My favourite @FairnessNZ graphic

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Source: Low Wage Economy | New Zealand Council of Trade Unions – Te Kauae Kaimahi, with extra annotations by this blogger.

To paint pre-1984 New Zealand, pre-neoliberal New Zealand as a fairly egalitarian paradise, Max Rashbrooke is an example, is to ignore two thirds of the population and the inequalities they suffered:

“New Zealand up until the 1980s was fairly egalitarian, apart from Maori and women, our increasing income gap started in the late 1980s and early 1990s,” says Rashbrooke. “These young club members are the first generation to grow up in a New Zealand really starkly divided by income.”

Racism and patriarchy can sit comfortably with a fairly egalitarian society if you are to believe the vision of the Twitter Left as to their good old days.

John Quiggin refers to the period in Australia known as the Menzies Era as part of his golden age of the mixed economy. The Menzies Era was most of the 23 years of uninterrupted conservative party rule between 1949 and 1972. The actual Menzies Era was the period up to 1966 when Liberal Party Prime Minister Sir Robert Menzies retired

Best defence of Employment Contracts Act is a @FairnessNZ graphic

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Source: Low Wage Economy | New Zealand Council of Trade Unions – Te Kauae Kaimahi, with extra annotations by this blogger.

@FairnessNZ shows how everything is getting better in NZ @FIRST_Union

The union movement posted two excellent charts during the last election showing how well things have gone since the 1980s economic reforms and their consolidation in the early 1990s.

The charts show that real wage growth returned in the early 1990s after the passage of the Employment Contracts Act and the consolidation of government finances. This was after two decades of wage stagnation in what the unions regards as the good old days.

Furthermore, as the union chart shows, the average incomes of the top 1% in New Zealand is a pretty stable for several decades. Whatever else is happening New Zealand, you cannot blame it on the top 1% because they are lazy. What increase there was in average top incomes in New Zealand was followed by the return of real wage growth in New Zealand and a long economic boom where the unemployment rate drop below 3.5%

The main bugbear is housing affordability which is a result of the Resource Management Act passed in 1993 as the union chart shows. The unions, the Labour Party and Greens all support the laws that result in this housing unaffordability.

@WJRosenbergCTU How the unions argued for the Employment Contracts Act when arguing strongly against it

The Council of Trade Unions scored something of an own goal in the 2014 election campaign when it was denouncing the Employment Contracts Act 1991 as the reason for wages growth have not kept up with GDP per capita growth since its passage in 1991. Its evidence in chief against the deregulation of the New Zealand labour market is in the snapshot below showing their graph of real GDP per capita and average real wages from 1965 to 2014.

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Source: Low Wage Economy | New Zealand Council of Trade Unions – Te Kauae Kaimahi.

The chart selected by the Council of Trade Unions shows several distinct trends in wages growth and real GDP growth  per capita in New Zealand. None of these trends nor breaks in trends support the hypothesis that the days prior to the Employment Contracts Act 1991 were the good old days where workers shared generally in gains from economic growth.

From about 1970 to 1975 in the snapshot below of the Council of Trade Unions chart there was rapid real wages growth, well in excess of real growth in per capita GDP. This wages breakout was followed by some ups and downs but essentially wages in 1995 were no different from what they were in 1975. Real wages were about $24 per hour in real terms in New Zealand for about 20 years – from 1975 to 1995.

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These are the good old days in the eyes of the Council of Trade Unions. No real wages growth for 20 years. There was no real GDP per capita growth from 1975 until 1979 nor in the five years leading up to the passage of the Employment Contracts Act 1991 in the chart selected by the Council of Trade Unions in the snapshot above.

The period leading up to 1975  in the preceding wages breakout was the zenith of union membership with nearly 70% of all workers belonging to a union – see figure 1. What followed from 1975 was a long declining in trade union membership that did not end until just after the Employment Contracts Act in 1991 – see figure 1.

Figure 1: Trade union densities, New Zealand, Australia, United Kingdom and United States, 1970–2013

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Source:  OECD StatExtract.

Whatever happened to union power in New Zealand happened before the passage of the Employment Contracts Act 1991 and with it the deregulation of the New Zealand labour market. 20 years of no real wages growth and economic stagnation may explain part of the decline of unions in New Zealand.

Real GDP per capita growth was pretty stagnant after 1975 to 1994 in the chart of data selected by the  Council of Trade Unions, which is why I have previously referred to 1974 to 1992 as New Zealand’s Lost Decades – see figures 2 and 3.

Figure 2: Real GDP per New Zealander and Australian aged 15-64, converted to 2013 price level with updated 2005 EKS purchasing power parities, 1956-2013, $US

Source: Computed from OECD Stat Extract and The Conference Board, Total Database, January 2014, http://www.conference-board.org/economics

Figure 2 shows that New Zealand lost two decades of productivity growth between 1974 and 1992 after level pegging with Australia for the preceding two decades.

These lost decades of growth are the unions’ good old days but workers cannot share in the general gains of economic growth when there isn’t any economic growth as the chart selected by the Council of Trade Unions and figure 2 both show.

New Zealand returned to trend growth  in real GDP per working age New Zealander between 1992 and 2007, which is straight after the passage of the Employment Contracts Act 1991 – see figure 2. Coincidence?

Figure 3: Real GDP per New Zealander and Australian aged 15-64, converted to 2013 price level with updated 2005 EKS purchasing power parities, 1.9 per cent detrended, base 100 = 1974, 1956-2013, $US

Source: Computed from OECD Stat Extract and The Conference Board, Total Database, January 2014, http://www.conference-board.org/economics

In Figure 3, a flat line equates to a 1.9% annual growth rate in real GDP per working age person; a falling line is a below trend growth rate; a rising line is an above 1.9% growth rate of real GDP per working age person. The trend growth rate of 1.9% per working age person is the 20th century trend growth rate that Edward Prescott currently estimates for the global industrial leader, which is the United States of America.

Figure 3 shows that there was a 34% drop against trend growth in real GDP per working age New Zealander between 1974 and 1992; a return to trend growth between 1992 and 2007; and a recession to 2010. this 34% drop against trend productivity growth is looked upon by the Council of Trade Unions as some sort of good old days.

A long period of no labour productivity growth and little real GDP per capita growth are pretty good reasons to rethink New Zealand’s economic policies at a fundamental level, which is exactly what happened after 1984 with the election of a Labour Government.

The unions have conveniently provided another explanation for the Lost Decades of growth in New Zealand from 1974 to 1992. That is the rapid growth of real wages ahead of real GDP per capita in the seven years before growth stalled in New Zealand in 1974 in the snapshot above. This real wages breakout was followed by two decades of lost growth.

Most ironically of all, steady growth in real wages in New Zealand did not return until after the passage of the Employment Contracts Act in 1991! After nearly 20 years of no real wages growth, real wages growth returned at long last in 1995.

After staying at about $24 per hour for 20 years from 1975 in the good old days of union power and collective bargaining, average wages in New Zealand have increased from $24 an hour to about $28 per hour by 2014 in one of the most deregulated labour markets in the world.

The Council of Trade Unions regards the return of real wages growth after a 20 year hiatus as an unwelcome development or something to complain about.

Trends in union membership in New Zealand, Australia, the UK and the USA

The Encyclopaedia of New Zealand says that the rate of union membership dropped sharply to under 20% when the Employment Contracts Act was passed in 1991 using the chart below.

Figure 1: Percentage of union members

Percentage of union members

The OECD union density data, which allows international comparisons back to 1970, tells a different story. OECD data on union membership in New Zealand started in 1970.

Figure 2: Union density,New Zealand, Australia, the UK and USA 1970-2013

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Source: OECD Stats Extract

Note: Trade union density corresponds to the ratio of  wage and salary earners that are trade union members, divided by the total number of wage and salary earners (OECD Labour Force Statistics).

Figure 2 above shows that union membership has been in a long slow decline in New Zealand since the mid-1970s. This is been pretty much the pattern all round the world.

The much hated Employment Contracts Act 1991, much hated by the Left over Left, doesn’t really show up in the union density figures in figure 2. There is no sudden break in trend obvious in figure 2.

The longer time series in union membership in figure 1 compiled by the Encyclopaedia of New Zealand has long gaps between the data observations. Because of this, the sharp decline in union membership from the late 1970s, which it actually show up in its start-up , is not sufficiently distinguished from subsequent events because of the long gaps between observations reported in the figure 1.

If anything, union membership stopped declining in New Zealand in the late 1990s. Stabilising at about 20% of wage and salary earners.

Union membership continued to decline slowly in Australia, the UK and the USA  subsequent to 1998. Union membership stabilised in New Zealand by contrast. Perhaps the Employment Contracts act should be able to claim credit for that?

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