Editorial: Wage bargaining under new rules

The sky will not fall in today, any more than it did when the Employment Contracts Act came into force in 1991. Unions and employers will feel their way for some time under the Employment Relations Act. From today they will have to negotiate under rules that could easily give rise to the drawn-out rituals and frustrations that made industrial relations a costly and tiresome business in the years before direct contracting. But there is cause for confidence that good sense will prevail on both sides.

The new law arrives just as workers are reeling from petrol price rises and more general inflation threatens to follow the increase in fuel costs. The Reserve Bank is permitted to ignore a single inflationary wave from a shock offshore but if unions manage to win matching wage increases the wave will be magnified and the bank will have to act.

Responsible unions know that. The national secretary of the Engineering, Printing and Manufacturing Union, Andrew Little, observed last week that high wage demands would serve no purpose in the present outlook.

"If they [Reserve Bank] increase interest rates that is going to hit our members in the back pocket, just in a different way [from price rises]," he said. The Council of Trade Unions is making a similar calculation. But there are always irresponsible elements. The Trade Union Federation president, Maxine Gay, considers interest rates a red herring.

"We're not holding back," she says. "Finally, workers have an environment that provides for improvements."

The real losers from any wage push over the next few months would not be those in work, for whom higher interest rates might add to household mortgage payments. The worst off would be workers who lost jobs as interest rates reduced business activity over the coming year. A certain amount of unemployment is likely anyway, from the extra costs and risks the new law presents to employers. Those costs are not merely the wage increases negotiated by unions with more bargaining muscle. There are additional costs of bargaining when the procedure is drawn out in the name of good faith, or cases must be prepared for mediation hearings, or production is lost to strikes.

New Zealand is no longer a sheltered, cost-plus economy in which companies can readily build added costs into their prices. The impact of competition can be seen most recently in efforts of retailers to absorb petrol and other imported price rises flowing from the fall in the dollar's exchange rate. It has taken much longer for the pressure to appear in consumer prices than would have been the case 15 or 20 years ago.

Wage increases might be more readily passed into prices if unions use their newly acquired power to enforce multi-employer agreements - potentially a return to industry-wide awards by another name. They could return with a vengeance over the next few years, taking competition out of the labour market in significant industries or localities and carrying costs for the country not only in consumer prices but in trade competitiveness.

There is cause for optimism, though, in the hard lessons that the union movement has learned since the loss, nine years ago, of compulsory membership and exclusive coverage of job categories. Today unions regain exclusive right to negotiate collective bargains and everyone wishing to subscribe to a collective agreement will have to join the union that bargained it. But individuals retain the right not to join and to make an independent agreement. Compulsory unionism is not returning in full force.

More important, the better unions are highly sensitive now to the implications for business and the economy of reckless activity. Now that the bargaining rules are weighted in their favour, there is a chance they will see themselves as partners in the drive for a stronger economy rather than mere claimants for a greater share of a declining one. As strong partners they help improve the skills, adaptability and performance of the workforce and, thereby, increase its rewards.

The Government has given unions practically all the levers they asked for. Let's hope they use them sensibly.

Herald Online feature: Employment Relations Act

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