Pay Equity – What Does it Show Us?

VIEWS FROM OUTSIDE THE APIARY: IAN FLETCHER 

By Ian Fletcher

Last month, the government pushed through changes to the pay equity laws. Leaving aside the protests and the rather unseemly political drama that surrounded the passage of the Bill, we might use this to look into some of the assumptions that surround our view of what matters in our society and economy.

A decision by the National-led coalition government to push through changes to pay equity claims was met with protest and the repercussions of the Bill will ripple through society, but save billions of taxpayer dollars, explains Ian Fletcher.

Pay equity claims redress situations where a female-dominant workforce is paid less than a comparable male-dominated workforce. The new Act keeps the principle but makes it much, much harder to prove. It also extinguished over thirty current claims, which would need to be re-started under the new rules, which set a much higher standard of proof.

The Government’s arguments were thin, but the financial impact was not. The Crown was able to reclaim over $3 billion previously allocated to meet claims that were on foot, and that saving, more than any other single measure, underpinned the budget that followed.

The politics will play out as they do: early signs are that ACT (with only a limited women voter base) will suffer less than National, where women under 50 are reportedly deserting the party’s cause.

Some of this reflects a fairly traditional social and political split: women-dominated professions are often in the public sector, and look to the left to advance their interests. So, the backlash was as expected.

Actually, I suspect Labour will be secretly pleased by this move – it will give them a clear point of electoral difference, something to promise at the next election, and at least several billion dollars’ fiscal headroom next time they form Government. The fact that the process was so insensitive (using urgency before the budget to pass the Bill) has given Labour the proverbial political icing on a very welcome policy cake.

Beyond the immediate uproar, the pay equity debate exposes deeper issues in New Zealand’s economy and society. At its heart is a question of how the country values work – especially “women’s work” in education, health, and caregiving. These sectors aren’t just about fairness; they’re pivotal to New Zealand’s long-term productivity and demographic resilience.

New Zealand has long struggled with sluggish productivity growth, producing too little output per worker. It’s the topic I’ve written about the most, because it matters the most, and it’s the one all politicians ignore if they can, because it’s hard.

One contributing factor is how we reward (or fail to reward) critical skills. Low wages in female-dominated fields have already driven many skilled people overseas in search of better pay. For example, nurses and teachers – whose unions were pursuing pay equity – are in high demand in Australia, which offers significantly higher salaries. Student nurses in Australia are paid in their final years; here they have to pay for tuition, and work on placement for free. If you want to be a nurse, it’s irrational not to cross the Tasman.

As one commentator warned, the loss of skills to Australia will worsen as that pay gap widens. That is a productivity issue: undervaluing skilled labour leads to talent shortages, high turnover, and lower quality services – all of which drag on economic performance in the long run. What’s more it’s a productivity issue that government can address if it wants to. This month has shown they don’t want to, or don’t understand.

At the same time, an aging population and declining birth rate mean the country must rely on a productive, well-supported workforce to sustain economic growth and care for the elderly. The scrapped pay equity claims largely involved sectors like aged care, nursing, and education support – exactly the areas crucial for managing an older population and nurturing the next generation.

Short-changing those workers is likely to have cascading effects. Already aged care providers struggle to attract New Zealand staff and depended on migrant workers. Similarly, failing to properly pay education support staff and teacher aides (mostly women) risks undermining the quality of education for children – the future workforce. Demographic realities demand greater investment in human services, not pulling the rug out from under them.

Aged care workers are one workforce that skews largely female and will be adversely affected by the government’s pay equity changes, putting stress on end-of-life care, warns Ian Fletcher.

It's not just at the start of one’s career. If experienced mid-career teachers or nurses (predominantly women) give up in frustration or leave the country, that’s a loss of valuable expertise the economy has paid to develop. For example, paying ECE (early childhood education) teachers more could reduce turnover and improve early childhood outcomes, which studies link to better lifelong productivity.

The fundamental counter-argument is that of affordability. Underpinning the government’s weak arguments around making the pay equity framework more effective was the real issue: saving billions of expenditure. Affordability arguments are real, and governments always have to choose between competing claims for money, most of them good – in fact “choosing between competing good claims” or “choosing the least-bad option” is almost a definition of government.

There are clearly a lot of pressures on spending across government. That much is true. But to my mind the government has missed two important elements in their calculus:

The first is that taxes will inevitably need to rise at some point: we can’t manage an aging population, creaking infrastructure, rising defence and public debt costs and more besides on the current tax base, especially with property gains and inheritances untaxed. National seems to be leaving this argument to Labour. Labour will run the argument as a “haves versus have-nots” campaign, with a rush of spending commitments. National could do better to protect its own supporters (and the economy) with a balanced tax-raising proposal, as John Key did when he argued for higher GST rates at the end of his first term.

The other is fairness. Fairness is a big, foundational value in New Zealand, and the Government has ignored it. Next year’s election will see this government basically asking the electorate for more time. The electorate is fair-minded, and will usually give first-term governments at least a second go. However, the government now looks like it isn’t itself fair minded (or very competent). You reap what you sow.

Ian Fletcher is a former head of New Zealand’s security agency, the GCSB, chief executive of the UK Patents Office, free trade negotiator with the European Commission and biosecurity expert for the Queensland government. These days he is a commercial flower grower in the Wairarapa and consultant to the apiculture industry with NZ Beekeeping Inc.