By Nick Clark, Federated Farmers Manager General Policy
OPINION: As a decade, the 1970s would not go down as one of the better ones. A time of garish wallpaper, loud shirts, ridiculous hairstyles, and carless days, it was also a time of economic stress and decline. Rampant inflation, periods of recession, ballooning unemployment, and mounting debt combined to make it tough times for New Zealand.
From around 1970 to the late ‘80s was also a time of labour relations chaos with hundreds of work stoppages each year, with two years posting more than 500 each. Hundreds of thousands of working days were lost each year, destroying productivity. Little wonder we were an economic basket case.
Anyone under 40 won’t have been alive in the 1970s so won’t remember overly powerful unions holding the country to ransom, such as the cynical timing of aviation strikes to coincide with school holidays to disrupt as many as possible. Farmers who were around in the ‘70s and ‘80s will remember the impacts of industrial action in the meat industry and transport in particular.
Question: who on earth would want to go back to those days?
Answer: the unions and the Government. The Government is pushing ahead with Labour Party policy to proceed with what it calls ‘Fair Pay Agreements’ (FPAs). These have long been pushed by the union backers and funders of the Labour Party. With the New Zealand First handbrake gone and with Labour a majority government it’s got the numbers, so it’s moving to make good to the unions.
FPAs will bring together employers and unions within a sector to bargain for minimum terms and conditions for all employees in that industry or occupation. There is no opting out. Although strikes would be banned for FPAs they will be permitted for enterprise top-ups.
There are huge problems with FPAs.
Inconveniently, FPAs breach international labour law. Compulsory FPAs breach a convention ratified by New Zealand in 2003, which requires collective agreements to be voluntary. FPAs break this by requiring employers to agree to a collective agreement whether they want to or not; denying employers an effective say over the scope and coverage of bargaining; and imposing compulsory arbitration to settle differences. But it seems the Government, usually so keen to be a good international citizen, doesn’t care about treaty niceties when it doesn’t suit it.
Businesses will be unable to set wages and conditions that suit their business circumstances. Having FPAs negotiated by unions and industry reps would take away individual businesses’ freedom to set wage rates appropriate to their own workplaces.
Labour disputes will increase. The FPA process contains a large number of areas for possible dispute, increasing the chances of litigation leading to delays and loss of productivity. Lawyers will love it.
Strikes will still be able to occur through what’s known as second tier bargaining. Wage increases set by FPAs will need to be low enough for most businesses to cope with. Employers or workers wanting higher wage rates will have to negotiate separately on top of the FPA. Second tier bargaining was a key factor in the extremely high rate of strikes in New Zealand during the 1970s and ‘80s.
Wage-price spirals will occur. FPA settlements and the impacts of second tier bargaining will ripple into other sectors, causing wage relativity pressures and increased prices. Inflation will rise and the Reserve Bank will be forced to hike interest rates.
FPAs will strengthen big business at the expense of small business. FPAs would force payment of higher wages within sectors which could force some newer, smaller, or weaker firms out of business. This would reduce competition within sectors, reducing productivity and growth.
A less flexible and responsive labour market caused by FPAs will reduce productivity. The OECD has noted that enterprise level collective bargaining is more likely to produce higher productivity than centralised bargaining. It will also make it harder for the economy to adjust to shifts and shocks.
FPAs could spread rapidly. The Prime Minister has previously stated there will only be one or two FPAs in the first year however there are no controls available to ensure this, meaning FPA claims could spread rapidly once enabling legislation is passed. In theory every union could initiate on the first day.
While agricultural occupations might not be among the first few cabs off the ranks, sectors which farmers rely on could easily be, disrupting the movement of farm inputs, farm production, and the country’s exports and imports. In time we could see agriculture more directly subject to FPAs, with dairy farm work a prime candidate.
In summary, FPAs are a terrible idea. They should be ditched in their entirety but the Government seems determined to proceed. If they go ahead, they could and should be made less terrible. The employer members of the FPA working group proposed a voluntary approach to FPAs, where an FPA would be a non-binding “Code of Good Practice” unless an employer agreed to be bound by it, in which case it would take on the status of a multi-employer collective agreement binding only those who chose to be parties to it.
The Minister for Workplace Relations and Safety intends to introduce legislation for FPAs before the end of the year and for it to be passed by the middle of next year. Unless the Government comes to its senses, it looks like the 2020s could be another grim decade.