CTU Economic Bulletin No. 116 - Being collective, being union pays

August 2010

With unions under attack with threats to shackle their access to worksites, it is timely to look at the results of the valuable annual survey of bargaining trends reported by the Industrial Relations Centre (IRC) at Victoria University of Wellington.

Their findings on wage settlements for the last year are startling. For those agreements for which they could calculate an increase from June 2009 to June 2010 (some for example don’t specify a wage rate, or don’t have a preceding agreement to calculate an increase from) adult minimum wages in collectives went up by an "annualised" rate of 4.2 percent – the largest they have ever reported. It compares with an increase over the same period of 1.6 percent in the Labour Cost Index (LCI) and 2.1 percent in the average wage, both of which include non-unionised workers and unionised workers on individual agreements. Given that all collectives are union collectives, that’s a strong message about the success of both unions and collectives. Of course, collectives have other improved conditions too, and help to lock in improved conditions (if explicitly included) despite law changes.

Why have wage increases been maintained despite a serious recession? Because many were negotiated for two or three year terms before the recession hit in 2008. There is a trend for longer term agreements, and they have served a very useful purpose, which would have been even more powerful if more workers were unionised. By maintaining workers’ spending power over this period they formed an automatic stabiliser for the economy which helped to keep the economy moving despite rising unemployment and falling hours of work. Without them the economy may well have dived more quickly and more deeply. The report shows that agreements for less than 12 months signed in the last year averaged only a 1.4 percent annualised increase. Over two-thirds (68 percent) of collectives were for 24 months or longer compared to 60 percent in the previous year.

There is mixed news is on collective bargaining density – the proportion of workers covered by a collective lodged with the IRC. It has been in steady decline, but this year it actually rose from 17.0 percent to 17.5 percent. This was a result of an increase in density in the public sector from 56.0 percent to 59.2 percent. Private sector density was steady at 8.3 percent. Again, this is an exceptional result given the economic circumstances, evidenced by a fall of 0.2 percent in the actual number of workers covered by collectives from 292,100 to 291,500. Note that collective bargaining density is not the same as union density which stood at 21.5 per cent of wage and salary earners at March 2009. It is based on a different measure of the workforce and includes union members who are not covered by collectives.

These collective agreements gained remarkable increases in rates. Whereas 53 percent of workers received no increase in the year to June 2010 according to Statistics New Zealand, only 2 percent of those on collectives failed to get an increase. At the other end of the scale, only 24 percent of workers received more than a 3 percent increase, and only 37 percent got more than a 2 percent increase whereas 74 percent of those on collectives received 3 percent or more.

We can also look at the historical record back to 1993. It is important to recall that during the 1990s under the Employment Contracts Act (ECA), collectives did not have to be formed by unions, themselves under attack. Some non-union collectives survived until 2002 under the Employment Relations Act 2000 (ERA), according to the IRC. We can compare the increases received by members of collectives to the increases in wage rates generally, measured by the LCI. The differences in increases could be for at least two reasons: the strength of unions compared to the other "bargaining agents" who could negotiate collectives under the ECA, and the effect of being a member of a collective rather than an individual agreement. Of course there could be other reasons, such as industry coverage, so hard conclusions are difficult to draw.

Under the ECA from June 1993 to June 2000, real wages measured by the LCI after taking account of inflation (the CPI) did not rise at all – that is, 0 percent per year. At the same time, real wages in collective agreements (measured by the average adult minimum wage in them, after inflation) went up by 0.3 percent per year. During the ERA "pure" period from June 2003 to June 2010, after all the non-union collectives had expired, real wages measured by the LCI rose 0.1 percent a year. Over that period, real wages in collectives went up by 0.6 percent per year. Increases were not generous in either period, but there is a consistent picture of collectives doing better than individual agreements, and evidence suggesting that union collectives do better than non-union collectives.

A frequent line from employer groups is that public sector wages are driving up private sector rates. The IRC evidence does not support that. Private sector real wage rates in collectives rose at an average of 0.9 percent a year from 1992 to 2010, while core central government real wage rates fell at almost the same rate: 0.8 percent a year. Most of the fall occurred from 1992 to 2000 when core central government real wages fell by an average of 2.2 percent a year while private sector real wages rose at a rate of 0.7 percent a year, but they rose at only 0.3 percent a year from 2000 to 2010 while the private sector rose at 1.1 percent a year.

Recent settlements vary as would be expected. There have been some averaging 4 percent a year over several years but most appear to be in the 2 to 3 percent range. The major challenge now with respect to real wage increases is the impact of the spike in CPI next year following the GST rise and other price increases. But is clear that it pays to be in a union when it comes to wage bargaining.

Bill Rosenberg

NZIER Consensus Forecasts¹

These consensus forecasts were published on the 22nd June 2010. Items marked "*" are actuals from Statistics New Zealand rather than forecasts.

Economic Snapshot

• Gross Domestic Product (GDP) increased by 0.6 percent for the March 2010 quarter. But, in annual terms, it has still declined 0.4 percent.
• The Consumer Price Index (CPI) rose by 1.8 percent for the year to June 2010 and by 0.3 percent for the quarter.
• Unemployment was at 6.8 percent in June 2010. M?ori unemployment was 16.4 percent, Pacific unemployment was 14.1 percent, Asian unemployment was 10.5 percent and European/Pakeha unemployment was 4.4 percent. Youth unemployment (15-19 year olds) was 24.7 percent. In June 2010, 62,085 people were on an unemployment benefit.
• The total number of people in employment decreased in the year to June 2010 by 0.3 percent to a total of 2,170,000.
• The minimum wage is $12.75 an hour and $10.20 an hour for new entrants aged 16 or 17 in their first 3 months or 200 hours, whichever ends first.
• Ordinary time hourly wages, as measured by the Quarterly Employment Survey (QES) for the year to June 2010, were up 2.1 percent (1.3 percent in the private sector and 3.9 percent in the public sector). The average hourly wage is now $25.45 ($23.49 in the private sector and $32.53 in the public sector). The average female wage is $23.62, which is 87.4 percent of the male wage of $27.04. The Labour Cost Index (LCI) shows that ordinary time wages went up by 1.6 percent in the June 2010 year (1.5 percent in the private sector and 2.1 percent in the public sector). For those workers who received a pay rise in the year, the median increase was 3.0 percent and the average increase was 3.7 percent.
• On 29 July the Reserve Bank lifted the official cash rate by a further 25 basis points to 3.00 percent. The next review will be on 16 September 2010.

Wages and Salaries

In the June quarter the cost of salaries and wages (including overtime) rose 0.4 percent, according to the Labour Cost Index (LCI). This added up to an increase of 1.6 percent for the year to June 2010. While private sector wages were up more (0.5 percent) than public sector wages wage costs (0.2 percent) for the quarter, the trend was reversed for the year, with public sector wages up 2.1 percent on average, but private sector wages only up 1.5 percent.

When overtime is excluded, private sector wages were only up 0.4 percent for the quarter and 1.4 percent for the year to June 2010.

These figures reflect a year-and-a-half of decline following a peak increase in the LCI of 4.0 percent in the year to September 2008. Fifty-three percent of salary and wage earners did not receive any pay increase in the year to June 2010. Of the 46 percent who did, 23 percent received between 0 and 3 percent, and 16 percent received between 3 and 5 percent. The average increase for workers who did receive a pay rise was 3.7 percent, down from 3.9 percent in the year to March 2010.

The Quarterly Employment Survey found average total hourly earnings increased 2.1 percent for the June 2010 year following an identical result in the March 2010 year.

The average hourly wage is now $25.45 ($23.49 in the private sector and $32.53 in the public sector). The average female wage is $23.62 which is 87.4 percent of the male wage of $27.04.

Employment and Unemployment

According to the Household Labour Force Survey, unemployment rose by 0.8 percent in the June 2010 quarter to 6.8 percent. This translates into 159,000 people unemployed.

The Labour force participation rate stayed steady at 68 percent.

While the unemployment rate is almost identical for men and women (6.8 percent for males and 6.9 percent for females), the increase in unemployment this quarter fell more on men. A further 15,000 men became unemployed in the quarter (an increase of 21.4 percent), compared to 7,000 females (an increase of 10.6 percent).

The unemployment rate fell slightly for young workers aged 15-19 (down 0.5 percent to 24.7 percent) but increased for young workers aged 20-24 (up 2.3 percent to 13.7 percent).

In terms of ethnicity, European/Pakeha unemployment remained steady at 4.4 percent and Pacific unemployment fell by 0.3 percent to 14.1 percent. However M?ori unemployment jumped 2.0 percent to 16.4.

Despite the decline in employment, actual hours worked were up 0.6 percent for the quarter and 1.3 percent for the year to June 2010.

Food Prices

Food prices rose 1.6 percent for the month of July 2010, but are still 1.0 down on prices in July 2009. Increases for the month were driven by an 8.7 percent increase in the fruit and vegetables subgroup and a 1.2 percent increase in grocery food. This was only significantly offset by a 1.1 percent fall in the non-alcoholic beverages subgroup. The continuing fall in prices for the year to July has been primarily driven by two subgroups – fruit and vegetables (down 4.3 percent) and meat, poultry, and fish (down 2.8 percent). In contrast restaurant meals and ready-to-eat food prices increased 2.1 percent in the year.

Retail Sales

For the June 2010 quarter the volume of retail sales increased 1.3 percent, translating into an 0.5 percent increase in the value of retail sales (up $83 million). This represents the biggest quarterly increase in retail sales since March 2007.

Fourteen of the 24 retail industries had increased volumes in the June 2010 quarter. The largest increase in retail volumes came from motor vehicle retailing (up 4.0 percent), with other growth sectors including appliance retailing (up 3.4 percent), accommodation (up 5.4 percent), clothing and soft goods retailing (up 3.4 percent), and supermarkets and grocery stores (up 0.8 percent). The biggest decreases were in cafes and restaurants (down 2.6 percent) and recreational goods retailing (down 2.0 percent).

Manufacturing Sector

For July 2010 the Performance of Manufacturing Index (PMI) was marginally in contraction with a value of 49.9³. This was driven by a collapse in the new orders sub-index, down 9.8 points to 47.6. Regionally, Central was the only area to show expansion, up 2.2 points to 56.0. Otherwise it was all contraction, with Otago/Southland crashing 10.1 points to 48.3, Northern slipping 3.8 to 47.8 and Canterbury down 4.0 to 49.4. At a sector level, food, beverage and tobacco manufacturing was growing at 60.6 while machinery and equipment manufacturing was significantly down at 41.5.

Service Sector

The Performance of Services Index (PSI) cooled but remained positive for July 2010 at 50.5³, down 4.6. The New orders/business sub-index fell back to 54.0, a decline of 4.6 points. Meanwhile activity/sales and supplier deliveries were in contraction at 48.9 and 48.0 respectively. The Northern region was the only one to show expansion for July (50.9), with Central (43.3) Canterbury/Westland (46.2) and Otago/Southland (46.0) all contracting. The figure for the Central region was the lowest ever recorded. At a sector level transport and storage (56.6), property & business services (50.3) and health & community services (50.3) all expanded. In contrast, retail trade (40.5) and wholesale trade (48.0) contracted.

Producer Price Index

Producer prices for outputs rose 1.1 percent for the June 2010 quarter. At a sector level, this was a result of a 5.5 percent increase in dairy product manufacturing prices, a 6.0 percent increase in livestock and cropping farming, a 4.3 percent increase in meat and meat product manufacturing and a 1.4 percent increase in wholesale trade. At the same time input prices for all industries rose 1.4 percent.

Migration

Seasonally adjusted net permanent long term migration was 1,000 for July 2010, up from 100 in June. This bucked a steady trend of decline from a level of 1,800 in January 2010. Net migration was 15,200 for the year to July 2010, compared with 14,500 in the year to July 2009. The largest net inflows for the month were from India (900) and China (400). The net outflow to Australia was 1,400, up from 900 at the same month last year.

Overseas Merchandise Trade

Exports were up $394 million (12 percent) to $3.6 billion in July 2010. This was on the back of a 32 percent increase in the export of milk powder, butter, and cheese, worth $179 million, a 24 percent increase in the export of logs, wood, and wood articles, worth $49 million, and a spike in the export sale of pleasure boats worth $57 million. However imports were also up $402 million (12 percent) to $3.8 billion. The biggest contributors were petroleum and products, up $137 million, and vehicles, parts, and accessories, up $87 million. The result was a trade deficit of $186 million, or 5.2 percent of the value of exports. In the year to July 2010, Australia and China together took 34 percent of New Zealand’s exports, up from 30 percent the previous year, and supplied 34 percent of our imports, up from 32 percent. They were our largest import sources and export markets.

Building Consents

Authorisation for new apartments held up a sagging residential building sector in July. Including apartments, the seasonally adjusted number of authorised new dwelling units rose 3.1 percent. Excluding them, it fell 5.3 percent. In July authorisation was given for 1,270 new ordinary dwelling units and 203 new apartment units. Non-residential building consents were also down. Measured by value, they have declined 21 percent on the same time last year. The biggest falls have been in offices and administration buildings, education buildings and hotels and other short-term accommodation.

For further information contact Bill Rosenberg  or Andrew Chick.

Notes

1 The consensus is made up of the average of forecasts from NZIER, Berl, ANZ- National Bank, ASB Bank, BNZ Bank, First New Zealand Capital, Deutsche Bank, UBS, Westpac, Reserve Bank of New Zealand and Treasury. Because the consensus forecasts are done only every 3 months, some of the more recent forecasts will be more accurate.

2 As measured by Statistics New Zealand’s Quarterly Employment Survey.

3 A figure under 50 shows the sector is contracting; above 50 shows that it is growing. The index is an early indicator of business activity.