February 21, 2007

Speech excerpt from EPMU FairShare launch

TSB Stadium
New Plymouth February 21, 2007
1.00pm

Andrew Little
National Secretary, EPMU

Wages and Wage Growth: This brings me to the important issue of the wage path the EPMU will be promoting over the next two years.

When we kicked off the Fair Share: Five in ’05 campaign two years ago, we showed we could get serious about lifting wages in New Zealand, and getting decent pay rises for our members.

It was time, then, to put a line in the sand and be clear that real wages had to grow. It was also clear unions had to show leadership. Union officials had to work with members and delegates and make sure there was good support to take on the fight. The results speak for themselves.

Since February 2005, 70% of our collective agreement settlements have included at least one yearly increase of at least 5%.

Figures from the Statistics New Zealand show wage rises for those who got them have been the highest in 20 years.

This is not just “the market” at work, as some would have you believe. The labour market is tight at the moment; there is no question about it. Unemployment is low and the participation rate (the number of people available to work) has been falling recently.

Those who say that recent wage rises are a product of labour shortages alone forget that we have had a labour shortage for some years. We have had a skills shortage in many trades occupations for more than 7 years. There is only one thing that explains the sudden rise in wages – unions are getting serious about the fight to get a better deal.

Now we need to build on the successes of the past two years. We have shown that when we commit to a minimum level of pay rise for our members, we are serious about achieving it.

So what about wages for the next two years?

Let’s look at the relevant factors.

Just a word of caution. It is always difficult looking ahead by looking backwards, which is what economists end up doing when they make predictions for the year ahead and what we end up doing when we think about a future wage path. We need to take predictions or projections of economic performance with a grain of salt. Remember last year the doom and gloom at the beginning of the year and the talk of recession? The recession never happened and in 2006 the economy continued to grow.

We had a slow patch in the middle and towards the end of last year, which will be reflected in reported company results over the next few weeks, but there is also a much higher level of confidence now in the prospects for the economy in the year ahead.

Let’s look at the factors.

Inflation: Inflation, according to the January figures, is running at 2.6% (that is, in general, the cost of living increased by 2.6% during 2006). It is expected to go lower – some predictions are that the June inflation figure will be below 2%. However inflation is expected to hover around the 2% to 2.5% mark for the 2007 and 2008 years.

Let’s put these inflation figures in context. House prices have been going through the roof these last few years, going up on average 9% last year alone. This might be alright if you own your house but is a real issue for those who rent and those who are trying to get into their first home.

Wages need to take account of the real pressures on working households.

Economic Growth: By March this year economic growth is expected to be between 1.5% and 2% for the year and rising to over 2.0% for the year that follows. By March 2009 economic growth is expected to be more than 3%.

As a measure of the health of the economy these figures show we are doing alright.

Company Profitability: We are starting to see interim and final results for many companies that are required to report their profit results for the period ending 31 December 2006. They are variable. Companies in the service sector are showing reasonably good levels of profit increase. In manufacturing, the results are mixed. For example, Cavalier Carpets showed an improvement in profits last year of over 5%. Fletcher Building, which operates as a manufacturer, a construction company and a retailer, has shown profit growth in the order of 2%. But some of these profit figures are on the back of already healthy profits.

If the share market is anything to go by, there is ample confidence in the New Zealand corporate sector and its performance, and we should not read too much into the profit results of a single year.

Wage Comparisons: As far as the labour market is concerned we need to remind ourselves that large sections of our working population are capable of moving and working overseas. We face a particular competitive threat from Australia where wage rates are, on average, 25-30% above comparable New Zealand rates.

Productivity: Productivity rates are still running at 1-1.5% improvement each year. That is to say, the extra value produced from the same inputs, including labour costs, is running at this figure. We need to be clear as a union that productivity improvements created by improved working practices as well as technology need to be shared with us as much as with business owners.

Productivity is an important figure to look at when thinking about wage increases. It’s about the extra value we contribute, and we must share in it.

Unemployment: Unemployment in New Zealand is still running at historically low levels. We should celebrate this. Even though there are still 80,000 or so workers out of work, we know that there are shortages across the board. This means that retention of existing workers is an important consideration.

Interest Rates: The place of interest rates in deciding what is an appropriate pay increase to go for has two parts to it. Firstly, the level of interest rates determines the cost of personal and household debt (our mortgage rates, personal loan and credit card interest rates). When interest rates are high, this has an impact on household costs as we repay debt and the interest on it.

There is another aspect to interest rates as well. The Reserve Bank is required to keep inflation between a band of 1-3%, and its key tool for doing this is to manipulate interest rates. Recently, concern about the level of the rate of inflation has been pinned, at least in part, on rising wage levels. And yet, across the board, taking into account those workers who have not had any pay increase in a single year as well as those who have, the increase in the value of wages across the board throughout the whole economy is 3.2%. This is not significantly above the rate of inflation. It’s clear that inflation has been fuelled more by consumption, fed by greater household debt.

Those are the sorts of economic factors that we need to take into account when thinking about future wage rises. But in the next year or so there will be other factors we will need to think about as well.

Firstly, there is the law change on 1 April this year providing for a minimum 4 weeks leave for all workers. The impact of this will be variable across the entire workforce of 2.1million workers. For some, already on 4 weeks annual leave, the additional week on 1 April will be absorbed by their current entitlement because of the way their employment agreement is worded. For others, they will increase their leave entitlement from 3 weeks to 4 weeks. And for yet others, currently on 4 weeks, they will get 5 weeks annual leave because of the way their leave clause is worded in their employment agreement. Quite what the numbers are in each of these categories is difficult to tell.

Certainly, when it comes to bargaining this year and possibly next year, the issue of an additional week’s leave, irrespective of what the current entitlement is, will be a major issue. The experience of the EPMU is that in many cases dealing with this issue over the last couple of years has simply been deferred because it is too touchy or too difficult.

Most employers will argue that the additional week’s leave will add 2% to the wage bill. Of course, it won’t have this impact on a uniform basis. There will be some jobs where workers who are on leave for an additional week will not need to be replaced for that week. However, there will be other jobs, when workers are on leave, they will need to be replaced.

What happens with the extra leave entitlement will be a factor that workers will want to take into account in their bargaining this year (and next year – if it is not due to take place until then). As a union, our policy is if you already have 4 weeks leave and the new law lifts you entitlement to 5 weeks, we will say to you to fight to keep your entitlement to 5 weeks when the law changes.

The next major issue that needs to be taken account of is the introduction of Kiwi Saver on 1 July this year.

The way this scheme is structured at the moment it is a scheme involving contributions from workers at either 4% or 8% of gross taxable earnings. There is no legal or statutory requirement for employers to make a contribution to Kiwi Saver retirement savings. However, it is the policy of the EPMU in all bargaining from now on, in workplaces where there is not already a superannuation scheme, to seek an employer contribution towards Kiwi Saver when it commences on 1 July this year.

We will be making claims for employer contributions to Kiwi Saver from now on.

We will be seeking a minimum of a 2% contribution.

I note this at this point. Employer contributions to any Kiwi Saver scheme will be exempt from the tax that currently applies to employer contributions to other savings and superannuation schemes.

We regard workplace-based retirement savings as very important. It is not a substitute for state provided superannuation support in retirement, but it is a means to save in order to have that little bit of extra comfort when we have finished our working years.

It is also important to assist in lifting the national savings rate. This issue is as much about economic sovereignty as it is about retirement savings. We wonder why our interest rates are high, our New Zealand dollar is high and we have a rapidly growing number of businesses owned by overseas owners. It’s because our internal investment pool is so shallow. We are dependent on overseas sources of finance to fund business developments, as well as our property market (however mindless this may be!), in New Zealand.

To come back to the point, as a union, we will be actively supporting Kiwi Saver in two ways. We are working with the CTU and other unions like the National Distribution Union to ensure there is a union-supported Kiwi Saver product available to workers in New Zealand. Work is under way on this right now.

And the second way we intend to support Kiwi Saver is by claiming employer contributions at every opportunity we have to do so.

And so claims for employer contributions are expected to affect the wage rise we, as a union, claim this year and next year. I expect there will be a trade off between the headline wage claim we make and any employer contribution to Kiwi Saver.

Putting all these factors together the claim the EPMU will be pursuing over the next two years will be 5%. Where an employer agrees to make contributions to Kiwi Saver, we see that contribution as part of the 5% claim (providing the figures add up, it may well be that a 5% wages claim becomes a 3% on gross wages paid and a 2% contribution to Kiwi Saver).

At these levels, wages in the hand are not being eroded by inflation and workers who do not currently have superannuation or retirement savings can start getting a foothold on the savings ladder.

ENDS

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