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What the heck is going on with pay?

While we are conscious of the impact that inflation is having on wage and salary conversations, there are four other levers that have been, and are being, used to bring about fundamental change and significant uplift to pay in New Zealand.  The Government is using these levers to drive increases in pay at various levels in ways that we may not be conscious of. However, when brought together as a single thread, they are having a big impact.

The first and most obvious direct lever is the Adult Minimum Wage (AMW). The Labour Government has used this lever to deliver a 34.6% increase in the AMW from prior 1 April 2018, with a current AMW of $21.20 (as at 1 April 2022). The impact of this is to create compression on pay rate margins. Workers who had recognition of skill, knowledge, or responsibility have been pushing for the margin relativity to be restored. If their current employer does not deliver, workers are instead moving to new employment where they are being recognised.

The second lever is a Central Government mandate to require application of the Living Wage for directly employed workers and workers employed by contractors. This mandate is also being driven through local Government and their contractors.  The Living Wage has increased by 17% since 2018, currently at $23.65 effective from 1 September 2022, and has been led and defined by the Lower Hutt Family Centre Social Policy Research Unit.  Unions have picked up the Living Wage movement as a campaign and are driving an accreditation system.  The Research Unit is currently undertaking a re-evaluation of the Living Wage. We anticipate there will be a significant increase in 2023.

The third lever is Immigration, which is being used in various ways.  The closure of the Borders due to COVID was an understandable response, but it is has taken so long for the borders to open that there are constraints on labour supply, including the absence of international students who delivered part-time work capacity alongside their study. There are also limitations in the ability of Immigration to process VISA applications.  The portals used are simply not user friendly and it appears outdated methodologies continue to be used.  We are just too slow, particularly in comparison with other countries like Australia and Canada, with whom we are competing to recruit and retain skills and knowledge.  So, we have a squeezed labour supply which naturally places pressure on pay rates as employers compete for those limited supply of skills. We also have Government determining what level of pay must be paid for migrant workers depending on their work sectors and skill levels.  Accredited employers, with some pay threshold exceptions, must pay the median wage of $27.76 per hour.  New Zealand has direct Government intervention in setting pay rates because workers who are already residents or citizens will reasonably demand the same pay levels as migrants.

The fourth lever is gender-based Pay Equity, which has predominantly benefited State Sector and State funded private sector workers.  So far, the benefits have been siloed with Government not funding those private sector employers who, as a result, are losing their workers to employers that are being funded.  The private Care Sector is an example, and this is before the full application of the Te Whatu Ora (Health NZ) Nurses MECA settlement.  Aged Care, Home Care, and Primary Health Care are struggling to recruit and retain scarce skills.

New Zealand has experienced a long period where relativities were pretty much left to the market to determine the hierarchy of pay for skills. This had gradually been in play since the 1970s but brought to head by the arrival of the Employment Contracts Act in 1991. Those groups without the power to keep up with or get relativity-based recognition, missed out.  This includes gender-based occupations e.g. Care and Support Workers. This also includes those occupations where contract tender processes drove low pay, e.g. Bus Drivers.

Relativity bargaining, whether individual or collective, is here and is the “name of the game”.  It is my view that New Zealand, like other countries, is rebalancing pay. This is a deliberate, but softly spoken, strategic imperative from the current Government and strongly supported by the CTU, PSA, NZ Nurses Organisation, the Teacher Unions (PPTA and NZEI) in the State Sector and E tū, and FIRST Union in the private sector.  Expect this strategy to continue and be used as proof of delivery for workers to support continuity of the current Government at the next election.

 

Note – watch for conversation on a Cost of Living Adjustment of 7.5% for State sector and State funded workers!  What will that do to private sector collective and individual employee bargaining?

 

By Paul Diver, Director

Disclaimer

This article, and any information contained on our website is necessarily brief and general in nature, and should not be substituted for professional advice. You should always seek professional advice before taking any action in relation to the matters addressed.

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