Government's pay-equity focus may fuel wage inflation after third-quarter spike

Business NZ warns legislative change could make negotiating pay equity claims "more challenging."

A $2 billion pay equity settlement pushed up wage inflation in the September quarter and pay pressure may continue to accelerate because the new government plans to dump a bill that would have stymied similar deals.

The previous National Party-led government announced a $2.05 billion pay equity pay deal for some 55,000 aged and residential care workers, which took effect on July 1 and contributed to a 0.6% increase in wage inflation in the third quarter and an annual increase of 1.9%, the highest in five years.

The TerraNova pay equity deal for aged care workers was widely praised but was followed by a bill introduced in July that critics charged would make any future pay equity deals harder to achieve. Among other things, it stipulated that anyone attempting a pay equity claim would first have to look at their own profession and industry before making comparisons across industries. Today the new Labour-New Zealand First coalition said the bill won't proceed.

"While both sides of the House seemed united in lauding the TerraNova decision in favour of care and support workers and Kristine Bartlett, the previous government immediately introduced legislation that fundamentally changed the ability of anyone else to achieve the same result," Workplace Relations and Safety Minister Iain Lees-Galloway and Women's Minister Julie Anne Genter said in a joint statement today.

"The government will stop progress on the Employment Bill and start work on new legislation that adheres to all the principles of the Joint Working Group on Pay Equity," Mr Lees-Galloway said.

Business New Zealand chief executive Kirk Hope says the challenge anyone has with pay equity is ensuring a balance between a claim made and then the ability of a business or group of businesses to settle it.

The existing bill made that process more transparent by demonstrating the types of comparative roles that could be used for a pay equity claim whereas what the joint working group said was that part of it could be negotiated, he says.

"What the new government is doing is really taking it back to the principles of the joint working group and we're comfortable with that," Mr Hope says. "That could take a lot more time and could be more challenging, particularly if it is a group of small businesses affected but it's not moving away from the principles of the joint working group which is positive."

Most of the large pay equity claims being faced now are being brought by workers predominantly funded by the government as happened in the Terra Nova aged care claim and it's unclear what impact a new bill will have on a small hairdressing business in south Auckland, for example, Mr Hope says. "For that type of business we think very little but we just don't know."

Interest rate impact

Extremely tepid wage inflation is one of the factors that has led the Reserve Bank to signal rates will stay at a record low 1.75% until September 2019 at the earliest but economists say the conditions for a shift higher in wage inflation are starting to develop and could lead the Reserve Bank to lift rates sooner than it is forecasting. The kiwi dollar was recently at 68.88USc, having jumped from 68.46USc before the wages data was released.

Kiwibank chief economist Zoe Wallis said there is a "sense that wage growth is set to build over coming quarters." She noted that, while the aged and disability care workers pay deal is at this stage a one-off development for wage growth, "there is also the possibility that on the back of this deal other workers in similar industries will look to negotiate for higher pay."

The government's intention to lift the minimum wage to $16.50 an hour by next April and then steadily to $20 an hour by April 2021 "is expected to add to wage growth," she said. "We believe wage pressure will build over the coming year and add to the case for earlier OCR hikes than the Reserve Bank has signalled," she said.

Overall, "this government appears to be in favour of higher wages as a broad theme. Unions will be listening, and expectations and starting points for negotiations are likely to be higher than they would have been without the change in government," ANZ Bank New Zealand senior economist Sharon Zollner said.

The government's plan to scrap the Employment Bill was well received by unions, with NZ Council of Trade Unions vice president Rachel Mackintosh saying the move was in line with working people's expectations of the new coalition and an opportunity to remove barriers to women being paid fairly for the work they do.

The announcement and labour data also coincided with the release of new University of Otago research showing a massive and widening pay gap between chief executives and workers. According to the study, mean total CEO compensation has jumped 114% in 17 years in real terms, while mean real worker income is up a more modest 26%. CEOs are now paid 30 to 50 times more than the average wage, the study said.


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