The wage gap with Australia

Australian workers and their unions have been more successful in protecting wages and cinditions

(From the CTU Economic Bulletin)

The wage gap has been in the news again, with talk of banks and other Australian businesses moving call centres from Australia to New Zealand, and IBM cutting staff in Australia and considering moving some of its jobs here.

A broader “wage” which includes employer superannuation contributions and other benefits and which is directly comparable between the two countries was A$39.01 per hour for Australia in the year to March 2012 and $28.61 in New Zealand. In purchasing power that represents a gap of 34 percent for workers and 35 percent for employers selling their products where the workers produce them. But if the employer pays for wages in New Zealand but sells the product in Australia (as with call centres) the wage gap is driven by the exchange rate and is currently a remarkable 74 percent.

In purchasing power, the gap fell during the late 1980s but rose almost continuously during the 1990s until 2005 when it began a fall lasting until 2010. Since then has started to rise again. In terms of the exchange rate the gap has been fluctuating on a rising trend over the period, and has been increasing since 2005.

The exchange rate aside, it is interesting that the biggest reduction in the gap in recent years occurred around 2004-05 at a time of changes in the Employment Relations Act to strengthen collective bargaining, pressure building towards the “5% in 05” wage campaign, and union campaigns for pay parity in health and education. The ERA changes are ones the Government is now proposing to reverse.

A comparison of minimum wages in the two countries shows the Australian minimum wage consistently 50 percent ahead in purchasing power until 2002 when the gap began to narrow sharply as a result of the significant increases in New Zealand. The gap bottomed out in 2010 at 9 percent but has risen to 13 percent since then.

The Government says it is an advantage to have a yawning wage gap to attract jobs from across the Tasman, but the long period for which there has been a sizeable and growing gap, and the move of many businesses in the other direction attracted by the larger population in Australia (including when the wage gap was increasing during the 1990s) indicate that it is no answer to New Zealand’s problems. Australian workers will be concerned at the downward pressure it will bring on their wages. It is race-to-the-bottom policy.