Do Increased Workers’ Rights enhance Productivity

The answer seems to be yes.

With an election coming up ACT is ramping up its attacks on working New Zealanders on the basis of unsubstantiated claims that this will increase productivity.  I thought I might share a couple of things on this topic that I have come across recently. Unsurprisingly they suggest ACT is talking rubbish.

Some Background

First, is a quote from a paper by Ewan McGaughey Economic Growth and Labour Rights (footnotes omitted).

“‘The programs that are labelled as being for the poor, for the needy’, said Milton Friedman in 1975, ‘almost always have effects exactly the opposite of those which their well-intentioned sponsors intend them to have’. In Friedman’s view this included nearly every labour right, so that even ‘minimum wage laws have been almost wholly bad, to increase unemployment and increase poverty’.

With half a century of experience and data, we know that Friedman was wrong. Fair wage laws (through unions, worker directors and minimum wages) raise pay, equality, job security, and employment, by boosting productivity and aggregate demand. Higher pay drives investment in capital and technology,6 as firms seek to make pricier labour more productive. Voice at work drives organisational efficiency, by connecting managers with the realities of work and service. Investment in capital and tech(k) combined with more efficient organisation (e), are the two keys that equal economic growth (g), or k x e = g, for short.”

Second is a recent publication by a leading Australian academic, David Peetz, in which he makes some key points relating to productivity summarised in this piece. and expanded in a recently published book on productivity.

The key points are:

·         Productivity is directed by management, not workers.

·         Productivity tends to be higher where employees have a voice in the workplace. It is not unions, on average, that reduce productivity—it is bad workplace relations.

·          Productivity is not increased by reducing wages—more likely, the reverse is the case.

·         Perhaps the reason over four decades of reforms have failed to improve the productivity trajectory is that giving more power to management, and taking power away from the representatives of workers, does nothing to make management, the key decision-maker behind productivity, more willing and able to invest in improving productivity. As employer power increases, the need to maximise efficiency decreases.

Reference might also be made to the conclusions reached in the OECD’s Jobs Strategy report 2018. The paper stated, “countries with policies and institutions that promote job quality, job quantity and greater inclusiveness perform better than countries where the focus of policy is predominantly on enhancing (or preserving) market flexibility.” The 2019 Report on Collective Bargaining states “Collective bargaining is a key institution to promote rights at work. At the same time, collective bargaining and workers’ voice are unique instruments to reach balanced and tailored solutions to the challenges facing OECD labour markets.”

So what do ACT propose

ACT’s website states that it will:

• Freeze the adult minimum wage for three years, giving employers certainty and allowing productivity to catch up with past increases.
• Introduce a Training Wage set at 60 per cent of the adult minimum wage for workers under 20 during their first 12 months with an employer.

And of course it will continue its attack on job security.

Straight out of the Friedmanite neo-liberal playbook!

And what might happen if ACT achieves these objectives

Recent reports suggest that about 5 percent of the population is earning the minimum wage but that a far larger share of workers cluster near the bottom than the raw headcount alone suggests.

It seems likely that freezing the minimum wage is also likely to see the wages of that larger group remain static. With inflation running around 3-4%p/a that would be a significant real cut in income for the lowest paid New Zealanders over the next three years. It is likely to see an increase in poverty and its associated detriments – poor health, lower school attendance and the like.

And a Training Wage 40% lower than the minimum ! – goodbye many adult minimum wage workers who will be replaced by under 20s who need a year to learn “skills” that can be picked up in a few days if not hours. Supermarket, fast food and other employers of young, casualised, labour will be laughing all the way to the bank.

But perhaps more importantly these proposals are likely to provide a disincentive for management to take genuine productivity seriously. Much easier to push wages down for an increase in short-term profitability.

As to what should happen to employment relations, another post will appear once the various policies of our political parties become clear.