Low pay, longer hours and less social mobility – welcome to 21st century NZ capitalism

The article below, written and posted here in February 2012, was updated on March 4, 2015.

by Philip Ferguson

Following the release of a new OECD report, a December 9 article on Redline by Daphna Whitmore looked at the growing economic gaps in New Zealand society (see article here).  Statistics New Zealand figures released yesterday morning (Tuesday, February 7) support the findings of the OECD report and other recent findings that the key factor in the growth of inequality is low pay.  In fact, low pay is now structural in the New Zealand economy.  Workers are working longer and harder for relatively less.

The Statistics New Zealand figures show that wages rose only 2% last year, barely keeping up with the official inflation rate (which is below the real inflation rate because of what it doesn’t take into account).  The year from June 2010 to June 2011 saw the smallest rise in pay since 2000.

However, even this tiny rise is artificially inflated.  As the Statistics New Zealand report records: “Three main factors contributed to the increase in median weekly wage and salary income for those receiving income from this source” and these were “From the June 2010 to June 2011 quarter there was an increase in total hours worked (aggregate), up 0.73 percent; the proportion of people earning wage and salary income decreased from 53.5 to 53.2 percent of people; (and) the number of people earning wage and salary income, and whose income from this source was less than the median of $800 a week, decreased 2.6 percent (24,900 people) – this loss of people earning below the median caused a shift in the distribution of wage and salary income, resulting in a rise in median weekly income received from this source.”

So the main reasons median pay went up are because people worked more hours and fewer of the most poorly-paid people were still in jobs!  So not exactly anything to crack a Woody for.

While the median weekly wage is only $800 (gross), average CEO pay as of last April was already about $32,000 a week – it rose from an average of $1.4 million in the June 2009-2010 year by about 14 percent to $1.6 million in the June 2010-2011 year.  There are CEOs out there who are paid more in a week than many workers earn in a year.  Last April, the NZ Herald even noted of the four highest-paid CEOs, “Each of them earned in a single week more than twice what a worker earning $40,000 annually made over the entire 12-month period.” (The Herald article was reporting on the findings of the Business Herald‘s survey of CEO pay; see Herald article here.)

I’m sure we’re all familiar with the cry of bosses – in both the state and private sector – that pay rises have to be linked to productivity increases.  Of course, like most other catch-cries of the employers, this doesn’t apply to those at the top.  As the Herald article noted, “New Zealand Shareholders’ Association corporate liaison Des Hunt says a 14 per cent average pay increase would be ‘exceptionally high and embarrassing’, especially given the performance of many firms.  Around 37 per cent of the companies surveyed reported a fall in profit during the 2010 financial year.”

The number of very highly-paid CEOs is also rising.  In 2004, only six CEOs received packages of more than $1 million a year; by 2010 it had reached 26.  (An interesting example in the state sector is the difference between the pay of the head of the Fire Service and frontline fire-fighters.  See, for instance, our article here.)

When it comes to pay changes over the last 12 months, non-unionised workers are the worst off, their pay rising generally by less than the rate of inflation, if at all.  However, even a well-organised union like FIRST union (formerly, the NDU) was only able to win rises over 4% for about a third of their members.  The general passivity of the working class is ensuring their declining share of the national income and wealth.  At present what battles that are being fought are largely defensive – attempts by the wharfies and firefighters to safeguard hard-won gains around issues like rostering, although the firefighters are also battling for a new contract and a bigger pay rise than the miserly 2.7% on offer by the Fire Service.

Not only is the income and wealth gap growing, but social mobility is lessening.  I remember many years ago being continually having it drummed into me that one of the great things about New Zealand was social mobility.  This was often used as a kind of liberal argument against socialism.  It tended to be especially used by middle class Labour Party supporters.  Of course, it always overlooked that you can’t have much social mobility in capitalism and even to the extent that you can have some, the structure of the system stays the same.  You can’t have capitalism without a majority of the population (workers) being exploited by a small minority (capitalists).  Now, however, it turns out that the degree of social mobility has been steadily declining anyway.

A good example of contemporary right-wing thinking on inequality and social mobility is David Farrar at kiwiblog.  Here’s what Farrar said in May last year (I’ll quote him at some length to give a fair presentation of his argument):

“I reject many measures of income equality as unsophisticated and even counter productive.

“The measure that I would like more emphasis placed on is social mobility. I don’t have a problem with a 19 year old earning $10 an hour as a kitchen hand if when they are 30 they are earning say $25 an hour as a cook. However I will agree that someone who spends their life earning just $10/hour is going to have a relatively deprived life.

“But for me the solution is not to raise the minimum wage to $25/hour, but to have a society and a labour market which will help people on $10/hour gain skills and experience so they move up the pay scale.

“In the UK social mobility has historically been difficult with such a class ridden society. In New Zealand I think it is far less so. Few people really care about where you were born (unless it was Palmerston North) and what your parents did.

“In a society with very low levels of social mobility, I can understand why reducing inequality is more important. But in a society which does have opportunities, I want the emphasis to go increasing social mobility, rather than merely the blunt instrument of inequality. If you take inequality (sic) to extreme measures, then you end up like the old USSR where cleaners and surgeons get paid much the same.

“The data on social mobility in NZ is fairly sparse – partly because you have to measure it over extended periods of time. But that is where I would like more focus to go.”

One of the Redline contributors who is a cleaner might have something to say about the pay of cleaners and surgeons, but the key thing here is that Farrar assumes a social mobility which doesn’t really exist much in New Zealand these days, if it ever did beyond a kind of bourgeois mythology.  For instance, back in 1998 a study by Prof David Fergusson, based on his study following 1265 Christchurch-born children from birth to their early 20s, found that those who were in poor families as children generally earned $20,000 a year less than those who were children in wealthy families.  Those from poor families were more likely to leave school without qualifications, suffer health problems including addiction, have teenage pregnancies and commit crime (see, for instance, here).  A paper in 2000 a paper by Fergusson and Lianne Woodward based on a study of 1,011 young New Zealanders from birth to 21 years of age showed that young people from professional/managerial backgrounds were five times more likely to go to university than those from unskilled/semi-skilled family backgrounds (see here).

These days the number of children living in poverty, as recognised by the Ministry of Social Development, is about double the proportion of people living in poverty during the main part of the period covered by the Christchurch study.  So much for the neo-liberal claim about “the trickle-down effect” and “all boats being raised” by the economic reforms of the 1980s and early 1990s, reforms which have never been reversed.

Moreover, we now have a new development – well, not entirely new in that it existed back before the modern labour movement managed to put an end to it before WW2 – and that is zero-hour contracts.  These are contracts where people have to be available to work for their employer on call but are not guaranteed any specific hours of work at all.

Mike Treen, the national director of Unite Union, which represents fast food workers, has reported that zero-hour contracts are very widespread in that industry.  He told Radio New Zealand in November 2014, “McDonald’s, KFC, Pizza Hut, Starbucks, Burger King, Wendy’s – all of the contracts have no minimum hours, and so people can be – and are – rostered anywhere from three to 40 hours a week, or sometimes 60 hours a week, and it depends a lot on how you get on with your manager.”

On March 2, 2015 Anna Burns-Francis reported on Campbell Live that “tens of thousands” of workers in New Zealand are now on zero-hour contracts and they extend beyond fast food.  Two days later the show ran another item on these contracts.  Workplace relations minister Michael Woodhouse, interviewed on the show, appeared not to even know what zero-hours contracts are.  Casual work had always been part of the labour market, he said, and he’d done casual work as a student and after he came back form his OE.  The interviewer had to tell him that zero-hours contracts are quite different from casual work.  During the same item Woodhouse said he would be happy to introduce legislation to prevent the “worst excesses”, although it was unclear which “excesses” would be acceptable.

Meanwhile, the government has just raised the minimum wage by another 50c an hour; it’s now $14.75. At the same time the living wage – the amount per hour people need to just make ends meet – is now $19.25.

The main problem, however, is the economic system itself.  You can’t make either a socially upwardly mobile society or a more equal one out of an economic system based on exploitation – paying people less than the value of the goods and services their work creates – and regular crises.  We need an entirely different socio-economic system.  And that requires the emergence of a new political movement – of, for and by workers.

See also: A strange paradox: can NZ workers really be happy with this crap?