Workers in New Zealand Strike Over Decade of Stagnant Wages

(Bloomberg) -- New Zealand workers are flexing their muscle under Jacinda Ardern’s center-left government, demanding more pay after a decade of wage restraint.

About 30,000 nurses went on strike last month for the first time in 29 years, forcing hospitals to cancel non-urgent surgery. Tax department workers are also striking, and primary school teachers have voted to walk out of classrooms later this month in pursuit of a 16 percent pay increase.

Workers in New Zealand Strike Over Decade of Stagnant Wages

While ministers in Ardern’s Labour-led coalition don’t support the industrial action, they say nine years of under-investment by the previous center-right government has led to a deterioration in working conditions and pay in parts of the public service. Private-sector businesses and economists expect the new worker-friendly era will lead to faster wage inflation and increasing costs.

“I understand the frustration of working people in New Zealand,” Finance Minister Grant Robertson said in an interview. “There has been a change of government. That change is going to be looked at by people in the labor market to say ‘what does that mean for us?’.”

Despite nine straight years of economic expansion, wages in many industries have remained subdued. Average hourly earnings have risen 6.5 percent over the past three years while the economy has grown 11 percent.

Workers in New Zealand Strike Over Decade of Stagnant Wages

Central banks around the world have been grappling with the dilemma of tepid wage growth despite skills shortages and demand for workers. A paper presented to a recent European Central Bank forum argued that in Germany, the declining role of trade unions and the demise of collective bargaining has led to pay for low-wage earners stagnating.

Labor Reforms

Ardern has introduced reforms that could give unions more bargaining power across industries, and she has also begun to aggressively lift the minimum wage.

New Zealand pay packets have also been suppressed by record immigration that has boosted labor supply. That may change as more Kiwi workers depart for bigger economies such as Australia, where average annual wages are 23 percent higher, according to the OECD.

Data Wednesday showed the jobless rate was at 4.5 percent in the second quarter, near a nine-year low, and that pay rates rose at close to the fastest pace in a decade.

Acceleration Predicted

The Treasury Department projects annual wage increases will average more than 3 percent over the next four years, after slowing to 1.6 percent in 2017. Asked if there is anything wrong with that, Robertson said: “Nothing.”

Still, the Reserve Bank is likely to remain vigilant because accelerating wage inflation may be a sign the economy is getting over-heated, said Craig Ebert, senior economist at Bank of New Zealand in Wellington. Higher costs may hit company profits and force them to stop hiring, or they may try to protect margins by pushing up prices, he said.

“Things seem to be getting stretched in the real economy, inflation seems to be responding and the wages aspect of that will be reinforced by a lot of government policy,” Ebert said. “That’s the point at which the RBNZ should be thinking about responding” with higher interest rates.

Nurses have campaigned against a lack of spending on health that they say has increased workloads and put patient safety at risk. They went on strike for 24 hours on July 12 after rejecting a NZ$500 million ($341 million) offer from the government that would have raised pay by 12.5 percent over time. Primary school teachers said yesterday they will strike on Aug. 15.

Business Unease

The government says it doesn’t have a limitless pot of money for state workers as it juggles other costs while pledging to maintain budget surpluses and keep debt levels contained.

Private-sector bosses are watching with unease, concerned pay demands could drive up costs and squeeze profits throughout the economy. The government’s plan to raise the minimum wage more than a fifth to NZ$20 an hour by 2021, and proposed industry-wide fair pay agreements that signal a move to collective bargaining, add to the disquiet.

Business confidence fell to a seven-year low in the second quarter, with a third of firms experiencing higher costs in part due to higher minimum wages, according to the New Zealand Institute of Economic Research.

“It is not surprising that business confidence is declining, when they see a raft of labor law change coming but do not know what the detail is, nor how it will help grow and strengthen the economy,” Employers & Manufacturers Association Chief Executive Kim Campbell said in a statement. While each change may seem reasonable, “they add up to a significant rewrite of the employment relations landscape.”

Robertson said the business community should understand the need to reward workers, noting that while many employees have received good pay increases, others haven’t.

“Workers deserve a fair share of prosperity,” he said. “That’s fundamental to this government.”

©2018 Bloomberg L.P.