Should employers compete on the price of labour?

What is the critical question that goes to the heart of the debate over the Government’s Fair Pay Agreements Bill currently before Parliament? If you believe Business New Zealand or the National-ACT opposition tag team, the Bill is all about union power, union revenue, union funding of the Labour Party, and denial of choice for employers and employees.

There is only one problem with this response. It is completely wrong. The principles behind the fair pay agreements (FPAs) that the Bill would construct and enable are consistent with employment relations systems in many developed economies. They are not revolutionary. The future of capitalism will remain unharmed but the relatively vulnerable and voiceless will benefit.

This point is well made and elaborated on by Otago University senior lecturer Morgan Godfrey in his latest Stuff column (7 April) Catching up with the rest of the world

What are Fair Payment Agreements

In the Bill’s own words “The purpose of this Act is to provide a framework for collective bargaining for fair pay agreements that specify industry-wide or occupation-wide minimum employment terms.” It provides initiation, bargaining and, where necessary, adjudication process to achieve FPAs.

FPAs are intended to provide minimum terms of employment across pay and other conditions. These other conditions can include hours of work, health and safety requirements, arrangements for training and development, leave entitlements, and redundancy arrangements.

They are rather like taking the legislative principle such as a minimum wage (the principle only rather than the actual level) and putting into a FPA along with the other matters. FPAs don’t replace existing terms of employment unless they are inferior.

What FPAs are not is as important to understand as what they are. They are not contracts of employment. Instead they are minimum terms for an occupational or industry group for which individual employment contracts should not fall below, but can go further than both in respect of substance and application.

They do not create compulsory unionism. Unions are required to negotiate them. But those eligible for these occupational or industry-wide minimum terms of employment are not required to join a union in order to receive them.

Existing legislation already provide certain minimum terms of employment. FPAs take this principle further by widening the scope and making them negotiable.

Stuff has an interesting example (20 March) of employers already not restricting themselves to minimum terms. It involves paid parental leave where the employer has agreed to grant an employee more than entitled to by legislation: Exceeding the legislative minimum for paid parental leave

This is good in its own right. It also cuts across the claim that FPAs would restrict the choice of employers and employees. Nothing in the Bill would preclude this type of ‘good employer’ behaviour from continue. If anything it might incentivise more of it. It would, however, prevent employees being exploited by below minimum terms.

The beneficiaries of FPAs will be the more vulnerable and voiceless workers for whom the nature of their employment (for example, small, dispersed or isolated) makes the negotiation of a collective agreement somewhere between very difficult or impossible.

Back to the critical question

So back to what is the critical question that goes to the heart of this legislation. Let us consider the ever insightful Karl Marx. This 19^th century German philosopher argued that the value of a good is equal to the amount of labour that goes into making it.

He then goes on to what is next – surplus value. The surplus value is the new value that the workers provide additional to the price of their labour.

The critical question is whether employers should be able to compete with their competitors over the price of labour in order to increase the quantity of the new value their workers create. Or should competition for labour price be taken out of the equation as it largely was under the award system that existed in New Zealand until 1991.

The alternative

The alternative is whether employers should be competing much more over the quality of their goods which includes workplace engagement or empowerment culture, training and professional development, technology, marketing and distribution chains.

FPAs are about taking the price of labour out of business competition in order to strengthen the quality of the goods that this labour produces. And so should the price of labour be taken out. Hence the alternative is the Bill becoming an Act.