Employers shouldn’t fear industry bargaining

A guest comment by CTU Economist, Peter Conway

Peter ConwayAfter over 6 years of an employment law that promotes collective bargaining, the actual percentage of private sector workers covered by collective agreements is 9%. In the public sector it is 62%. There are several reasons for this result including strong growth in private sector employment in many new types of economic activity and the fact that only union members are in collective agreements. But union membership has been growing even in the private sector. The main reasons for low collective bargaining density lie elsewhere. Employers continue to resist collective bargaining, the transaction costs for unions engaged in enterprise bargaining are very high, and the law only weakly promotes collective bargaining. The law is strong on intentions and good faith rules – but low on structural and institutional support for collective bargaining.

The low incidence of collective bargaining is connected to the slow and minimal response of wages to low unemployment and persistent skill shortages. It also is a contributing factor to embedded low pay, the loss of workers to Australia and low levels of labour productivity due to low capital per worker. In other words, private sector NZ employers are relying too much on a flexible labour market with low paid workers rather than investing in more capital per worker in the context of a more stable set of industry minima for pay and conditions.

Employers are increasingly recognising that when it comes to export promotion, skills development, and innovation, it makes sense to coordinate as an industry. There are many industry strategies being developed these days. And the tertiary education reforms specifically focus on responsiveness of training to industry skill needs. But when it comes to pay and conditions, employers revert back to their fear of rigidities, industry-wide disputes, and loss of firm specific conditions. Apart from the fact that these fears are hugely exaggerated, employers are failing to look at the benefits to them of industry bargaining. Many employers will agree that wages are too low. They also recognise that it is difficult for one employer to move too far ahead of his or her competitors. But they still resist industry bargaining which could provide a stable platform for attracting workers to the sector and retaining them as well as the promotion of transferable skills.

Unions increasingly recognise that wages can rise on a sustainable basis if there are increases in labour productivity and the benefits are distributed fairly. Although productivity improvements are often at the enterprise level, there is also much that can be done at an industry level. But this will also be more difficult if employers are not turning their minds to how there can be a reasonable set of employment standards to underpin modernisation.

Continued employer resistance to industry bargaining is now holding back economic transformation. It is not only bad for workers – but is also impacting negatively on employers and the economy as a whole.

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