It is often said that New Zealand has a low-wage economy in comparison to other high-income countries such as those in their club, the OECD. Business NZ recently disputed that. But there is strong evidence that New Zealand does have low wages.
First, a comparison of the purchasing power of annual average wages for full-time equivalent employees between OECD countries in 2017 shows New Zealand’s wages are 19th highest among 35 OECD countries. But we aren’t really around the middle of the bunch. Since 1994, new countries have joined the OECD, including Mexico, Chile, and eight from Eastern Europe. All have lower wages than New Zealand. Among the countries which were in the OECD when New Zealand joined, we have 5th lowest wages. In 1990 we were genuinely middle of the bunch at 13th of the 23 countries then members. We have fallen to 5th lowest among them.
Our wages have steadily fallen behind countries like Denmark (9% behind in 1990; 29% behind in 2017) and one of the richest, Switzerland (44% behind in 1990; 53% behind in 2017). The distance our wages are behind Australia went from 20% behind in 1990 to 25% behind in 2017, but would have be closer to 36% behind (where they were in 2013) if Australian wages hadn’t fallen with the end of the mining boom and increasingly repressive industrial relations there. All have a history over that period of much stronger collective bargaining than New Zealand.
Second, we can consider how the nation’s income is shared. Workers generate income when they work which is shared between the employer in profits and workers in wages (including salaries). Are workers getting a fair share?
The wage share of New Zealand’s domestic income fell sharply from the early 1980s and despite a modest rise from 2002 to 2009 is falling again. If the share had been where it was in 1981, New Zealand workers would have averaged $12,500 per year better off in 2017. Much of the fall can be attributed to laws which decimated unions and collective bargaining, and commercialised and privatised the state. We still have among the weakest collective bargaining in the OECD.
New Zealand workers now receive among the lowest shares of the nation’s income in the OECD. In Denmark for example, with much stronger collective bargaining and unionisation supporting a high value economy, the share was similar to New Zealand’s in the late 1970s but has stayed there ever since. Yes, New Zealand does have a low wage economy.
Recent OECD research confirms that we will not see improved wages in New Zealand unless we have improved industrial relations laws and practices, including effective industry-wide collective bargaining similar to what is proposed for Fair Pay Agreements. That would ensure that productivity growth and the nation’s income are more fairly shared with workers.
Download the full bulletin: Economic Bulletin 202 – August 2018