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The case for higher wages

Written By: - Date published: 7:01 am, April 26th, 2017 - 31 comments
Categories: class war, economy, Unions, wages - Tags: , , , ,

In the warm afterglow of the huge wage increase for health care workers the case for addressing NZ’s creaking low-wage economy is getting some recognition:

Bosses need to ‘bite the bullet’ and lift wages

Employers will eventually need to “bite the bullet” and start paying more to their staff following the higher than expected inflation, BNZ chief economist Tony Alexander says.

Inflation in the year ended March was 2.2 per cent, according to Statistics New Zealand’s Consumer Price Index, the official measure of inflation. In the March quarter, inflation was 1 per cent. Both the annual and quarterly inflation figures were well above estimates by the Reserve Bank and economists.

Alexander said employers having to pay more to their staff might be especially so in response to the change in migration rules announced last week by Immigration Minister Michael Woodhouse.

Inflation is certainly a factor, as is the insane increases in housing / rental costs that are not adequately captured in the CPI. As to immigration, it has been a factor in keeping wages down, according to Mike Yardley in The Press:

New Zealand’s immigration settings suppressing pay rates

I find myself in the not so familiar position of applauding and admiring some recent flourishes by the the union movement and collective power.

The monumental union-negotiated settlement to significantly boost pay rates for the aged care sector is a stunning victory for basic decency.

The sharper lens of an election year, and the ongoing public unease about growing inequality, would have certainly helped embolden the Government to strike this historic $2 billion settlement, which will substantially transform the pay packets of 55,000 residential care and home support workers.

With crappy pay rates soon becoming consigned to history, rest home operators will no longer have to sponge off third world labour markets by importing vast hordes of generous-hearted Filipinos to staff their facilities.

It is a classic illustration of the folly behind New Zealand’s immigration settings in recent years, which have been crudely and expeditiously cheapened to allow the country to be flooded by third world migrants, who will willingly work for miserable pay.

(I just want to note that I’m unhappy with some of the language / imagery here. I’m in favour of slowing down immigration for a while, but we need to be able to discuss the issue factually, and respectfully.)

Not only has this kept Kiwis frozen out from legitimate jobs and suppressed pay rates, but it has fuelled the downstream impact on housing prices and infrastructure strain.

The Government’s latest tweaks to our immigration settings, whereby “skilled” migrants must earn more than the median wage and “essential skills” work visa holders must leave after three years, are grossly overdue. …

Will the tweaks make a difference? Maybe not, see: Government changes will have “almost no impact” on medium term immigration: ASB. Fran O’Sullivan also explores these topics:

Forget immigration, let’s talk wages

The Government’s latest tweak to its immigration policies does nothing to alleviate the real issue: the urgent need to step up investment in house builds – particularly in Auckland; step up investment in infrastructure and take more steps to move New Zealand to a higher-wage economy where people can actually afford to live in our prime commercial city.

True that.

…But if New Zealand is to evolve as a highly skilled economy it needs to set the bar higher, and pay decent wages which will also spur employers to take initiatives to drive greater movement on the productivity front.

This requires a major reset of the NZ economy – not simply using immigration to spur economic growth, then screwing the taps down when the cost of running things too hot becomes a political negative.

Where Labour is on point is with addressing the “Future of Work”.

If this fosters debate on the skills New Zealand needs to build a strong, innovative and highly developed economy that will be a positive.

OK, so, great to see this new consensus on the need for higher wages. Better late than never I guess. And O’Sullivan is right to note Labour’s “Future of Work” as the way forward. National has nothing to offer except status quo and excuses.

31 comments on “The case for higher wages ”

  1. Antoine 1

    To be fair, ASB does say that the Woodhouse changes may have a more significant impact 3 years out.

    Also, I think pinning all our hopes on Future of Work might be a bit chancy… what in it gives you such confidence?


    • One Anonymous Bloke 1.1

      Did someone say we should pin “all our hopes” on it? Who was that?

      The fact that Labour is considering it at all means their approach is already infinitely better than National’s. The report itself draws on a wide range of experience and expertise, and covers the issues comprehensively, making a series of practical recommendations, (pages 14 and 15 of the summary).

      You can find both the summary and the full report on Labour’s website. I won’t link to them because they’re pdf documents, which aren’t to everyone’s taste.

      Good on you for being so interested though.

  2. Keith 2

    Q, Since when did a banks chief economist ever care what the proles get paid?

    A, About the time he and his bank realised any upward movement in interest rates in low/stagnant wage economy combined housing bubble could be rather disastrous for both people maxxed out on credit and his bank!

    Anyway wait for one of National’s headless chicken responses such as a “raft of initiatives” designed to make it look like they are doing something, meanwhile doing nothing – gigs!

  3. bwaghorn 3

    ”” migrants must earn more than the median wage ”

    yeah shit wages are only good enough for kiwis,

    • Nic the NZer 3.1

      That was “skilled migrants” the point being to have the program bring in skills rather than cheap labour. Of course half of all workers must earn less than the median wage.

      • Incognito 3.1.1

        Of course half of all workers must earn less than the median wage. [my bold]

        An unfortunate choice of words IMHO.

        • Nic the NZer

          Is it? I have another one, how do you feel about,
          “Of course half of all workers must earn more than the median wage.”

  4. Incognito 4

    Good post.

    I tend to get confused when various people talk about “higher wages” as there are a number of different situations possible that all (loosely?) cover the term “higher wages”.

    Obviously, to keep up with CPI and COL existing jobs need to keep pace or people would go backwards – many are slowly sliding backwards anyway but that is a separate story. This is one reason why the minimum wage gets adjusted, for example.

    Then there is the case where people work more or longer hours or aiming for full-time instead of part-time employments. I don’t know whether technically this equals “higher wages”.

    Lastly, there are better-paid jobs that require more and/or higher skills. Such jobs come with higher wages for a number of reasons as well.

    The links between the first two categories are relatively clear for a lay-person but the third one seems to be more on its own. The extreme example is hiring a highly-paid CEO; how does this lead to “higher wages” for the workers on the factory floor or for the cleaners, for example?

    The links (e.g. trickle down, increased job security, etc.) are strenuous, at best, and are much harder to swallow by the Precariat, the people that feel left out because they are left out.

    So, when talking about wages it would help if people would be more upfront about what they mean and how much they rely on economic doctrine, ideological arguments and/or wishful thinking.

    Disclaimer: I have no formal economic background so please keep the economic arguments simple 😉

    • Nic the NZer 4.1

      Higher wages by any reasonable definition is looking at thee equivalent to the hourly wage.

      Of course its possible for this not to change but for many part time employees to get more hours and in this case their income goes up, but their wages didn’t increase. This would be nice but not the same kind of outcome at all.

      Note a related metric, productivity is basically how much a worker earns for a business per hour employed. So when productivity increases ahead of wages then businesses are getting more income but not sharing it with the employees.

  5. Ad 5

    +1000 Anthony

  6. AsleepWhileWalking 6

    Higher wages will ultimately destroy the low income earners as automation will take over quicker, some businesses will no longer be able to compete or will have to reduce the number of employees.

    The real issue is the ever spiraling house/rent prices.

  7. David Mac 7

    For a business operator the wages bill is another on a mountain of variable and fixed overheads. In an economy with inflation starting to bubble the month’s accounts start coming in with letters advising the operator of price increases. Vodafone, the guy that mows the strip of grass out the front and washes the windows, the company that services the fire extinguishers, the AIG insurance cover.

    There are some costs that the operator can keep a lid on, put off to next month. One of those is often the wages bill. I think this situation has much to do with why we have seen workers’ buying power slip away. The gap stretching in inflationary times. Workers are of course receiving letters just like the business owner, their overheads going up: Vodafone, rent, the guy that mows the lawns. For a vibrant and loving society it’s a situation that requires some intervention/action.

    I think the future includes shorter working hours for us all. With the complexity of automation vocations will become more specialised. We will cease to train motor mechanics per se and train automotive steering technicians, automotive braking specialists etc. Hourly rates will start to disappear and the value of out efforts will be more geared to the value we produce. I think many vocations will morph into quite different roles. School curriculums will make way for holograms of a life-like Hone Heke describing the events of the mid 1800’s unfolding on his desk-top. A teacher that once stood infront of the class will then be writing Hone’s script and the responses for his FAQ.

    • infused 7.1

      In my business, costs have all been pretty static, apart from the American services we have to buy overseas (IT Company).

      However, wages have soared over the last 3 years as IT people are in high demand.

      This year, all our costs have gone up. Rent, power slightly + everything else. I suspect you will see everyone lifting costs by year end.

      So I suspect inflation in 2018 to be in to the 3 point range.

  8. greywarshark 8

    The getting of higher wages and better conditions is affected by a mindset that Ganesh Nana has been thinking about.

    He recalls student protests that ended up with a question and answer thus:
    What do we want?…..!
    When do we want it? NOW!

    But that was then. Now is a debatable length of string.
    Now, of course, few of my cohort of friends and acquaintances participate in such vocal activity. But, if we were to do so, I can imagine it might now go something like:
    “What do we want? Affordable housing and no children living in material deprivation. When do we want it? Oh, in the fullness of time, depending on the state of the economic cycle and in line with appropriate prudential criteria, after accounting for revenue growth forecasts and meeting all due considerations contained in the Public Finance Act.”


    So it’s sort of trying to drink soup with a fork. Might get a taste before the prongs hit you. But what to do? Get better equipment and service I think, and keep trying new methods. Some get their snouts in the trough, a bit undignified but if you get down and dirty behind a screen, you may come up with gold. There’s brass in muck they say.

  9. Michael 9

    I think pay rates should be linked to firm profitability and the most reliable evidence of that is the chief executive’s remuneration. If there’s enough money to pay the boss more, there’s enough to pay the workers more as well.

    • In Vino 9.1

      Yes – it should be easy to formulate a social equity formula that prevents the greedy taking more than their fair share. Participation shares for all employees, etc etc.

      • infused 9.1.1

        You’d just see companies put money off-shore. Because that idea is stupid.

        I suspect when the company has a bad year, everyone gets a pay cut too?

  10. Policy Parrot 10

    Perhaps the Minimum Wage Act itself is too simplistic.

    In fact, some entry level employees would arguably be not worth $15.75 per hour, but the fact is that the minimum wage is too often the benchmark in terms of the start/basis of employment. It is appalling that people who have worked in the same jobs for 10+ years are still within cooeee of the minimum wage (i.e. 110% or $17.33).

    Why not have a minimum wage structure that allows for smaller increases in the base rate itself, to help employers get people on, but makes sure that once an employee is skilled up (in any job realistically those who have been there 18 months or more are inevitably far more skilled than those starting out) that the employer is passing on some of that productivity increase?

    i.e. MW (first 6 months) – 15.75 p.h.
    (MW +6 months – MW+5%) – 16.54 p.h.
    (MW +18 months – MW+5%^2) – 17.36 p.h.
    (MW +30 months – MW+5%^3) – 18.23 p.h.
    (MW +42 months – MW+5%^4) – 19.14 p.h.
    (MW +56 months – MW+5%^5) – 20.10 p.h.
    This increase applies until 1.3x minimum wage ~ approx. Living Wage.

    There would need to be safeguards as well to avoid casualisation as a response, but you can generally see where I am going with this. If MW increases, all of those corresponding rates increase also.

    • Nic the NZer 10.1

      The minimum wage should be a living wage. Otherwise you are consigning people to long term deprevation in work.

      The real solution is not this kind of measure (which will likely be subverted via turnover) but to introduce a job guarantee. A job guarantee means the govt will employ you at the minimum wage rate, in every case, up to full time. Or you can try your luck in the private sector which could be attractive if that offers more. This creates ‘loose full employment’. In this situation when the private sector needs to compete on wages and conditions they will improve.

      At present we (the country) achieves non full employment as a policy to get low inflation. Its no wonder minimum conditions suffer when we guarantee there will be around 5% unemployment at all times.

      • One Anonymous Bloke 10.1.1

        It sounds expensive until the penny drops that it removes the need for the dole, and WINZ disappears. Not to mention the value of the work itself.

        • Nic the NZer

          Actually expensive makes zero sence for a country, at least in money terms. WINZ could take on the role of organising between people and what they are doing.

    • David Mac 10.2

      The problem with raising the wages of those that struggle to pay the rent is that living costs rise to match. A new rate of $20 per hour quickly buys what $15 per hour used to. I don’t think raising our living standards so that we can all afford a week in Fiji each year is as simple as pumping up minimum wages and benefits.

      Menial minimum pay jobs are on the way out, thank goodness. Automated machines will polish the Pak n’ Save floor at 2am, we’ll push a button to order a Big Mac. I think the key to raising our living standards is through improving our usefulness.

      The way forward is through creating opportunity. The chance for each and every one of us to discover where our unique skill-set lies. I believe we all have them, things we’re better at than other people. Identifying those natural abilities, aligning them with our desires and creating opportunities for all of us to exploit our specialness. Bring measureable value to our society and be paid accordingly.

      Rather that pushing the cost of living up I think the brightest future we can work towards is creating easily assessed opportunities that allow us all to be the best we can be.

      • infused 10.2.1

        Stop speaking sense.

      • One Anonymous Bloke 10.2.2

        How do you plan to redress the effect of household income on education so that children born into poverty can be the best they can be?

        “Paid accordingly”. Are you familiar with the meritocracy paradox?

        • David Mac

          Hi OAB. The most influential force in our education are our parents and care givers. The kid that arrives for his first day of school without being read a 1000 books has been ripped off before he starts. Day 1 and behind the 8 ball already. We’ve got parenting issues that need addressing.

          Poverty has become less and less of a hurdle between the poor and fulfilling vocations. Rather than access I think wobbly attitudes and bad habits are the taller hurdles we face.

          Would enticing Mums and Dads to read a couple of Dr Seuss books before lights out each night for a few years really make a difference? I believe so. Regularly reading to a child sets their imagination free.

          Meritocracy paradox? I’m curious enough to go find out.

    • KJT 10.3

      Watch everyone get sacked and replaced with lower paid workers every 6 months. Just like youth rates never increased employment, but simply changed the ages of those employed. No adults in fast food restaurants in Australia. No career progression for the young, either as they lose there jobs at 18

  11. Draco T Bastard 11

    But if New Zealand is to evolve as a highly skilled economy it needs to set the bar higher, and pay decent wages which will also spur employers to take initiatives to drive greater movement on the productivity front.

    Which, of course, was what Penal rates, high tariffs, full employment policy and bans on foreign ownership were for. Getting rid of them achieves the exact opposite especially when the immigration flood gates are open allowing in cheap labour.

    OK, so, great to see this new consensus on the need for higher wages. Better late than never I guess.

    There’s a problem with that – our wages are too high. Well, they’re too high at the top end while being too low at the bottom.

    Thing is, we most definitely can’t afford to have everyone with wages at the present top end.

  12. RedBaronCV 12

    I spend my time wondering – as we are moving towards a more automated society – why the Right wing decided to open up immigration so that we have more bodies seeking ever fewer jobs.

    There we were in the sweet spot with the boomers on the way out, so planning for increasing automation, investing in it and ensuring the benefits are spread society wise should have been a given. Opportunity lost by the Nacts.
    And in the long run if we want to save the planet mature democracys with slightly lower than replacement birth rates are the way to go?

    • David Mac 12.1

      I think over the next 20 years the viability of machines over people will reach a tipping point in many fields. Harvesting crops, getting quadriplegics to breakfast, washing buses, clearing hillsides of Pinus Radiata.

      We’re in a bit of a transition period, it’s still only just worthwhile to fly in planeloads of labour to clip asparagus off at the ground. For how many more seasons?

      I hope this transition phase will soon pass. It generates friction between us.

      “Hey mate, you know how it’s virtually impossible to find a place to live in this city? We need you to give notice. You know how all your family and friends live within 30 kms of you? We need you to say ‘goodbye.’ Your government has some very exciting news for you. You are going to live in a Portacom for 3 months, clip asparagus in the middle of nowhere for 6 days a week, dawn to dusk and you will be paid $175 more a week than you are now.”

      “Ahhhh, not really for me bro.”


      It’s a ridiculous situation and the sooner stainless steel bots are clipping asparagus and we’re laying tracks for people to pursue fufilling futures the better off we’ll all be.

      • Nic the NZer 12.1.1

        Sounds like a labour camp? Is that whats coming up as the next big policy idea, labour camps?

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