February, 2005

February, 2005

Comment

In previous Bulletins (July 2004, November 2004), I have argued that wages have been slow to respond to prolonged labour market shortages and that employers and Opposition parties will try to make wage pressures into a call for tax cuts. There is now however widespread public recognition that wages need to rise and have been slow to respond to falling unemployment, high profits and strong economic growth. For instance, wages have gone up by 10.9% since late 1999 and the CPI by 13.4%, the minimum wage next increases in March by 5.6% and will have gone up by 35.7% in those five years, and company profits are up significantly (company tax data suggests an increase of up to 19.4% in the last year alone). House prices were up by 16.5% last year. In the section below on wages, the latest data confirms that wage increases are still at low levels. It should be no surprise to employers that unions are pushing for decent wage rises. We will no doubt hear concerns that wage pressures will drive up interest rates. In fact back in December 2001, the Reserve Bank said that a tight labour market would lead to higher wages. Three years later, not a lot has happened. In fact, when you look at CPI, productivity increases and the high levels of profits, there is plenty of room for decent pay increases that are not inflationary.

On 10th March, the CTU is holding a seminar on the future of the manufacturing sector. With unemployment at 3.6%, manufacturing output growing, and a number of industry strategies in manufacturing (e.g. textiles and clothing, wood processing, food and beverage), some may wonder what the concern is. But the proposed free trade agreement with China gives added urgency to the need for a general manufacturing industry strategy that can deliver decent jobs on a sustainable basis.