Editorial

At long last, New Zealand is moving decisively to end its drift towards becoming a low-wage economy, with another big group of mainly female low-paid workers getting a sizeable pay increase. In another long-overdue acknowledgment of some of the hardest-working people in our labour force, hospital services workers will get up to 40% more over the next three years. This continues progress after the E tū union’s successful legal battle to get pay equity for resthome care workers. District health boards have also agreed to provide training for the 3500 cleaners, orderlies and the like, so they have a chance to further lift their pay with new qualifications.

This shows a healthy reappraisal of the vital role such workers play, and how undervalued they have been. It also continues a trend towards employers considering their workers’ welfare by paying them a decent living wage. Those on very low incomes often work long and physically demanding hours, only to see their precious leisure time and options eroded by the cost of living, in particular, by housing and transport expenses.

That the first, backdated instalment for hospital workers may arrive before Christmas is nice symbolism. There’s growing acceptance of a social obligation for all employers, not just the state, to pay people enough to ensure basic minimum living standards.

There’s even multiparty agreement in Parliament that the lowwaged have been allowed to fall too far behind. The living wage is not just some woolly notion of decency and equality of access to a basic living standard – though these are reasons enough. The consequences of leaving people with insufficient to house and feed themselves are far more costly to us all than the up-front imposition of pay increases. Business, along with everyone else, pays the price in extra taxes to support hard-pressed health, justice and other infrastructure for people whose lives deteriorate for lack of adequate income. The wider social cost is immeasurable.

Since the 2008 global financial crisis, basic wage growth here has been barely enough to keep pace with the consumers price index. For many, incomes have stagnated or even fallen behind the rate of inflation. Often, as businesses look for savings, wages are found to be the only costs they can exert downward pressure on. This has become starkly evident since our employment rate has improved. Our current unemployment rate of 3.9% is as close as most countries ever get to the idyll of full employment. Traditionally, high employment brings increased wages, particularly when, as is happening now, the economy is also strengthening. But, beyond state-mandated pay hikes, this linkage remains stubbornly broken. Westpac, among other economic analysts, can find little sign that the tightening labour market is causing more wagecost pressure. The slight expected pickup in the labour cost index of about 0.5% this year appears mostly due to the aged-care sector pay equity settlement and the Government’s larger-than-usual increase to the minimum wage. The rest of the workforce is still on flatlining pay.

Even factoring in large nurse and teacher settlements, some economists suggest wage growth will still be well short of 3% by the end of 2020 – to the remarkable extent of forestalling the need for any increase in the official cash rate, despite stronger economic growth.

The Reserve Bank has noted that subdued growth in wages is due in part to persistent economic slack. Low headline inflation, partly because of low import prices, has maintained the purchasing power of nominal wages over recent years, but the bank now expects wage growth to increase as capacity pressure builds in the economy.

Sluggish wage growth is not New Zealand’s story alone. The International Labour Organisation says, apart from China, global wage growth is now at its lowest since 2008. But pay growth is starting to accelerate in countries such as the US, Britain and Australia. Recognition of pay equity, and that better pay and conditions actually lift productivity and company earnings, has helped fuel pay revision in these countries. It’s well past time we joined them.

Sluggish wage growth is not New Zealand’s story alone. Apart from China, global wage growth is now at its lowest since 2008.