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The union pay premium, 2017

In August, the Centre for Labour, Employment and Work (CLEW) at Victoria University released their annual analysis of collective employment agreements (CEAs). It shows again that people who are part of a collective get better pay rises: the union pay premium.

For the year to June 2017 CLEW finds that on average wages in collectives rose by 1.9 percent, which is slightly higher than the 1.8 percent last year. Over the same period, the Labour Cost Index (LCI), which is dominated by people on individual rather than collective employment agreements, rose less: by 1.7 percent. Private sector collective pay rates rose 1.9 percent (the lowest increase since 2000) while the private sector LCI rose only 1.6 percent, also the lowest since 2000 (equal with last year). Central government CEA rates rose 1.8 percent (up from 1.6 percent in 2016) while the central government LCI rose 1.9 (the difference is likely to be a measurement issue rather than real). Finally, local government CEA pay rates rose 2.5 percent (the same as in 2016), much more than the local government LCI which rose only 1.8 percent.

In every case in 2017 there was a clear union premium so the year confirms the longer term picture: that there is a worthwhile premium for being on a CEA, particularly in the private sector. Further, virtually all jobs on CEAs get a pay rise (only 1 percent didn’t in 2017) but of those not on a CEA, only 48 percent got a rise.

Comparing by industry, CEA pay increases are again higher than those shown in the LCI. In 2017, CEA increases were higher in all industries we can compare except Food manufacturing, Education and training, Arts and recreation Services, and ‘Other services’. Over the six years 2011 to 2017, CEA increases were higher in all industries.

Looking at the longer run, a job on a wage of $15.00 in June 1993 (around the average hourly wage) would be paying $27.06 in June 2017 if it had risen at the rate of increase in CEAs, but only $24.47 if it had risen at the rate of the LCI, a 10.6 percent CEA premium. For the private sector, the premium is 17.1 percent: $28.39 for CEAs compared to only $24.25 for the LCI. For Central Government (which includes the wider state sector such as health and education), the premium is quite small at 3.2 percent, which would be expected as the result of much higher unionisation in that sector. In Local Government, the premium is 14.2 percent.

However the number of working people directly benefitting from these union-negotiated increases continues to fall under the outgoing Government’s legislation which placed barriers in the way of recruiting union members and negotiating CEAs. It is little wonder that pay rises for most working people are weak when unions are struggling to do their job of creating a fairer balance in who gets income, resources and power in New Zealand. Yet they are still doing that job, as the pay premium illustrates.

Download the full bulletin: CTU Economic Bulletin 194 October 2017