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The union pay premium, 2019

In July, 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 2019 CLEW finds that, on average, wages in collectives rose by 2.8 percent, appreciably higher than the 2.3 percent last year. Over the same period, the LCI rose less: by 2.1 percent (and 1.9 percent last year). Helped by the rise in the Minimum Wage, private sector collective pay rates rose a strong 3.5 percent, the highest increase since 2010 and well up from last year (2.9 percent). However the private sector LCI rose only 2.2 percent, little changed from the 2.1 percent last year, but the highest since 2009. Central government CEA wage rates rose 2.3 percent (the highest since 2011), which was the same rate as the increase in the central government LCI. Local government CEA pay rates rose 4.3 percent (up from 2.8 percent in 2018), much more than the local government LCI which rose 1.8 percent.

In every case except Central Government in 2019 there was a clear union premium, confirming the longer term picture: that there is a worthwhile premium for being on a CEA. In Central Government, where people in CEAs make up a large proportion of the LCI increase, it rose the same as did CEA wage rates. Further, virtually all jobs on CEAs get a pay rise (only 1 percent didn’t in 2018) but of those not on a CEA, only 53 percent got a rise.

Comparing by industry, CEA pay increases are again higher than those shown in the LCI. In both 2019 and over the eight years 2011 to 2019, CEA increases were higher in all industries we can compare except Health Care and Social Assistance. This outlier may be due to measurement issues: the CEA and LCI increases were very close in that industry over the eight year period.

Looking at the longer run, a job on a wage of $15.00 in June 1993 (around the average hourly wage) would be paying $28.46 in June 2019 if it had risen at the rate of increase in CEAs, but only $25.47 if it had risen at the rate of the LCI, a 11.7 percent CEA premium. For the private sector, the premium is 19.5 percent. For Central Government, the premium is quite small at 3.9 percent, as expected because of much higher rates of unionisation and collective agreement membership in that sector. In Local Government, the premium is 18.3 percent.

There is mixed evidence as to the number of workers directly benefitting from these union-negotiated increases. CLEW data shows an increase in numbers in CEAs and a small rise in the proportion of workers. However Statistics New Zealand’s Household Labour Force Surveys showed a larger number of employees who said they were on CEAs in June 2019, but this had fallen over the year. Whichever is true, it is hard work for unions to do their job of creating a fairer balance in who gets income, resources and influence in New Zealand. But they are doing that job, as the pay premium shows.

Download the full bulletin: CTU Economic Bulletin 213 – August 2019