Max Whitehead: Pay equity move may hurt economy

Women have suffered from pay inequality for more than 100 years but new laws are set to change that. Photo / Ross Setford

• Max Whitehead is the the chief operating officer of Small Business Voice, an organisation that assists small businesses and advocates for the sector

New Zealand women are paid on average less than men for similar, if not the same, work. The soon-to-be-introduced Pay Equity and Equal Pay Bill (PEEP) seeks to rectify this imbalance. It seems our Government is making a bold and heroic move. However, the flow-on effects could have a massive detrimental impact on New Zealand's economy.

The problem of low pay for women originates in Britain, where it was deemed indecent for women to be seen in the workforce. The British did, however, tolerate women working in occupations such as nursing and teaching, which were seen as low value and, therefore, paid less. This mindset began to change during World War I when women worked in factories to replace men. When the men returned, they took back their jobs.

Change, however, was on the horizon because women had enjoyed the independence of paid employment, and over the years, began drifting back into male-dominated roles. It was not until 2015 when British trade unions convinced the courts that female-dominated work was underpaid, that New Zealand unions decided to take action.

Government's first action

The significant pay equity court case was TerraNova v Service and Food Workers Union. The victory moved the Government to pass a law, spending $2 billion, to increase women's pay for those working in residential care, home support and disability services.

The Employment (Pay Equity and Equal Pay) Bill

The PEEP proposes to "eliminate and prevent discrimination on the basis of gender in the remuneration and other terms and conditions of employment. In doing so, promote enduring settlement of claims relating to gender discrimination on pay equity grounds".

However, in practice, the number of claims before the judiciary is likely to grow exponentially and become bigger than the Treaty and personal grievance industries.

Every successful equity claim will activate other claims as the "wage envy revolution" gains momentum.

Wage 'ratcheting'

During the 1960s and 1970s, the unions successfully gained massive increases for workers in certain industries.

Employers called the process "ratcheting" because when one group of employees received a wage increase, another group would lodge a claim wanting more.

This ratcheting of wages caused New Zealand inflation to get out of hand, and the Government introduced new laws to temper these practices.

In my view, if an employee claims an employee from another business is receiving more pay, employers will be compelled to provide expensive salary survey information, and the new law will empower the employment judiciary to insist differences are resolved by wage increases.

This is beyond the reach of many small businesses. Let's not forget that 97 per cent of all New Zealand enterprises employ less than 20 people. Small businesses do not have the resources to pay for wage information, legal costs and significant wage increases.

The result will be business closures and significant cost increases that will be passed on to the New Zealand public - all because of the new earning envy laws imposed on employers.

Consequently, many small businesses will replace employees with contractors to avoid complicated, intrusive employment laws like PEEP.

The first point of criticism is that PEEP proposes in clause 14(2): "A pay equity claim has merit if the claim relates to work that is predominantly performed by female employees."

The PEEP itself discriminates on the basis of gender by specifying only the "female" gender may make a claim for pay equity. For the PEEP to serve its purpose, it must apply to both men and women - as the transgender community continues to grow, the PEEP must include all genders.

Another issue is the criteria in which the PEEP requires comparison between male and female to determine whether there has been gender-based differentiation.

The criteria include "substantially similar skills, responsibilities and service and performing work under the same or substantially similar, conditions and performing work that involves the same, or substantially similar, degrees of effort".

These criteria do not take into account the safety and personal risks in some jobs, and many occupations and pay rates will be compared when the requirements of each are different - aged care workers compared with prison guards, for example.

The 'envy revolution'

Unfortunately, the PEEP will remove an employer's ability to inspire employees to be creative and productive by incentivising them with potential earning increases.

Instead, employees will look over the fence at the neighbours to see if they can get an easy pay increase using the new earning envy law. The idea of working hard and smart to justify a pay increase will fade under the PEEP regime.

The courts

Some commentators predict, due to the significant number of anticipated claims, that the Government will eventually set up a special judiciary to deal only with the PEEP workload.

Also, pay rates will soon be determined by the courts, removing employers' right to determine the value of their employees.

We must address pay equality and equity.

The Government, however, has already made significant inroads to fixing inequities by raising the salaries of public sector professions dominated by females; these will spread into the private sector.

Rather than disrupting all workplaces, wouldn't it be smarter to amend the existing Equal Pay Act 1972 so it addresses only the significant pay inequities?