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The union pay premium, 2018

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 2018 CLEW finds that on average wages in CEAs rose by 2.2 percent, which is appreciably higher than the 1.9 percent last year. Over the same period, the Labour Cost Index (LCI), which is dominated by people on individual rather than CEAs, rose less: by 1.9 percent. Private sector CEA pay rates rose 2.9 percent, the highest increase since 2013 and a big jump from the 1.9 percent increase the year before, while the private sector LCI rose only 2.1 percent, the highest since 2012 and up from 1.6 percent the previous year. Central government CEA rates rose 1.8 percent (the same as in 2017) while the central government LCI rose just 1.2, both well behind the private sector. Local government CEA pay rates rose 2.7 percent (up from 2.5 in 2017), much more than the local government LCI which rose 1.7 percent.

In every case in 2018 there was a clear union premium, confirming 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 2018) but of those not on a CEA, only 46 percent got a rise.

Comparing by industry, CEA pay increases are again higher than those shown in the LCI. In both 2018 and over the seven years 2011 to 2018, CEA increases were higher in all industries we can compare except Health Care and Social Assistance, probably because of the way the care and support workers’ pay equity settlement is measured, which took effect from 1 July 2017. The CEA and LCI increases were very close in that industry over the seven 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 $27.66 in June 2018 if it had risen at the rate of increase in CEAs, but only $24.94 if it had risen at the rate of the LCI, a 10.9 percent CEA premium. For the private sector, the premium is 18.0 percent. For Central Government, the premium is only 3.8 percent, which would be expected with the much higher union and collective agreement membership rates in that sector. In Local Government, the premium is 15.3 percent.

There is mixed evidence as to the number of workers directly benefitting from these union-negotiated increases. CLEW data shows a small increase in numbers in CEAs but a still falling proportion of workers. However Statistics New Zealand’s Household Labour Force Surveys showed 413,000 employees said they were on CEAs in June 2018 (19.2 percent of employees), up 9.7 percent from 376,600 in June 2017 (18.2 percent). Whichever is true, it is little wonder 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 204 – October 2018