Policy report

Work in progress: why Fair Pay Agreements would be bad for labour

Labour market Flexible work Employment forecasting Wages New Zealand
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The government’s goal of a highly skilled and innovative workforce and an economy that delivers decent, well-paid jobs, along with broad-based gains from economic growth and productivity, is laudable. It is what governments should strive for. It is also a goal shared by The New Zealand Initiative.

However, our research has found that the case for the recommendations of the Fair Pay Agreement Working Group (FPAWG) in pursuit of this goal does not stack up.

The working group recommends reintroducing compulsory, centralised collective bargaining (described in the working group’s report as Fair Pay Agreements or FPAs). The FPAWG has done its best to create the appearance of a case for its recommendations. But the case put forward is illusory.

Both the evidence and the academic literature suggest FPAs would likely harm productivity and be contrary to the interests of workers, the unemployed, consumers and overall wellbeing. Rather than advancing the government’s vision of a high-wage, high-productivity economy, FPAs would undermine it.

Indeed, New Zealand’s labour markets are working very well judging by their results. Unemployment here is comparatively low when measured against the OECD average. Employment growth since 1991 has been the third fastest in the OECD. Our labour market participation rates are among the highest in the world. Wages are tracking productivity growth. And real wages for all wage deciles have been rising since the labour market reforms of the early 1990s.

It should therefore be no surprise that other countries – most notably France under President Emmanuel Macron – have looked to emulate aspects of New Zealand’s flexible labour market regulation.


Related Information

Recommendations from the Fair Pay Agreement Working Group 2018 https://web.archive.org/web/20190711034446/https://www.mbie.govt.nz/assets/695e…

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