COMMENT: Kirk Hope: Addressing the low-wage myth

Business NZ chief executive Kirk Hope.

The council of Trade Unions president, Richard Wagstaff, has hit out at business in a call for responsible capitalism in New Zealand. In a recent Herald column, he claimed business advocates are irresponsible by failing to address low pay, and that we need a system of industry-wide bargaining to fix this.

The claims show a mistaken view about the New Zealand economy and how it could be improved.

Contrary to Mr Wagstaff's claims, New Zealand is not a low-wage economy. Our wages sit around the middle of wage levels in developed countries.

Our problem is that wages in New Zealand don't buy as much as wages in other countries because of our high cost of living, and that is largely because of our high cost of housing.

New Zealanders pay exorbitantly high costs for housing. People on the lowest incomes are spending significantly more than half their income on housing.

This is more a problem of costs than of wages, and industry-wide bargaining wouldn't fix it.

Industry-wide bargaining – seemingly the CTU's remedy for everything – would not change the fact of local government regulation restricting land supply and creating costs that escalate the price of housing.

If industry-wide bargaining was instituted, it wouldn't reduce the cost of housing or other goods and services. In fact, it would cause costs to rise further.

Industry-wide bargaining would cause all wages to rise – not just the wages of the lowest paid – because higher-paid workers would consequently push for higher wages to maintain relativities, pushing all wage brackets higher.

This wage inflation would simply spill over into higher costs for housing, food, transport etc.

Meanwhile, industry-wide bargaining would bring problems of its own.

New Zealand's past experience with National Awards – similar to proposed industry-wide bargaining – was that they were inflexible and did not help to reward individual workers or individual companies for high performance.

The only flexibility brought by National Awards was the flexibility to seek higher pay for everyone covered by the Awards, regardless of individual performance.

It was a factor in the disastrous amount of strikes and industrial action that accompanied New Zealand's plunging economic growth in the 1970s and '80s.

Today's healthy level of economic growth, around 3 per cent per year, would be threatened if we returned to an old-fashioned system of industry-wide wage bargaining.

That would be irresponsible.

The claim that business advocates are failing to address low wages is wrong.

BusinessNZ and other business groups spend a great deal of energy on issues such as skills development and investment in innovation – issues that deeply affect the ability to earn and pay for higher wages.

BusinessNZ and other business groups have also worked hard on pay issues affecting particular groups of workers, including delivering the recent pay equity deal in the aged care sector and pay equity principles for the use of all sectors in future.

Business is demonstrating a responsible approach to tackling the real economic issues that affect both costs and wages.

Achieving change in these areas will require more than simply instituting large-scale collective bargaining along with its attendant problems.

We all need to work together on the real issues to get successful outcomes for working people.

• Kirk Hope is chief executive of BusinessNZ.