With higher unemployment and a minimal minimum wage movement, wages are stagnating. The consensus forecast is that they will rise by less than inflation over the next year.
A couple of years back, Steve wrote a piece on how National could reduce pay packs accordance with John Key’s statement that he “would love to see wages drop”. Let’s see how the plan is playing out:
SP: “The first thing to realise is that inflation will do most of the work for you. As a wage dropping government you don’t actually have to bring down wages in nominal terms. You just hold them still or have them increase at less than the rate of inflation. The number of dollars in people’s back pockets stays the same, it may even rise, but the purchasing power of those dollars will be gradually eroded.”
How could Key make incomes increase below inflation? Well, he could follow the example of the last National government:
- Cut benefits or don’t adjust them for inflation;
Partially achieved: National has adjusted main benefits for inflation but not some of the additional components like housing allowances. The net result is falling purchasing power of benefits, meaning less demand in the economy.
- Hold the minimum wage steady, that will not only make the incomes of those earning the minimum wage decrease after inflation but will also help hold down the incomes of those on wages near the minimum wage;
Partially achieved: a 25 cent an hour increase this year will not quite match inflation. Getting even that much out of the Nats next year will be yet another fight.
- Hold down public sector wages by cutting funding, this will also hold down wages in similar private sector jobs (National frequently complains about public sector pay increases);
Partially achieved: National is trying its darnedest to freeze public sector wages, which means a pay cut in real terms, by freezing budgets but public sector workers are fighting back and, by and large, have won inflation-matching or better pay rounds. The big ones are still to come, in the health and education sectors.
- Weaken labour law, say, by weakening employees’ ability to pool their power in unions to balance the inherent power the employer has in the work relationship (as National did in 1991 with the Employment Contracts Act) or by giving employers the ability to â€˜fire at will’ (as National now wants to introduce with its 90 Day No-Rights policy);
Achieved. Don’t dare ask for an inflation-matching pay rise if you’re in a low-skill job.
- And, through public spending cuts and the flow-on drop in consumer demand from the reduction in people’s wages, create higher unemployment, putting further downward pressure on wages through labour competition (this is exactly what happened in the 1990s)
Achieved: National hasn’t had to work to get its desired level of unemployment that constrain wage growth. Unemployment rose anyway, all National had to do was what it does best – nothing. Now, the 276,000 Kiwis who want work but can’t get it serve as a drag on the wages of their 2 million brother and sisters who do have a job.
So, it looks like John Key was good to his word. Wages are dropping thanks to a combination of government neglect on job creation and policies that are actively designed to suppress wage rises.
How’s that brighter future looking?