Getting wages right: wages must rise faster than inflation--and be sustainable--if the well-being of New Zealand families is to be protected.
Subject: Labor productivity (Forecasts and trends)
Wage-price policy (Interpretation and construction)
Wage-price policy (Social aspects)
Author: Rosenberg, Bill
Pub Date: 08/01/2011
Publication: Name: Kai Tiaki: Nursing New Zealand Publisher: New Zealand Nurses' Organisation Audience: Trade Format: Magazine/Journal Subject: Health; Health care industry Copyright: COPYRIGHT 2011 New Zealand Nurses' Organisation ISSN: 1173-2032
Issue: Date: August, 2011 Source Volume: 17 Source Issue: 7
Topic: Event Code: 010 Forecasts, trends, outlooks; 290 Public affairs; 900 Government expenditures Canadian Subject Form: Labour productivity Computer Subject: Market trend/market analysis
Product: Product Code: 9918220 Productivity Improvement; 9108120 Wage & Price Stabilization NAICS Code: 92611 Administration of General Economic Programs
Geographic: Geographic Scope: New Zealand Geographic Name: New Zealand; New Zealand Geographic Code: 8NEWZ New Zealand
Accession Number: 266344854
Full Text: Wages are the major source of income for most households.

In 2010, over half of those aged over 15 were getting wage (including salary) income from employment, and wages made up over two-thirds of their average total weekly income.

That means getting wages right is essential to our standard of living and must play a major role in addressing the significant income inequality in New Zealand.

In 2010, women relied on wages slightly less than men, but received much more from benefits and much less from self-employment. Their reliance on wages was not helped by their average hourly wages being 13 percent less than men and their average weekly wages 22 percent less. Younger people were even more reliant on employment--those aged 20 to 34 received over 80 percent of their income from wages. Those aged 15 to 19 usually do too, but in 2010 their total incomes fell eight percent and they became more reliant on benefits--presumably due to high unemployment. Households with at least one member aged 18-64 received almost three-quarters of their income from wages. (1) Families with dependent children are therefore highly reliant on good wages for their well-being.

Comparisons with Australia

The wage gap with Australia has widened. The Government says a 30 percent gap is a "competitive advantage", but constantly losing skilled people and their families to Australia (66,500 net since December 2008) is hardly an advantage. Australia's gross national product per capita is now approximately 34 percent ahead of New Zealand on a purchasing power basis. For average, ordinary lime hourly wages, the difference rose steadily through the 1990s and then into the early 2000s, peaking in 2005 at about 26 percent ahead in purchasing power. The gap then closed quite quickly--significant wage increases for nurses and teachers were likely to be part of the reason--until mid 2008 when it started to open up again, widening from 11 percent in June 2008 to 19 percent in March 2011. If you add on the generous nine percent employer superannuation contributions all Australian employees receive, the latest difference is as much as 30 percent. Comparisons like this are always approximate but they indicate the trend.

To lift the economic well-being of the majority of New Zealanders, we need wages to rise faster than inflation on a sustainable basis over a tong period. That requires a rise in productivity (the amount produced per hour) and a wage system that delivers those increases to wage and salary earners.

So how can wages be raised on a sustainable basis? Here are some practical steps:

1) Lift the minimum wage to $15 an hour. It was raised more quickly than other wages during the 2000s but, under National, it hasn't even kept up with inflation. It went up by only 25 cents an hour in both 2010 and 2011, the lowest increase for eight years. Raising the minimum wage helps people above the minimum wage too, by pushing up wage levels of people on low incomes. Research evidence from New Zealand and overseas is that there is little connection between rises in the minimum wage and unemployment. (2)

2) Ensure more workers are covered by collective bargaining on an industry basis. Lack of bargaining power led to wages falling behind productivity gains during the 1990s. The record improved in the 2000s but wages still lagged behind. Productivity in the industries for which Statistics New Zealand has measured productivity (most of the market sector and not including most government services, health and education) rose 48 percent from 1990 to 2010. After inflation, wages in those industries rose just 18 percent. Effective union-backed collective bargaining is the single most important way employees can increase their bargaining power. The CTU is proposing the benefits of collective bargaining should be available to all employees in an industry. Instead, the government has reduced employment rights, tried to weaken the unions that give employees bargaining strength--and promises more backward steps if re-elected.

3) Invest in skills and education and lift productivity. Encouraging people to participate in their workplaces, thus increasing their knowledge about how they really work, can improve productivity. Other measures, including a capital gains tax exempting the primary home and support for firms with export potential, would encourage investment in productive industry. Of course increasing productivity is necessary--but is not enough on its own to lift wages. That's looking at the bigger picture.

For now, wages are not even keeping up with the cost of living. If we look at wages during the present government's term, from December 2008 to March 2011, the buying power of the average ordinary lime hourly wage (the "real average wage") fell 1.7 percent, after inflation is taken into account.

The government claims that after-tax real average wages have gone up--but about two-thirds of wage and salary earners get below the average wage. From December 2008 to March 2011, the real average wage rose just 2.g percent after tax. Someone on half the average wage (just a shade above the minimum wage through most of that period) would have gained only 0.5 percent after tax. However, tax cuts must be paid for and these comparisons do not tell us what was lost in government services, such as health and early childhood education, to pay for the tax cuts. In any case, the increase is due to tax cuts rather than increases in real wages. That is unsustainable. We cannot tax-cut our way to higher wages. That is a path to increasing government debt.


(1) Statistics New Zealand. (2010) New Zealand Income Survey: June 2010 quarter. Retrieved 22/07/11.

(2) Council of Trade Unions. (2011) Minimum Wage and Jobs.

Bill Rosenberg is the economist and director of policy with the Council of Trade Unions in Wellington.
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