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Christopher Luxon in a suit, sitting in a relaxed manner on a tower of coins, with coin towers of varying sizes either side of him
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OPINIONPoliticsOctober 24, 2023

If Luxon wants to cure New Zealand’s ‘productivity disease’, here’s an idea

Christopher Luxon in a suit, sitting in a relaxed manner on a tower of coins, with coin towers of varying sizes either side of him
Image: Archi Banal

One big thing that sets New Zealand apart from countries that work less and produce more? They have industry bargaining. We could too, argue Edward Miller and Craig Renney – even if the fair pay agreement legislation is repealed.

In his 2021 maiden speech to parliament, prime minister elect Christopher Luxon argued that New Zealand had been suffering from a “a productivity disease”. Economic growth was largely “driven by having more people in the country and more people working harder”.

The evidence for this is certainly with Luxon. According to the OECD, New Zealanders spend on average a week (41 hours) longer at work than Australians every year. We also work much longer hours than workers in Germany, Austria, Italy, Denmark, Netherlands, Sweden and Norway. These countries are also much more productive – and wealthier – than us. Annually, the French work on average 237 hours less than New Zealanders but produce US$23 more per hour in value. We work much longer, for less.  

Many people have attempted to examine why this is. One thing that differentiates those countries above and New Zealand is that they all have a system of what is called “industry bargaining”. Key terms and conditions of work are coordinated across entire industries, usually between unions and employer associations, and often with a bit of government oversight. These systems are long established and strengthen relationships between workers and employers

Why should this make a difference? Countries with industry bargaining don’t face the same “race to the bottom” to deliver competitiveness. Bus drivers are a great example. In 1990, the minimum you could pay a bus driver was 66% above the minimum wage. After deregulation, this plummeted, and by 2019 some bus driver wages were only 10-15% above minimum wage. Bus companies generated higher profits by holding wages lower. 

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Taking wages out of competition helps force firms to compete on other issues – such as efficiency, quality or product innovation. Overseas, industry bargaining has also made it easier to manage training across industries, helping with the problem of “free-riding” employers who don’t train any staff and steal them from others who do. A big part of New Zealand’s chronic productivity problem is essentially a skills problem.   

At the worker level, it’s easy to see how decent work is conducive to better productivity. Workers preoccupied with their own employment security might not be particularly well-focused on completing the job at hand. Workers also have no reason to stick around with an employer that doesn’t appear to value their contributions.

Improving output by simply increasing hours also causes additional accidents. New Zealand hospitalises a worker every 87 minutes. On top of the human costs, workplace accidents are also a barrier to productivity.

New Zealand has long taken advice from the OECD on these matters. During the 1990s we shared a drive for “flexible” labour markets. Limited job security and bargaining rights were enshrined in the 1991 Employment Contracts Act. Multi-employer bargaining coverage fell from 61% of the workforce in 1990 to 25% in 1997 and 18% by 2010.  

The OECD has since flipped its view on industry bargaining. In its latest Jobs Strategy, the OECD argues that “flexibility-enhancing policies in product and labour markets are necessary but not sufficient”. It goes on to argue that allowing “sector-level agreements to set broad framework conditions but leave detailed provisions to firm-level negotiations” tends to deliver “good employment performance, better productivity outcomes and higher wages for covered workers”.

An identical approach is outlined in the Fair Pay Agreement Act 2022. That allows entire industries of workers to bargain for minimum terms and conditions, while leaving detail (and flexibility) to enterprise bargaining. It allows firms to manage the day-to-day issues they face, while giving workers security that they have a floor below which their terms and conditions can’t be pushed. It benefits both sides.

There are now six industries – bus, hospitality, security, commercial cleaning, early childhood education and grocery supermarkets – with approval to begin fair pay agreement bargaining, while another – waterside workers – is currently being assessed. These agreements would cover hundreds of thousands of workers in industries where wages and the ability to bargain for better terms are often very low and worker exploitation is more common. 

Image: Tina Tiller

There is a space for bipartisanship here. The Fair Pay Agreement Working Group was led by former National Party prime minister Jim Bolger, and Luxon’s favourite prime minister – Keith Holyoake – presided over a form of industry bargaining throughout his tenure. Overseas, governments of both the left and the right currently use industry bargaining effectively and deliver better economic outcomes. 

The incoming government has made it clear that it wants to repeal the Fair Pay Agreement legislation in its current form. However, recent evidence suggests that shouldn’t mean an end to sector-level bargaining. 

Let’s return to the bus industry. Post-pandemic, poverty wages had created a chronic shortage of bus drivers. Cancelled services wreaked havoc across main centres. Unions and employers were able to get around the table and negotiate a de facto sectoral agreement. That in turn delivered significant improvements in wages – in some instances as much as 25% – which enabled bus operators to start recruiting drivers again. There is no more bus driver shortage in Aotearoa. 

The bus industry experience shows there is much pragmatic value in continuing with industry-wide approaches to bargaining. The challenge for the incoming government is to design a streamlined industry bargaining regime that retains the productivity and wellbeing benefits – for both employers and employees. 

The National Party won the 2023 election in part on the promise of its superior economic credentials. Now it needs to demonstrate those credentials and govern for the entire country. Showing that it can move beyond rhetoric, assess all the available evidence with a clear head, and develop an industry bargaining framework would be a crucial step in helping to address New Zealand’s productivity disease.

Edward Miller is policy and research analyst at First Union and Craig Renney is economist and policy director of the NZ Council of Trade Unions.

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