Rosy picture hides grim truth on employment

By PETER CONWAY

Some apologists for the Employment Contracts Act are making excessive claims that the legislation generated economic success. The contribution by Simon Carlaw of the Manufacturers Federation (Herald, April 12) is decidedly more measured.

He acknowledges that employment growth depends on many factors, and notes that nominal wages have merely kept pace with inflation.

This can be sharply contrasted with National Party leader Jenny Shipley, who last month in Parliament attributed employment growth in the past 10 years to the act and claimed that real wages have increased 9.2 per cent under it.

All the same, Simon Carlaw's more restrained contribution does carry a supplementary heading that "job growth and wage levels prove the success of the act." Such claims simply cannot be substantiated.

New Zealand has in the past had a booming economy and near full employment at the same time as compulsory unionism, fixed relativities on wages, compulsory arbitration, national awards and other elements of labour market regulation. The Council of Trade Unions would not claim industrial relations law as the reason for relative prosperity then, though arguably it did influence the equitable distribution of income.

It is true that around 295,000 jobs have been created since 1991. However, it is also true that unemployment was on average 5.9 per cent for the five years before the act and 8.8 per cent for the five years after.

The number of jobless (222,000) in 1999 is 26 per cent higher than in December 1990. In that period, under-employment (those in part-time work seeking fulltime or more hours) trebled from 48,800 to 148,600. There are 81,000 in more than one job, up 25 per cent. There are 167,000 who want a different job, up 45 per cent since 1991.

There is increasing evidence that over the past decade poor-quality jobs have replaced better-quality ones. The extent of casualisation, very part-time hours, family-hostile rostering and contracting-out work has placed many employees in precarious circumstances.

A comprehensive study by the OECD developed nations concluded that "there appears to be little or no association between employment protection legislation ... and overall unemployment."

Nevertheless, supporters of the act consistently argue that it has created jobs. They cannot have it both ways. If the act is to be credited with increased jobs, it must also shoulder responsibility for increased unemployment, joblessness and under-employment. And it certainly must take the blame for increased precarious employment.

Real wages have not gone up 9.2 per cent. Simon Carlaw suggests wages kept pace with consumer prices. My calculation shows a small increase in real wages - 2.8 per cent over the eight years since the act.

Given that the act was intended to promote efficiency in the labour market, it must be disappointing that we are now 23rd out of 26 developed countries in overall productivity. Labour productivity growth from 1993 to 1998 averaged 0.5 per cent, while Australia averaged 3.2 per cent.

The CTU attributes this decline to the act only to the extent that it delivered a collapse in social capital - trust, loyalty and good faith in the workplace. That collapse resulted from employer attitude and an obsession with reducing unit labour costs at the expense of good workplace relationships and skill development.

The CTU believes the new Employment Relations Act will have a positive impact on the economy, but not a large impact.

The new law may have an impact on wages. But so will the decline in unemployment already predicted over the next two years and the emerging skill shortages.

Some employers are critical of any extension to union rights, arguing that this increases compliance costs and damages the economy. The CTU supports the establishment of those basic worker and union rights. It also notes that in countries like Australia, Ireland, the Netherlands and Norway rights similar to those in the new legislation sit comfortably alongside GDP growth well in excess of New Zealand's.

The long-term economic benefit of the Employment Relations Act will spring from the way it complements a stronger focus on investment in skill, training and innovation.

Employment Contracts Act apologists have either advocated or turned a blind eye to exploitation of workers, supposedly in the interest of economic benefits which have not ensued. It is time for a change.

Some employers will notice little difference. But those who have built into their business a high reliance on unfair aspects of the act will face an adjustment - albeit a mild one compared with that faced by workers and unions in 1991.

* Peter Conway is the Council of Trade Unions economist.