July 5, 2005

Media Release

Union calls for trust at work

New Zealand will lift its productivity when workers and employers trust each other, says the head of the country’s largest union.

In a speech to Wairarapa business leaders this morning, Engineering, Printing and Manufacturing Union national secretary Andrew Little said that productivity would grow in workplaces where there was a relationship based on mutual respect.

His speech coincided with the release of the latest OECD report, which says that changes last year to the Employment Relations Act had “reduced the flexibility of labour markets” and that “relaxing” the rules on initial trial periods and fixed-term contracts would help to “mitigate the effects of increased employment protection.”

Mr Little said that the so-called labour-market reforms of the 1990s had seriously damaged New Zealand’s productivity, and that it would be a huge mistake to go back down that path.

“The truth is that we have had 15 years of a cost-cutting mentality in many businesses. We have suppressed wages, casualised more workers, cut back on training and accepted high staff turnover as a cost of doing business,” he said.

“And we now have on offer this election a party promising to enable employers to sack workers in the first three months of their employment without the need for justification. Such a policy as this, far from promising greater productivity and value for business, will simply make things worse.”

Flexibility could be provided through innovative schemes like skill-based pay programmes, but they would work only if based on a relationship of mutual trust, Mr Little said.

“At a time when the economy has been performing so well, the gains need to be shared.

“But it doesn’t stop there. We also need to build on what has been achieved and think about how we create a higher-value future. This will be done by working on good, trusting relationships that enable us to get through times of conflict and disagreement. It won’t be done by reducing the employment relationship to one of mere survival.”

ENDS

Speech notes follow.

SPEECH TO
GO WAIRARAPA SADLER OAKLY NEWMAN BUSINESS BREAKFAST
TUESDAY, 5 JULY 2005
SOLWAY PARK HOTEL
7.30AM

Thank you for the opportunity to address you this morning.

It marks a healthy development that in this day and age a New Zealand union leader can speak to a business audience and talk about current industrial issues. As I often say to employers, we don’t have to agree with each other (on everything), but we owe it to ourselves to at least try to understand each other.

This morning I want to talk about the EPMU’s current wages campaign – the “Fair Share: 5 in ‘05” campaign – but more importantly I want to talk about the reasons behind it and the justification for it, and arguments often used publicly against the campaign.

Key arguments often used against the wages campaign are:

Firstly, “one size does not fit all” and wage increases should reflect only enterprise factors;
Tax cuts provide a better means of lifting the value of wages, and
Wage increases should be funded out of improved productivity.

The issue of productivity is a critical one for the future of many of our industries and it is an issue that we all need to get our heads around smartly. It is important that we all understand what is needed to make gains in this area. And it is equally important that we don’t jeopardise the very real opportunity we have at present of making progress by going back to an out-dated and out-moded employment policy framework.

Before I get on to the topic in hand, I should point out the EPMU’s interest in Wairarapa. We currently have 270 members, mostly concentrated in five reasonably large employers in manufacturing and print & media, as well as in NZ Post. One of the larger employers with whom we have members is Juken Nissho (JNL). We have a growing membership in the timber sector nationwide and, along with New Zealand’s other major timber union, the Wood Industries sector of the National Distribution Union, we have representation on national industry bodies related to the industry. What the EPMU is doing in the timber industry echoes what we are doing across most of the industries we have members in, and that is operating on a national industry basis. I’ll come back to this later in this address.

By comparison to many other regions in New Zealand, the EPMU is probably under-represented in Wairarapa, although this is probably not surprising. Across the country as a whole, around 22% of the workforce is in the manufacturing sector (widely defined, and including food processing and printing). In Wairarapa, the manufacturing workforce is about 15%.

This is, nevertheless, a diverse area economically (high value wine-growing, agriculture, etc). And there are some interesting things happening in the area. Last year, Wairarapa had above average growth in new businesses, mainly concentrated in Carterton (over 15% growth against a national average of just under 10%) and South Wairarapa (over 12% growth). This, along with a healthy rise in property prices, suggests Wairarapa is becoming a desirable place to do remote business or, at least, is becoming the expanding dormitory for Wellington and the Hutt Valley. While this, itself, doesn’t have a great deal of interest for a union focussed on manufacturing, it does suggest the area is increasingly attractive to others as a place to live and work, and has the potential to develop the basis for a larger skilled workforce.

Let me turn, now, to the EPMU’s major activity so far this year.

A FAIR SHARE: 5 in ‘05

We kicked of the Fair Share campaign at the end of February this year. It’s now been going for about four months.

We launched the campaign against a background of very high economic growth (at least, very high for New Zealand compared to the last few decades), high company profitability and low wage growth for most workers in New Zealand. Another background factor at the time we launched the campaign was the high number of New Zealanders (over 300 a week) leaving New Zealand long term or permanently, most of them to Australia.

When we looked at the figures we found that up to the middle of last year the New Zealand economy grew by nearly 5% in a year. The economy had enjoyed growth since 2002 of between 3.5 and 4.5%.

We were also aware that company profitability had, in aggregate terms, been extraordinarily good. Companies were reporting profit increases of, on average, 12%. Figures at the time showed that the corporate tax take in 2004 had increased a whopping 19%; these were taxes paid on profits and demonstrate just how healthy business activity was up to that time. A recent report out of the Reserve Bank (Reserve Bank bulletin, Vol. 68, No.2, June 2005) confirms the position. That report states:

Corporate profits…since 2000 have grown an average of around 11 per cent per annum. Profit growth rose over 2004, in line with the pick up in GDP growth for that year.

The other measure of the health of the corporate sector is the performance of the local sharemarket. Last year alone the main index had increased in value by over 25%. Share prices have increased as New Zealand listed companies report good profit results and pay good dividends. With the odd exception (Feltex springs to mind) companies are still reporting good results, and we had the situation last Thursday of Auckland Airport Ltd announcing a capital payback to shareholders of $200 million, one of a growing number of companies to do so over the last few years. And even though the sharemarket has had a bit of a rough ride over March to May this year, it has recovered in June, suggesting there is ample confidence in our corporate sector yet.

Against these very positive and encouraging economic measures, we saw that wage growth was tracking at a rate below inflation. The quarterly employment survey showed wages moving at around 2.4%. The EPMU’s own data on wage settlements showed that our average and median settlements were in the order of 3%. Indeed, over 90% of our settlements in 2004 were at 2.9 or 3%. A few settlements were below this figure and the remainder were above 3% (usually 3.5% and the odd 5% settlement).

The changes in wages and salary movements was not the same across occupational classes. Without wishing to sound niggardly, management salaries showed movement during 2004 of between 5.2% and 7%.

It did not seem to matter how healthy or profitable, or for that matter shaky, the business, 3% was the going rate for non-management wage and salary increases.

And yet, we had, and had had for some time and still have, a highly constrained labour market, especially in skilled occupations. There was, and is, a skills shortage. We had, and still have, very low unemployment. Even these factors did not seem to result in any greater pressure on wages.

In other circumstances, this state of affairs might not have raised any particular concern. But the reality is today we are losing thousands of skilled workers each month to other countries, notably Australia. And they haven’t been going for better tax breaks, which some seem to want us to believe. They have been going for better wages.

With the pressure on household budgets that we now have, particularly because of last year’s rises in interest rates as well as recent rises in the cost of petrol and electricity, something had to be done to put pressure on wages to give workers a chance to get ahead and to share in the gains that were clearly in abundance. Something also had to be done to stem the growing loss of New Zealand workers and their families looking for a better chance overseas.

And so we launched “5 in ‘05”. A 5% pay increase in 2005.

There was an obvious risk to all this. It has been a long, long time since a union has campaigned on a specific figure for a pay increase. The type of collective bargaining that has become prevalent, certainly since the days of the Employment Contracts Act, has been far more concessionary.

We all know the routine: the union starts with a figure, usually somewhat inflated; the employer starts with their figure, usually quite skimpy. We all go through the horse trading exercise and arrive at a figure that we can all live with. Whether it was coincidental or whether by some grand design, the truth is that, more often than not, the figure eventually agreed to broadly equated to the rate of inflation, or thereabouts.

Wage settlement figures in the last couple of years did not appear to reflect the increasingly healthy economy and superior enterprise performance. And wage settlements did not appear to be doing anything to stop the loss of skilled labour.

Campaigning on a specific figure meant disclosing our target settlement openly. And it has meant discipline to make sure we don’t deviate from it under pressure. It has not meant being blind to the needs of businesses clearly in distress – we have done some settlements for less than 5%. But we have been firm in our resolve.

And when I say “we”, I mean, of course, our members. For it is them, after all, who make the decision on whether to make a stand and on what deal ultimately to ratify.

From our point of view, the campaign to date has been a great success. We settled our single largest multi-employer collective agreement, our Metals and Manufacturing agreement, with a 5% settlement, albeit over a 15 month term. We currently have about 140 employers party to that agreement. The number of employer parties to that agreement grows each week. Outside of the Metals and Manufacturing agreement, we have completed settlements with over 70 other employers, negotiating wage increases of between 5% and 9% (by far and away the most are settlements for a 5% pay increase for 12 months from this year).

In addition to the successful settlements the EPMU has done, a number of other unions have also achieved 5% wage settlements for their members. At the outset of the campaign, the organisation representing most unions in New Zealand, the New Zealand Council of Trade Unions, endorsed the campaign and most unions have got in behind it.

And I am aware anecdotally that it is not just union members who have benefited from the campaign to date. I have personally received reports of non-union workers in un-unionised workplaces being granted pay increases of 5%.

The campaign continues. We are committed to building the number of 5% settlements over the remainder of the year and into next year. More recent economic data showing a slowing of economic growth does not deter me. The slowed rate of growth at 2.5% to 3% is still healthy, and employment is still growing. The data also shows that although margins are thinning, they are doing so from a reasonably high level. In short, there is room to afford a 5% pay increase in most businesses.

THE ARGUMENTS AGAINST 5%

But, as I indicated earlier, there are commonly used arguments to say why the EPMU should not campaign on wage increases in the way that we are doing this year. Let me address those.

ONE SIZE DOES NOT FIT ALL

The first of these is that “one size doesn’t fit all”. Well, as I pointed out earlier, when, at a time of high profitability and strong economic growth, 90% of our wage settlements were coming in at 3%, then it is obvious that one size did just about fit all. If the price was right. For the employer.

In any event, it is not correct to say of collective wage bargaining these days that one size fits all. The reality is that over the last 15 years, widespread differentials have opened up between workplaces and within entire industries. The EPMU is currently running its own paid rate wage survey (note that I refer to paid rates, not the rates printed in our many collective agreements) and although that exercise if far from complete, it is clear from data already coming through that there is some regional variation in paid wage rates.

Here, in the Wairarapa, wage rates for process workers range from about a starting rate of $10 to an experienced rate of $14. Comparable work in Auckland would attract rates of $15 to $18.

There will be a number of reasons for this. It is probably true to say that the level of competition for labour in the Wairarapa is not as intense as it is in Auckland. It is probably also true to say that, given Wairarapa is not a manufacturing intensive region, the type of work available tends towards lower paid agricultural and service jobs.

There is another reason, which is probably not that palatable. And that is that the Wairarapa not only took a very heavy hit in economic terms during the restructuring of the 1980s and early 1990s, but also that many employers took advantage of the downward pressure on wages that the restructuring and high levels of unemployment inevitably had. I don’t think I’m taking too much of a risk to say that there are some employers, large ones amongst them, who have established their businesses in this region on the basis of low labour costs.

The point of raising all this at this point is simply to say that one size does not apply to businesses when it comes to wage rates. And so even though we argue for a common escalator, its impact is different enterprise to enterprise.

It is the job of the union, after all, to influence and have an impact on the labour market and to lift wages. And it was a common enough argument during the 1980s and 1990s to say that good economic growth means that the rising tide will lift all boats. Well, we are just trying to make sure that no boat gets snagged and that they all get to enjoy the buoyancy that we all see.

TAXES LIFT THE VALUE OF WAGES

It is difficult to avoid a reference to the current debate on taxes when we are talking about wages. The two issues have been fused for some time.

The truth is that in the current circumstances when household budgets are squeezed workers, like anyone, are going to look to a range of places to get that extra dollar that might just provide that extra bit of relief.

My only comment in this regard is that it is unlikely that tax cuts, at least of a level that may be affordable, are likely to provide much relief.

If we look at the Australian experience where the Federal Government there has just committed $22 billion over four years for tax cuts (which equates to about $5 billion a year) it has yielded, for most Australian workers, an extra $6 a week. On the basis that the Australian economy is roughly five times the size of the New Zealand economy, it would mean that the same benefit would cost the New Zealand government approximately $1 billion. This is about the amount that some tax experts have said might be available from current tax surpluses for reductions in personal income tax.

It is likely that, should there be any tax cuts – and I don’t want to be seen as arguing in favour of them, at least not at this point – then the impact is likely to be small for most wage and salary earners. We are probably looking at a maximum benefit of around $6 a week.

Compare this to a 5% pay increase. On the average wage of $42,000 a year, a 5% pay increase yields a net benefit of approximately $27 a week. At a low income level of $25,000 a year, a 5% pay increase yields a net benefit of around $19 a week.

There is plenty more to say about tax cuts, but this is not the forum for that. What I am saying, in summary, is that workers have more to gain from a decent pay rise, which is about sharing in the economic gains that have been made, than in a tax cut.

PRODUCTIVITY

Of all the arguments about wage increases that make the most sense, but which is also the most complex, it is the argument about productivity.

The argument, simply, is that we should aim to improve productivity (that is, increase the value of what we produce as against the cost of producing it) and pay for improved wages as a result.

The idea is impossible to disagree with. But productivity improvement is not something that happens solely at the hands of the workforce. There are a number of elements to improving productivity.

Firstly, there is the overall strategy (whether an enterprise strategy or the country’s overall economic strategy) which will decide whether we are serious about productivity improvement. This is about what we will produce as much as how we will produce it. And it relates to questions about what sort of economy, ultimately, that we as a country want. Do we want to continue to be a producer of primary products – dairy food, other agricultural products, timber and fish – or do we want to focus on producing higher value goods.

These sorts of questions are what lie behind initiatives like the government’s wood processing strategy and the manufacturing strategy which is currently being developed and put together with industry input. This is not to say that we don’t continue to provide support for those activities that are our economic backbone (farming, etc) but we do need to ask how long we can seriously sustain first world living conditions without a significant shift up the value chain.

If we make a conscious choice about building an economy focussed on high value goods, then there are a number of public and private investment decisions that need to be supported. Businesses need to be supported to make good investment decisions on technology. Risks need to be taken and may need to be shared publicly and privately.

High quality training needs to be available, most reliably through public provision and on-going on-job learning. Training and education to support high value productive activity needs to focus not only on how to understand and use rapidly changing technology, but on how to analyse data, how to problem-solve, how to communicate and how to make judgements to improve production. This is ultimately about making work challenging and interesting.

We also need to realise that as a small country at the bottom of the world, and an increasingly and aggressively globalised world at that, many enterprises are going to need assistance to connect with and partner with overseas businesses in order to establish sustainable markets. Investing in this activity might be something that we accept the government has to participate in.

Another important ingredient is for our industries to better find those matters in which they have common interests and work together to pursue. We are too small to think we can foot it by having little businesses going it alone. It is for this reason that the union has geared itself up to engage with business on industry lines rather than as thousands of independent enterprises. We will all have a much more valuable contribution to make if we see our future in industry-wide terms.

All of this entails a major lift in the quality of management of most New Zealand enterprises. We need management with the skills to not only see the opportunities but with the skills to realise them, to manage the multitude of risks that go with it.

And there is one other major improvement that is needed if we are to improve productivity either in existing businesses or in new businesses focussed on high value production. And that is the skilful management of a high-performing workforce.

Good work practices can make a difference to productivity. Where jobs are based on challenging and interesting work, where people have opportunities to develop and where people are allowed to exercise responsibility, these are the jobs that will lead to a lift in productivity. But these things will only happen where there is a genuine commitment to each employee; a relationship, dare I suggest, based on a mutual commitment: I will give you my best if you reward me fairly, allow me to learn and develop, and trust me to get the best out of your plant and equipment you have trained me on – after all, I have an immediate vested interest in your business succeeding, my livelihood.

The truth is we have had 15 years of a cost-cutting mentality in many businesses. We have suppressed wages, casualised more workers, cut back on training and accepted high staff turnover as a cost of doing business. Too many employers regard health & safety as a cost rather than an investment in their employees’ security that will invariably make them feel better while they are at work. And we now have on offer this election a party promising to enable employers to sack workers in the first three months of their employment without the need for justification. Such a policy as this, far from promising greater productivity and value for business, will simply make things much worse.

What sort of culture does an employer create who would dismiss for no other reason than their own economic convenience? What sort of commitment does that engender in the workforce?

Policies like this are not geared to creating the high value workforce we desperately need if we are serious about productivity improvement. They are a throwback to an age when workers were little valued.

Employers regularly raise with me the need, as they see it, for performance-related pay. They want at least something that ties part of a worker’s remuneration to the performance of the business. I think it is probably time unions in general developed an approach to performance pay; it is a growing reality of many businesses. But successful performance pay systems have one critical element to them: they rely on a high trust environment in the workplace. I have seen performance pay systems that have in some instances resulted in quite good payments being completely rejected years later because of the deterioration of relationships between a workforce and management.

We cannot expect to create the environment for innovative pay systems if the place of workers in the business is to be reflected in legislation as of no real value.

CONCLUSION

Which brings me back to the issue of wages. At a time when the economy has been performing so well, the gains need to be shared. But it doesn’t stop there. We also need to build on what has been achieved and think about how we create a higher value future. This will be done by working on good, trusting relationships that enable us to get through times of conflict and disagreement. It won’t be done by reducing the employment relationship to one of mere survival.

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