Extending Fire at Will and attacking union access to worksites undermines workers’ rights and is simply economic vandalism. Weaker work rights will tend to lead to lower wages (already falling under John Key’s watch), low wages lead to underinvestment and poor economic performance, and lack of work rights increases the risk in changing jobs making labour allocation less efficient.
The other day, Irish supplied a textbook explanation of how bargaining power affects wages:
‘In a two sided market (such as an employment market) power asymmetry results in asymmetrical bargaining outcomes. Your supply and demand model is based on an assumption of a level playing field at the point of transaction.
This is clearly untrue in a situation where the cost of the transaction failing for one party is that they need to find another worker while the cost of the transaction failing for the other party is that they lose their income and are thus unable to pay their rent, feed their family, etc.
It can be expressed as:
BPA(Bargaining Power of A) = (Benefits and Costs that can be inflicted upon B)/(A’s cost of not agreeing)
BPB(Bargaining Power of B) = (Benefits and Costs that can be inflicted upon A)/(B’s cost of not agreeing)
If BPA is greater than BPB, then A has greater Bargaining Power than B, and the resulting agreement will tend to favour A. The reverse is expected if B has greater bargaining power instead.
At a macro-economic level the creation of such a power asymmetry across a labour market will result in a blanket downward pressure on wages. Even if more jobs are created.’
To put it another way, the question of wage setting (which is echoed right up to the fundamental political divide between Right and Left) is how to divide the fruits of production. Workers obviously want to maximise their share and capitalists, assisted be the management class, want to maximise theirs. The stronger worker’s rights the higher wages will tend to be. Weaker work rights (and higher unemployment) mean stronger relative power for employers, and lower wages.
Weaker workers’ rights = lower wages. We can show this empirically by looking at countries around the world. Nearly all the countries with higher wages have stronger work rights.
Question: Does moving to further weaken workers’ rights best fit John Key’s official goal of closing the wage gap with Australia or his officially denied but ideologically consistent position that he ‘would love to see wages drop’?
Low wages discourage capital investment/ low wage labour is used inefficiently. As an owner of capital, you don’t invest in expensive machinery when there is cheap labour to do the job instead. The result is the productivity of labour is lower than it ought to be. Where countries like New Zealand and the US have weakened work rights the result has been lower wages and chronic underinvestment leading to weaker economic performance. By contrast, look at Europe where labour is expensive and work rights are strong or even Australia where things are comparatively good. Expensive labour encourages investment in plant and equipment to get the most production out of each worker – the overall result is more production from more productive workers.
Markets depend on confidence and the labour market is no different.
If you are one of the 90% of people who want a job who have one, will you be more or less willing to change jobs when that will mean going into a 90 period where you can be fired without notice or just cause? Less willing, eh? Every time you change jobs becomes a gamble that you don’t get an arsehole boss who can take away your livelihood in an instant.
So, workers are going to be less confident in changing jobs (again, not helped by historically high unemployment). That’s bad news because our modern economy depends on people being willing to move into new jobs. You don’t want people staying in jobs for which they are over-qualified, both blocking others from moving up the employment ladder and creating under-supply of labour for higher skilled jobs, because they are afraid of the risk of getting fired. You don’t want new businesses struggling to find workers because people are incentivised to find a job and stay in it. But this is the result when your create an unconfident labour-force.
Once again, we see that National’s economic ideology has two major flaws: it focuses on increasing the benefits to a single (already privileged) class even at the expensive of the country as a whole and it is short-termist, it fails to see that wealth grabs for the wealthy end up hurting everyone, including the wealthy.