Fair Pay Agreements 'just New Zealand catching up with the rest of the world'

Wednesday, 6 April 2022

Morgan Godfery is a senior lecturer at the University of Otago and te ao Māori editor at Metro. He is a regular opinion contributor to Stuff.

OPINION: If you’re an aspiring millionaire – and who, at one point or another, hasn’t been? - then there’s no better means of banking an annual profit than owning a New World or Pak ’n Save supermarket.

The Commerce Commission estimates the country’s grocery sector is worth $22 billion.

In the financial year ended in March 2021, Foodstuffs North Island, the co-operative whose owner-operators run New World and Pak ’n Save supermarkets in the North Island, made more than $200 million in profit.

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Foodstuffs South Island’s operating profit was similar, with the supermarket sector as a whole making, according to a Commerce Commission estimate, more than $400m in excess profit.

Morgan Godfery: If you’re an aspiring millionaire – and who, at one point or another, hasn’t been? - then there’s no better means of banking an annual profit than owning a New World or Pak ’n Save supermarket.

Those numbers are, in and of themselves, interesting, but they’re unnecessary because every New Zealander who passes through a checkout understands that someone is making a killing at their expense.

In this analysis, it’s the supermarket owners. There are all manner of methods for increasing profits, but most owners might focus on screwing down suppliers, and there is a good deal of evidence that this is happening, or screwing down wages.

In a New World supermarket it’s more likely than not that a checkout operator would clock on for their first day earning the minimum wage. But at Countdown, where most workers are also First Union members, they would clock on for their first day earning approximately $1 above the minimum wage.

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For those workers who can count more than a year’s service and additional duties, their pay packet is closer to (or sometimes above) the living wage of $23.65 than the minimum wage of $21.20.

That difference between wages at New World versus wages at Countdown isn’t due to the former’s malevolence and the latter’s benevolence. Instead, one factor explains the difference: unionisation. Union members at Countdown exercise greater bargaining power than the individual workers at New World.

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Countdown’s union members can appoint representatives to bargain wages and conditions on their behalf, calling on their union’s expert negotiators and organisers and lawyers and communications staff. But more importantly, Countdown’s union members can rely on each other. If bargaining falls over they can strike, bringing supermarkets across the country to a grinding halt.

Yet New World workers can only rely on themselves. In theory, a freshman checkout operator could negotiate better pay and conditions. In reality, they can either take it or leave it.

This is why Fair Pay Agreements (FPAs), which passed a first reading in Parliament on Tuesday, are so important. They set a floor for certain sectors. For example, First Union could - assuming Fair Pay Agreements pass and the relevant thresholds are met - negotiate an agreement that covers Countdowns as well as New Worlds, Pak’n Saves, and other stores in the supermarket sector.

That could bring a fulltime minimum wage worker who earns $848 per week at New World up to, or near, the $946 per week that a living wage worker at Countdown or in other sectors earns.

With the price of everything rising, this $98 difference is nothing to sneer at.

Of course, major employers are resisting this. According to Employers and Manufacturers Association chief Brett O’Riley, who said the quiet part out loud in a soundbite to Stuff, “our concern is that FPAs will result in higher wages”. Well, yes. Higher wages are entirely the point of FPAs.

After the radical economic reforms of the late 1980s and early 1990s, what workers earn is consistently below the value of what they produce. In other words, the labour share of income – the share of national income that goes to workers as opposed to business owners – has dropped. Since 1991, when the disastrous Employment Contracts Act was introduced, the gap between real wage growth and labour productivity growth has widened to an average of $6.10 an hour.

That’s perhaps unnecessarily wordy. Suffice it to say that the benefits of productivity gains workers have made over the last three decades are primarily accruing to business owners, not the workers making the actual gains. FPAs go a significant way towards restoring the balance and spreading the benefits of productivity gains across the workforce.

Other countries with sector-based bargaining similar to FPAs – Australia is perhaps the leading example - have seen both higher wages and higher productivity than New Zealand over the past 30 years. Workers get a better deal there than here.

And so FPAs are, in that sense, just New Zealand catching up with the rest of the world.

The supermarket industry represents an excellent study into the imbalance between workers and business owners, but the model is reproduced across the economy. In non-unionised workforces, business owners call the shots and capture most of the value their workers produce. FPAs help tip the balance back the other way. For that reason alone they’re worth supporting.