Lyttelton Port and minimum wages: Where is the money going to come from?

26 March 2018

Recently, Workplace Relations Minister Iain Lees-Galloway was quoted as saying workers had not had a fair share of economic growth, and the boost to the minimum wage was only one part of the Government's strategy.

“The Minister appears to be falling into the same argumentative trap as the previous Government – pointing to growth in GDP, while ignoring the fact that while the country has become wealthier in terms of GDP, we’ve hardly managed to achieve any growth in individual wealth (GDP per capita) and productivity. In fact, wages have been rising faster than productivity in New Zealand since about 2003, and particularly so over the past four years. Economic growth has mainly come from an increase in population, driven by immigration.” says Dr Dieter Adam, CE, The Manufacturers’ Network.

“When we are discussing wage rises, this lack of corresponding productivity growth creates a problem. If we pay workers more without having increased (labour) productivity in the first place, it means diminished returns for, in our case, manufacturers, making it less attractive to maintain or build manufacturing facilities – and jobs – in New Zealand.” he says.

“The Minister had this fact pointed out to him by his own ministry, which predicts up to 3,000 job losses on the back of this move – not to mention the eventual lift up to $20/h by 2021. His response to that is straight out of the book of voodoo economics. He is quoted as saying that “the increased cost of labour for employers will be about $129 million, which could be passed on through higher prices for goods and services”. How is this ‘cost-plus’ approach to pricing supposed to work in a market where Kiwi manufacturers already have to compete with imported goods favoured by a strong Kiwi dollar?

“The same is true for our exporters, who have to compete against lower-cost countries and highly competitive market prices, paired with the pressure from the high currency.  New Zealand’s labour productivity has persistently been less than two thirds of the top half of the OECD average, and less than 70% of Australia’s, our biggest export market for manufactured goods. And yet even before the latest rise, New Zealand’s minimum wage has been the 7th -highest within the OECD in absolute terms and third equal (with France) in terms of minimum wage compared to median wage.

“At the other end of the spectrum, the current labour dispute at the Lyttelton Port Company, which is impacting many businesses in the Canterbury region and beyond, is an interesting case in point. Workers at the port have achieved an above-inflation wage increase of 7.5% over the past three years, and are currently refusing to accept a company offer of a further 9% over the next three years. We don’t have exact labour productivity figures for the port’s operations, but if we use revenue and wage cost figures as a proxy, we find that while revenue over the past five years has risen by 2% per year on average, wage costs have risen by 4.9%, or almost two and a half times. And the port tells us that they do not expect to achieve labour productivity increases anywhere near 3% per year over the next three years.”

“We are not arguing against a rise in (minimum) wages per se. But wealth has to be created, before it can be shared. We encourage this Government to work with manufacturers and others to put as much effort into measures to improve (labour) productivity as it does to increase wages – this is the single best way to make sustainable improvements in wages and living standards over time.” says Mr Adam.