EPMU wage claim

I am interested in responses to the EPMU's 5% wage claim which have been filtering through the media. This morning's Herald carries a story which outlines the issue in a little bit of detail.

The call for higher wages is an important one, because the growth in the economy over the past five years has not seen real wages growing at a rate comparable to Australia's.

National, predictably, has called for tax cuts as a way to boost real wages. This is not a goer. It simply reduces the capacity of the government to provide social services, in return for a one-off boost to cash incomes. That is not a recipe for higher sustainable wage growth, which is what we need.

Improving real wages by improving gross pay has several attractions. It means that firms, not taxpayers, are paying for higher living standards. It also puts pressure on firms to improve workplace productivity, which should be a task that both employers and workers are focused on. Workers have engaged with employers in a range of forums in the past few years to get action on productivity, but it seems to me that employers still have a focus on "cost cutting" and a particular view of flexibility (worker flexibility, that is, not flexibility of employers or business processes) that by itself will not deliver a step change in productivity.

Higher real wages mean firms at the margin are more likely to go out of business. I can't imagine a better incentive for them to work with their workers and get productivity up. This is a model that the Swedish labour market has followed: constant increases in real wages forcing low productivity firms out of business, and seeing their resources go to more productive firms instead.

The debate, in the end, comes down to a question about what kind of society we want to see. Whose needs are put first? The long term interests of workers and the economy as a whole, or the short term interests of capital owners?

Comments

[Peter Wilson]

I'm in full support of the EPMU in this pay dispute. Despite five years of solid growth, most workers have not benefited as wage growth has (at best) remained in line with the CPI. Firms which cannot pay a decent wage do not deserve to be in business. My only concern is the threat of industrial action in an election year - the timing is more than co-incidental. But I think it's more important that the EPMU pushes hard now for a wage increase than worry solely about the political implications. The Union is there to represent its members, the government is there to govern. Hopefully sensible heads will prevail on the part of the employers.

[Graeme Edgeler]

Tax cuts do not give a "one-off" boost to incomes - the effects of tax cuts last forever, and workers get to keep more of every wage rise, promotion, and hour worked overtime than they otherwise would have.

[Mike Collins]

Good on the unions for demanding pay increases for their workers. I do think they are being a bit modest in what they are asking for though (5%). Also what about non-union workers?

Where they go wrong is criticising employers for being greedy and hoarding the profits for themselves. I'm sure some do but most struggle just like anyone else.

The real blame for hoarding the wealth that workers generate rests at the feet of the Government rather than at the feet of employers.

Check this link out: http://www.act.org.nz/item.jsp?id=26674

Rodney makes the point that ACT tax policy would result in the equivalent of a 7% wage increase. That's not just for union employees either.

Jordan you are blatantly wrong when you state that tax relief will result in service cuts. I suspect you know this but say it anyway.

Employees deserve more for their efforts that's for sure. However look to where the surplus is. It's not with the employers so much as with the government.

[stephen]

"what about non-union workers?"

They have chosen not to act collectively, and are free to negotiate with employers on their own behalf. What's unfair about that?

[Mike Collins]

Stephen, quite right. They have chosen to act for themselves and there is nothing wrong with that.

The point I was making was that ACT wants to help all workers not just those who are members of unions.

You also unconciously point out something that can happen with unions. Consider for a moment that employers can only pay a certain fixed amount in total to employees. If unions win a pay raise for their employees and individual employees do not then as a cosequence the employer can not employ so many people. Should people be rendered unemployed just so that others, namely union employees, can be paid more? I don't think so.

The issue still remains though. People don't get enough in their pay packet. Answer stop the government from taking so much. Especially as it is not necessary.

[Michael]

"It means that firms, not taxpayers, are paying for higher living standards." What a joke - did you fall asleep at Economics in the third term? Higher input costs = higher output costs = higher consumer prices! (Especially with inelastic demand products) If they can't make an economic profit (ie if the capital was invested elsewhere, like China) then the business will close = unemployed workers.

For instance - do you really think bank profits are going to reduce long term by Cullen making them pay more tax. Banks are just going to raise interests rates - over a long term so that you don't notice it.

Unions should wake up and smell the 21st century - we are in a global market now.

[Gooner]

Well said Michael. The only thing holding back real wage increases is unions themselves.

[Mike Collins]

It's interesting to note that the most vociferous supporters of unions have been quiet on this thread. Does this mean they have come to the realisation that tax relief is the best way to help increase take home pay?
Do they now know what the rest of us do - that we can not increase prosperity by state decree or union demands of higher wage rates?

I live in hope.

[Jordan]

"We are in the global market now" - precisely right, Michael. That is why the government is focused on building an economy that delivers globally competitive wages.

Tax cuts cannot and will not do that. Those of you who think they will just don't comprehend how the economy works; you are too blinded by ideology or self-interest to get it.

That's why your political parties are in such serious trouble, and good job too.

[Mike Collins]

I'm sorry Milton Friedman comes nowhere near the level of understanding that Jordan and his mates do. They are the ones who really know how the economy works.

Jordan I've heard similar arguments before such as raising the minimum wage increased Australia's wage rates. This is nonsense.

The Government can't actually build an economy. Nor can they increase prosperity by decreeing what the wage rates should be (note that I didn't say they were).

People want more money in their back pockets. The answer is blatantly simple - stop taking from them what isn't needed. Is it because it may be too simple for you that you can not comprehend this Jordan?

How does a union demanding that employers pay more acheive more competitive wages than a government cutting unnecessary tax? Workers don't really care where that money comes from they just care that they have it.

[Gooner]

Well here we are then. A non-economist telling us we don't know how economies work. Last heard that from Jim Andertonovich. You actually sound (scarily) like Dr Cullen. I don't understand how market economies work here in NZ Jordan because we don't have one, so yes you're right. I understand a little about interventionist economies 'cos that's what the loony left idealogues impress on us.

[GT]

There is a case to be made for employees to be able to argue for wage rises higher than the rate of inflation if they have achieved higher productivity levels. Contrary to Michael's third form economics, these increases in costs would not necessarily lead to an increase in prices.

If GDP growth and company tax payments are an acceptable proxy for productivity then we can use the following:
- GDP growth 20% up vs 10.9% wage growth in the last five years, which would indicate increased productivity
- Company tax profits up 19% over the last year (presumably as a result of higher profits since the company tax rate hasn't changed)
Source: CTU (sorry can't be bothered verifying)
Those companies that have experienced average or higher growth over the last year are probably in a position to pay higher wages because the figures above demonstrate that at least some firms have experienced genuine productivity growth.

It is a crude instrument to force higher wages on all employers that hire employ members of particular unions if that employer has not experienced genuine productivity growth however, particularly as unions work across skill sets and industries.

Real wage growth also has a benefit in making upskilling/training and capital investments a better investment (thereby improving long-term productive) which personal tax cuts would not. Low wages presumably reduce the need to invest in capital.

OTOH, does anyone know what the inflationary effect of tax cuts would be versus wage growth, since a tax cut would deliver more disposable income to individuals regardless of that individual's productivity growth?

[looke]

I just want to add that pushing up wages by 5% will push more people into higher tax brackets. So far the Labour gov't has reneged on statements made previously that only 5% of NZ'ers will be in the top tax bracket. What is it now, eh, Jordan? And I wonder how many NZ'ers will be in the top tax bracket if this 5% rise goes ahead?

[idiot/savant]

Mike: not everyone is being so modest. The academic unions for example want 16% - and 30% for academic staff to bring them closer to international norms.

As you said, we live in a global market...

[Millsy]

Well, the Nazis didnt like trade unions as well.

I guess you right wingers want wage cuts, and for workers to earn slave wages like 50c an hour.

Wages must rise, at all costs, and if you dont like it, rot in hell.

Mike, Looke, Gooner, and Micheal's apparent unconcern for humanity and sick desire to ban unions and cut wages and conditions must be treated with contempt.

[Millsy]

And another thing, workers are struggling to get by on the crap wages they earn?? Why shouldnt they get pay rises. Are you against them being able to feed their kids? Would you rather let kids starve before you lose profits.

And China should be told to piss off until it fixes its human right and industrial relations records.

[Millsy]

And it is still wrong to cut health and education services to pay for tax cuts.

Gooner, Looke, Micheal and Mike, I have you all in my sights. Your sick diesires will never come to pass

[Mike Collins]

The pill supply run out Millsy?

Where did I state banning unions was what I advocated? Where did I state that I think wage rates at $0.50 were a good thing? Where did I state that we should be having people working in poor conditions and treat them with contempt.

I said none of those things. I suggest you read this thread and actually find out what I said rather than the fact that it was me who was saying something then making conclusions about what it must have been what I said.

I actually think there's a place for unions. I also think that workers deserve more money in their pockets for the work they do. Just because I disagree with you on how this should be done doesn't make me evil.

The fact is workers earn a lot more than they get. They do get it taken from them by the government so Cullen can sit on his pile of cash.

Given the option between a 5% wage rise and a 7% wage rise I know what I'd take. If the unions really wanted to see more money in their workers pockets then they would urge them to vote for ACT and stop government thievery.

I trust you will be a bit more analytical in the future Millsy and not crack up whenever someone on the Right differs to you. Your stereotypes will continue to get you in trouble otherwise.

[Mike Collins]

Millsy,

I also never said workers don't deserve a pay rise. In fact I said the opposite.

"Gooner, Looke, Micheal and Mike, I have you all in my sights. Your sick diesires will never come to pass"

I don't mind if you've got me in your sights. Your reading skills lead me to believe you obviously can't see properly.

[Jordan]

Again, no new points are being made. Disappointing but not surprising.

Why do you people have such difficulty accepting that your way isn't the only way to economic success?

Why are you so insecure about the thought of their being multiple paths to economic growth and development?

Why does the fact that political choices are involved seem to scare you so much?

I just don't get it! In the immortal words of Kath and Kim, "please explain!"

[Chris]

Well you've hardly argued your case well have you Jordan? Just the usual insults and arrogance. "Those of you who think they will just don't comprehend how the economy works; you are too blinded by ideology or self-interest to get it.

That's why your political parties are in such serious trouble, and good job too."

Blah blah blah... Mike is making some good points, and all he's being met with is vitriol.

[Rob Davies]

Just as well you're here to point out all the injustices Chris. Snooooooooooooooze.

[David Farrar]

What disturbs me on this issue, is the simplistic thinking of those who are demanding a 5% increase for all. It is like being in a time warp back to the 70s.

You can not just divide NZ up into two groups - employers and employees, and say all employers must be forced to pay all employees 5% more. Every business is different. It is strikingly obvious how few people have ever owned or operated a business.

The left seem to think most businesses are Telecoms or McDonalds. They are not.

The academic view put forward by Jordan that those businesses who would go bankrupt because of increased wages is a good thing, because they are obviously not productive enough is just stunning. There are dozens of reasons a business may be struggling - a key staffer leaves, a major client defects, interest rates have gone up etc. Let alone the near impossibility of actually sacking an employee just because they have low productivity.

[Millsy]

David,

I dont see how having low wages and near slavery conditions is "good" for the country.

I dont see any merit in treating empoloyees like dirt and not paying them enough to live on. Its called slavery.

This wage rise must come through, at all cost and by all means. Lets show those yellow slant eyes that high wages and unions are good, and slavey bad.

[looke]

Millsy, I'm so scared.

You might also be interested to know that the Nazi's were Socialists, ie not right wing.

Socialism = oppression of workers = evil.

[Idiot/Savant]

DPF: Who said anything about "all"? The unions are only advocating for their members. Non-union employees or those in businesses too small to have a collective contract are pretty much on their own. Any benefit they get out of this will be indirect, due to the competition for workers.

As for struggling businesses, if they can't attract workers in a competitive market, it's their own tough shit. That's the market prescription, and you can't choose to have it one way and not the other.

[Gooner]

Here is the very simple issue.

The call for higher wages is an important one. I think we all agree on that. Jordan, it doesn't matter whether our wage growth has matched Australia's. What does matter is whether it has matched inflation and cost of living in NZ. And it hasn't. I mean, house prices have increased something like an average of 300% in the last 20 years, whereas real wages have increased about 40% (I might not be totally accurate but I think you all get the drift).

How do we achieve higher wages? Tax cuts don't achieve that because wages are paid by the employer. We need to get employers paying more. You'll probably be surprised at me saying that. Tax cuts give us more disposable income, which is definitely necessary, but is a different issue to employers wages.

How do we get employers to pay more? That is the simple question.

I think the answer is quite complex and needs serious thought and certainly major reform in NZ, like lower company tax, lower compliance costs and a more deregulated labour market (less union involvement). The answer is certainly more difficult than the question, and to say the responsibility is solely on employers is absurd.

[Jordan]

David, around half of workers are in firms with 25+ staff. Most EPMU members would be in such organisations, as is quite obvious from any thinking about the nature of the industries they cover. And, you may think that the "academic" theory cited is that, but it's not: it is a practical theory worked out by union-based labour economists in Sweden, and it has been implemented there since 1938 with stunning success. Once again, you are just ignoring the evidence.

Chris - the responses on the blog are becoming more and more about how issues are framed, rather than the issues themselves. I am happy to engage in such debates but would prefer people had their own blogs, to set up their own frames. At least then I could engage with more than just comments.
Because of the principles off which he is operating, his analysis is so flawed that it's very difficult to argue with. One would have to constantly be going back to first principles which is what posts, not comments, are for.

[Millsy]

Gooner,

Explain how weakening worker protections will give them higher wages. To me it will just cause wages and conditions to be slashed and workers to be expolited.

[David Farrar]

Millsy - what do regard as slavery conditions? If things are that bad I doubt 5% more will help. Do you think all employers treat employees like dirt? Do you think all employees are unhappy in their jobs?

Jordan - this is just too funny. You say it is not an academic theory but a "practical theory worked out by union-based labour economists in Sweden". I'm almost wetting myself with laughter. Claiming that everything good about Sweden is due to their industrial policy is just fantasy. I could claim that US has double the average income of Sweden by not having such a policy.

[Craig Ranapia]

Millsy -

When you start calling people you don't agree with Nazis, you've lost all claims to my attention. Are you on a strict sugar-and-black-coffee diet or just naturally hysterical?

Idiot -
Before you accuse us on the right of ideological inconsistency, when did the left become so fond of market Darwinianism? ;)

Peter Wilson -

Yes, I though Andrew Ladley was being too cute for words when he said (on Morning Report) it was 'pure coincidence' that this was happening in election year. (A Tui billboard moment if ever there was one.) In a sense, I find this more interesting as pure political theatre than economics because when push comes to shove, I don't believe the EMPU is going to walk the talk and strike. But, in part, they want to remind Labour that the union movement isn't going to roll over and play dead.

OTOH, the Government is being hands-off in public, but I'm sure they want their own 'winter of discontent' like the proverbial hole in the head. I suspect there's a lot of off the record meetings being diaried as we speak.

[dave]

Jordan, I have my blog and I'm not afraid to use it. But if youre so keen on wage increases, why dont you suggest that t the GOvernment increases wages in the public service - or arent public service workers allowed pay increases as they are paid for by the tax payer.

[S Heath]

I find the rather impersonal comment of 'if the company is on the margin let it go bankrupt' kinda sad.

Tell that to the workers for that company if they need to give up their job for the 'greater good'.

I seem to recall Jordan slamming the 80's Labour govt policy in relation to inflation/interest rates as a way to reduce demand as people were laid off in the 1000's.

But now laying people off for other to 'use capital better' is a good thing?

If that is the case I can ensure you capital is better used in my hands than the governments hands!

[stephen]

It is my fervent hope that Millsy is either a troll or an agent-provocateur, sitting back with a grin and a good belly laugh. With friends like him...

[Tyrone]

Millsy: Let's get this clear. If I as a taxpaying worker ask the government for a tax cut, I'm evil.

If I, as a worker ask my employer for a 5% pay increase, I'm a heroic slave about to starve to death, and the employer is evil if they deny the request.

The government is sitting on a 6 billion dollar surplus. The employer is not necessarily that flush.

Both methods put money in the hands of the worker, but obviously have different ramifications in the delivery.

I was finding the debate interesting. But your rabid accusations smack of double standards. Lighten up, its getting in the way of learning.

[Jordan]

Stephen - ditto

DPF - you could say that but you'd be lying. According to the OECD at January 2005, using current price purchasing power parity, GDP per capita is as follows:

Sweden - 27,265

USA - 36,121

NZ - 21,783

Once again, facts desert the field, replaced by ideological cant.

[Jordan]

SHeath - it happens now. Businesses fail. There is a relatively high failure rate for small business. This is not a bad thing. It is part of the dynamic of capitalism - "creative destruction" and all that. Why anyone should have a problem with that is beyond me.

[David Farrar]

But the US is ahead of Sweden, which was my point. As are several other countries.

[Idiot/Savant]

Craig: we're not. We do however enjoy seeing market darwinists hoist on their own petards.

[Jordan]

And several countries are ahead of the US, some of which have labour markets closer to the Scandinavian model than the US model.

[rabbit]

the us worker may earn more... but they also have to pay for things we and the scandinavians don't- eg health care. they live in society with a large and growing homeless "subclass". also, scandenavia and nz are free democracies... while the us looks rather like fading into a celebrity obsessed corporarchy. ok i made that term up.

[PaulL]

I agree entirely with the unions asking for a 5% pay rise, that is their job. In fact, I would argue that, given the suggestions here about 20% GDP growth and 9% pay growth, if they are doing their jobs properly they should be asking for more like 10%.

It is an entirely different question as to whether it is reasonable to receive that pay rise. There seems to be a division suggested on the comments above, where the "employers" need to start paying the "employees" more. I guess my view on the world is that there is nothing stopping the "employees" becoming "employers", or at least self-employed. I presume (perhaps unreasonably) that the reason that people don't is similar to the reason that I don't - I don't want the hassle, the red tape, and the risk that goes with that.

But if I am not prepared to open my own company because it looks too risky - or, to put it another way, the risks are higher than the rewards - then does it not follow that the rewards to capital are not too high. If the rewards for running your own business do get overly high, surely a bunch of those currently employed will decide instead to try their hands at running a business - and in doing so drive down the return to capital?

Or are we suggesting that those who are currently employees are unable to start their own business?

[looke]

PaulL, that is such a good point. Why don't all those that want a share of the profits start their own businesses?? Can I venture a guess to say that most people on some level realise that success is not guaranteed and failure eventuates far more realily.

I will further add that many of those busineses now raking in profits are most likely paying off loans from previously with those same profits. This is the exact situation I am in.

[Millsy]

Thats just an excuse to weasal out of giving workers a fair wage. They do the hard work? What is wrong with being rewarded??

[GT]

Paul

There are all manner of reasons that people don't start their own businesses, and yes, many people are simply unable to start their own due to lack of skills, resources, opportunity etc. Futhermore the barriers to entry to many industries where some would argue the return on capital is too high eg banking, oil, are too high for new entrants to easily lower the return on capital.

So I don't see that your argument inherently undermine a claim for an increase in wages based on productivity increases.

[S Heath]

Small business 'fail' for many reasons. I would say that fail is the wrong word but most use it. I would say 'end' as 'fail' implies it is bad. Yet your saying that employees should suck up and deal if a 5% pay rise puts them out on the street and on the dole/DPB/sickness or god forbid the Labour List rankings :-)

I think a blog is one of the worst places to discuss economics/taxes/the impact of a butterfly on hurricanes in Cuba. Its time for more blogger drinks!

[sagenz]

Jordan. Name the countries, richer than the US where the wealth is not based on small population with high value extractive industry (eg Norway - oil) or Financial Services/Tax Haven(Luxembourg). answer - there are none!!!
Ireland has pursued an industrial/corporate growth strategy of low taxes and has grown significantly more than Sweden. Swedens high tax policy and wealth was based on European access and their WWII neutrality, which allowed them to profit from the fact others were destroyed by war. In the era of US enforced peace their industrial/tax policy is failing due to competition. If you suggest that a morally corrupt foriegn,tax and industrial policy is the ideal, you will certainly be consistent with your masters but you will not be on the side of reality. Sweden is, like New Zealand, destined to fall relatively further behind the rest of the world if a socialist policy conitinues to be pursued

[sagenz]

GDP per capita volume indices, OECD 30 = 100
1999 2000 2001 2002
UNITED STATES 146 144 143 142
AUSTRALIA 108 107 108 110
NEW ZEALAND 85 85 86 86
BELGIUM 108 110 112 112
FRANCE 107 107 109 109
GERMANY 106 105 105 105
IRELAND 114 119 123 129
NORWAY 132 152 151 144
SWEDEN 111 112 111 111

OECD total 100 100 100 100
EU 15 103 103 104 105
Eurozone 102 102 103 103
OECD estimates, January 2005
as you can see Sweden and New Zealand have gone nowhere in 4 years of socialist government while Ireland has bounded ahead and the US has maintained its margin.

[PaulL]

GT, assume I agree that the barriers to entry are too high to breach in some industries (I am not familiar with all industries, there will be some that this applies to). I would argue that your specific examples are not necessarily them - there are some NZ owned banks - such as KiwiBank who operate below their cost of capital, and TSB who are a nice community owned organisation and therefore are presumably not ripping off their employees.

Anyway, if this were true, then surely that is only an argument for pay rises in those industries, but not in every other industry in NZ. In all those industries, it makes more sense to go open a company in competition if you think your company's owners are making too much money. So a 5% across the board pay rise makes little sense.

[Millsy]

So think some workers should not get a pay rise at all, and just live on the little wages they get.

You make me sick paul. The fact is, that its not actually that simple to start a business up, and you need capital (and lots of it to do so), and besides a lot of workers are happy just to be workers, and surely you dont begrudge them a pay rise, especially those who clean up after you. Its a scandal that people think that people should just put up with low wages and conditions.

I really hope you rot in hell, Paul. Your disregard for humanity is not on.