? You still need to show that you have identified weaknesses in the candidates performance, put a plan in place to rectify these weaknesses and seen no significant progress towards the required outcomes (i.e doing the job they were hired for). Anything less than this and you will undoubtedly be hit with a P.G. which you will lose. If this is “fire at will” then I can’t see a whole lot of hiring going on under the rules you must be proposing, hiring someone would become to much of a liability to the company!

    • Naturesong 8.1

      Bob,

      Pretty sure he’s talking about this: http://www.legislation.govt.nz/bill/government/2008/0008/latest/DLM1765601.html

      New section 67A provides when an employment agreement may provide for a trial period of 90 days or less in the course of which an employer can terminate the employment agreement and the employee is precluded from taking a personal grievance or bringing legal proceedings in respect of the dismissal, subject to certain exceptions.

      As long as the 90 day trial period has been written into the employment agreement, and the employee has otherwise has been treated fairly, they can be let go without explanation at any time during the trial period.

  9. aerobubble 9

    Higher wages begets higher wages, since people spend more, and so engage more people. People who earn more, put more aside, to buy property, or start a business. So the opposite is also true, less wages means less employment, less home ownership, less new start ups.

    • photonz 9.1

      If that was the case, we could put ALL wages up by 20%, or 100% and be much richer.

      Hell – why not put them all up by 500% then we could ALL be rich by doing exactly the SAME work as we are now. Why not 5000%?

      If nothing else, the comments above are a great advert for the desperate need for better economic education in schools.

      • Tat Loo (CV) 9.1.1

        10% income increase for the bottom half of peeps in NZ is fine for starters mate, don’t get over-excited will you. CEOs get 10% (and bigger) pay increases all the time. Nothing to stress about.

        If nothing else, the comments above are a great advert for the desperate need for better economic education in schools.

        Orthodox economics is a big vat of laced Kool-Aid. its theories and assumptions favour those in power and those who are the richest in society.

        Why would you want to feed that poison to kids in schools?

        • photonz 9.1.1.1

          A great example recently from the left was two American mail order companies. One paid a bit more and their workers were more productive.

          Their arguement wat that paying workers more attracted more productive workers, which was true, In fact the could use 40% LESS workers to do the same amount of work.

          And in case you didn’t get that, that means 40% LESS jobs.

          • Tat Loo (CV) 9.1.1.1.1

            All you’ve pointed out is that we are creating a modern western economy which doesn’t need workers. Just financial market speculation. Of course that is completely unsustainable.

            Funny you are using a US example. The world’s richest country, with 48M people living off food stamps.

            Maybe you should pick another, less plutocratic, country to take lessons from.

            • photonz 9.1.1.1.1.1

              It’s not my example – it’s was publicised by NZ left wing politicians because they thought it showed more pay means more production, but they were too stupid to realise the biggest difference was FEWER jobs.

              • Tat Loo (CV)

                So now you are backing off owning the example you used? Not surprising, really.

                You do realise that cutting jobs and cutting pay is the primary way that corporations make more money, right?

  10. geoff 10

    Bill English – you wouldn’t put him in charge of a piggy bank.

    • photonz 10.1

      geoff says “Bill English – you wouldn’t put him in charge of a piggy bank.”

      Would you rather be in the 98% of countries on the planet that have performed worse than NZ during the global financial crisis?

      • Tat Loo (CV) 10.1.1

        Kudos to Cullen for giving English ample fiscal space to use.

      • KJT 10.1.2

        Labour did a good job of positioning NZ to weather the GFC, didn’t they?

        Just as well we did not have 9 years of National de-regulating banks, borrowing for unaffordable election bribe tax cuts and flogging income earning assets off to their mates. Like the Governments of the other 98%.

  11. photonz 11

    Cullen ovesaw and perpetuated the worst property bubble in NZ history – and all but the totally ignorant realise that world-wide, that was what caused the global financial crisis.

    • Tat Loo (CV) 11.1

      That’s actually realtively true; the Clark/Cullen government did power the economy through those years on massively increasing levels of private debt, pushing money into the economy.

      As I have mentioned previously, the Government could simply have spent those NZD into existence, into the economy, instead of relying on bank debt created money.

    • KJT 11.2

      The property bubble caused the GFC?

      FFS Photo. Even you are not that stupid.

  12. photonz 12

    During the mid 2000s, on average every person in NZ was spending 15% MORE every year than they earned.

    It was an insane situation, but the govt let it go on year after year after year – they didn’t do a thing to stop it.

    • Tat Loo (CV) 12.1

      Not disagreeing with you – but what’s the source of your figures?

    • KJT 12.2

      Don’t you mean that New Zealanders were underpaid by at least 15%, which was then lent back to us so we could continue to live and consume.

      Yes it is an insane situation when we allow so much of our earnings to go as profit and interest offshore.

      So we have to borrow it back to survive.

  13. photonz 13

    Over about 5 years in the mid 2000s, private debt skyrocketed from $60b to $160b. So debt was increasing by 15% of gdp per year.

    The problem is, that spending so much more than we earned in the mid 2000s is going to take 20 years or more to pay back.

    If you spend 15% more than you earn for just 4 years, then cut spending right back and spend 5% less than you earn so you can pay down debt – you’ll never pay it off. You’ll only ever cover interest.

    As a country, spending 5% less than what we earn year after year puts us in a serious recession.

    That’s why it was so insane for the govt in the 2000s doing nothing to stop the country spend so much more than it was earning.

    Though to be fair there probably wasn’t too many people in that govt who had any expertise in even running a business, let alone economics. So it was up to treasury to let them know what was happening.

    • KJT 13.1

      So. You should be extremely unhappy with National selling the remainder of our income earning assets which could have helped pay back some of that debt, Right!

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