Govt's pay-equity focus may fuel wage inflation

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A $2 billion pay equity settlement pushed up wage inflation in the September quarter and pay pressure may continue to accelerate because the new government plans to dump a bill that would have stymied similar deals.

The previous National Party-led government announced a $2.05 billion pay equity pay deal for some 55,000 aged and residential care workers, which took effect on July 1 and contributed to a 0.6 per cent increase in wage inflation in the third quarter and an annual increase of 1.9 per cent, the highest in five years.

The TerraNova pay equity deal for aged care workers was widely praised but was followed by a bill introduced in July that critics charged would make any future pay equity deals harder to achieve. Among other things, it stipulated that anyone attempting a pay equity claim would first have to look at their own profession and industry, before making comparisons across industries. Today the new Labour-New Zealand First coalition said the bill won't proceed.

"While both sides of the House seemed united in lauding the TerraNova decision in favour of care and support workers and Kristine Bartlett, the previous government immediately introduced legislation that fundamentally changed the ability of anyone else to achieve the same result," Workplace Relations and Safety Minister Iain Lees-Galloway and Women's Minister Julie Anne Genter said in a joint statement today.

"The government will stop progress on the Employment Bill and start work on new legislation that adheres to all the principles of the Joint Working Group on Pay Equity," said Lees-Galloway.

Extremely tepid wage inflation is one of the factors that has led the Reserve Bank to signal rates will stay at a record low 1.75 per cent until September 2019 at the earliest but economists say the conditions for a shift higher in wage inflation are starting to develop and could lead the RBNZ to lift rates sooner than it is forecasting. The kiwi dollar was recently at 68.88 US cents having jumped from 68.46 cents before the wages data was released.

Kiwibank chief economist Zoe Wallis said there is a "sense that wage growth is set to build over coming quarters." She noted while the aged and disability care workers pay deal is at this stage a one-off development for wage growth, "there is also the possibility that on the back of this deal other workers in similar industries will look to negotiate for higher pay."

The government's intention to lift the minimum wage to $16.50/hour by next April and then steadily to $20/hour by April 2021 "is expected to add to wage growth," she said. "We believe that wage pressure will build over the coming year and add to the case for earlier OCR hikes than the RBNZ has signalled," she said.

Overall, "this government appears to be in favour of higher wages as a broad theme. Unions will be listening, and expectations and starting points for negotiations are likely to be higher than they would have been without the change in government," said ANZ Bank New Zealand senior economist Sharon Zollner.

The government's plans to scrap the Employment Bill was well received by unions with New Zealand Council of Trade Unions vice president Rachel Mackintosh saying the move was in line with working people's expectations of the new coalition and an opportunity to remove barriers to women being paid fairly for the work they do.

The announcement and labour data also coincided with the release of new University of Otago research showing a massive and widening pay gap between chief executives and workers. According to the study, mean total CEO compensation has jumped 114 per cent in 17 years in real terms, while mean real worker income is up a more modest 26 per cent. CEO's are now paid 30-to-50 times more than the average wage, the study said.