New Zealand's new law aims to make bad jobs better

The pandemic made one truth hard to ignore: the people we need the most are often the ones we value the least.

While many people were furloughed or laid off during lockdowns, “essential workers” like drivers, carers and warehouse employees had to keep working because the economy couldn’t cope without them.

Yet in many countries, these jobs are characterised by long or unpredictable hours, low pay and insecurity.

In New Zealand, a new law currently going through parliament aims to make bad jobs better. It represents a huge shift in the trajectory of the country’s labour market – one whose success or failure will have ripple effects on policy well beyond its shores.

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New Zealand has long been a poster child for labour market deregulation. Sweeping reforms in 1991 dismantled the old system of national pay awards and led to a flexible economy with high employment rates by international standards.

In 2020, the World Bank named New Zealand the easiest country out of 190 in which to do business. But productivity and wage growth have been weak. New Zealanders work longer hours than average in Organisation for Economic Co-operation and Development (OECD) countries but produce less per hour.

New Zealand’s Labour government believes part of the problem is that employers in some sectors have ended up in a “race to the bottom”.

They are competing by cutting labour costs rather than improving quality or technology. Craig Renney, director of policy at the New Zealand Council of Trade Unions, says bus drivers are a good example. “It got to the point where we couldn’t get bus drivers, we were importing them from overseas, but no one was getting a better service,” he told me.

Emergency visas

This dynamic isn’t unique to New Zealand: the UK’s HGV driver shortage last year, which prompted the government to announce emergency visas for migrant workers, was caused at least in part by an erosion in drivers’ pay and working hours.

In March, the New Zealand government introduced the “fair pay agreements” Bill. It aims to get employers and unions to negotiate agreements which would set a minimum floor for pay and conditions across whole sectors or occupations.

If a tenth of workers who would be covered or 1,000 of them (whichever is fewer) say they want a fair pay agreement, union and employer representatives will negotiate one and put it to a vote. If there is ultimate stalemate, the Employment Relations Authority will decide the terms.

Unions argue the system will stop good employers from being undercut by bad ones and help workers in sectors which are hard to organise. They plan to focus first on bus drivers, security guards, childcare workers and “bottle shops”. As well as pay, they will focus on minimum standards for training, working hours and safety measures.

But employers’ groups are fiercely opposed. They say fair pay agreements will reduce flexibility and drag New Zealand back to the 1970s at a time when they are already grappling with inflation.

Productivity and wages

Kirk Hope, chief executive of BusinessNZ, the main business lobby group, has argued fair pay agreements will “take away control from Kiwi workers and give it to faceless officials in [the capital] Wellington”.

Who is right? A detailed OECD study in 2019 concluded that sectoral collective bargaining systems can lead to better employment, productivity and wages than systems where agreements are only made at the individual company level. But the devil is in the detail: inflexible sectoral agreements can harm productivity while the best ones (more common in Scandinavian countries) provide broad frameworks which also leave “considerable scope for bargaining at the firm level”. A decent level of trust between the negotiating parties also makes a difference.

New Zealand’s attempt to perform a handbrake turn in its labour market will be closely watched by other countries with similar problems. If it leads to better quality jobs and more constructive labour relations, expect to see calls for the model to be replicated.

The UK’s Labour Party has already promised to implement a similar policy if it is elected. If, on the other hand, the new law results in sclerosis and rows, the disappointment will be felt by beleaguered unions well beyond New Zealand.

Whether or not fair pay agreements are the right answer, New Zealand is at least asking the right question: how do we make sure the changing world of work does not leave some people behind in gruelling jobs? This type of work is not going away. Indeed, some occupations, like social care, are set to be among the fastest-growing in the economy. Any attempt to shape the future of work must focus on carers just as much as coders. – Copyright The Financial Times Limited 2022