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A brief history of labour's share of income in New Zealand 1939-2016


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This chapter looks at the history of New Zealand’s labour and capital income shares for the period over which sufficient official data are available: since 1939. It focuses largely on changes in the labour share, both from wages and self-employment, but that implies complementary changes in the capital income share whose variety of forms are also described. The chapter provides a narrative of the changes in terms of changes in the economy, employment regulation and events impacting on income shares. It finds a rise in income share to the 1970s and a steep fall from the early 1980s which through a combination of wage freezes, radical restructuring of the economy and the state, deregulation and individualisation of employment relationships and deunionisation brought the labour share far below the OECD median and comparable economies. Part of the reason for the pre-1970s rise was the fall in self-employment (dominated by farming). By 2016, the self-employed had their lowest share of income since 1939. The largest beneficiary was corporate profits which rose to a 19% share in 2016, a level reached before only in 1940 under wartime conditions. It appears that labour productivity and real wages over the period were closely tied only during the period 1947 to 1974 when New Zealand's industrial conciliation and arbitration system of collective bargaining extended by awards was working relatively well. From about 1990, real wage growth fell behind productivity growth. An online appendix and data describe technical issues and details of sources.
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A Brief History of Labour’s Share of Income in
New Zealand 1939–2016
Bill Rosenberg
The share of the income that an economy generates that returns to labour and the
owners of capital has long been a subject of interest among labour historians and
economists (who term them ‘factors of production’) as far back as David Ricardo
in the early 19th century. It is an important measure of income inequality,
because the returns to capital tend to be concentrated in relatively few hands,
while labour provides easily the largest source of income for the great majority
of households.
Internationally, the ana lysis of the labour share of income stagnated under the
dominance of policies based on neoclassical economics, which considered it had
resolved the issues of income share with its assumptions of perfect competition
in the labour (as in other) market and an aggregate ‘production function’ linking
quantity and quality of labour and capital to the quantity of production. This
approach implied wages and returns to capital were shared according to their
marginal productivity. This was provided sustenance by a common assumption
(known as Bowley’s law) that the labour share of income was essentially fixed
and any variations were due to changes in technology, the nature of that change
(labour substituti ng or complementing) and ‘imperfections’ in the labour ma rket.
However, there are other economic approaches which do not give such decisive
weight to productivity in income distribution, view capital in dierent ways, and
give greater emphasis to social context, power relationships and institutions. In
fact, labour income shares have fallen across the OECD since the 1980s and this
has reawakened interest in the labour income share, with perhaps the most well-
known recent analysis internationally that of Thomas Piketty. His best-selling
Capital in the Twenty-first Century includes an extensive historical analysis of
labour’s and capital’s shares of income across many countries. His view of capital
is that the income passing to it is a result of the power of its owners to withhold
80 Transforming Workplace Relations in New Zealand 1976–2016
assets from production. The returns to it are thus determined by the power
relationships society is prepared to tolerate. At the very least, most economists
would concede that some return to capital is in the form of ‘rent’ – in this sense,
returns to capital that can be extracted because of power (whether market,
political or physical), rather than the capacity of productive assets. Not all income
to capital is the same. The degree to which incomes to capital are rent rather
than returns to production diers according to the economic approach taken,
but, with widespread evidence of the power of financial markets and of the ability
of wealth-owners to withhold capital, especially with the internationalisation of
markets, I take the approach that it is not credible to expect income distribution
to be simply determined by productivity.
Piketty’s (2014) view was expressed as “In every country the history of
inequality is political – and chaotic” (286). His explanations emphasise the
eects of war, economic cycles, policies such as privatisation, and “perceptions
of social justice and norms of fairness” (286) which lead to government actions
such as rises in the minimum wage and supportive changes in labour laws.
It is largely thi s approach which will be ta ken in this ar ticle. It could be described
as an ‘institutional approach’, in the sense that it puts greater emphasis on the
sets of rules and conventions that impact on the economy. But, more broadly
than this, it takes into account social changes and values. I show that many of
the changes in the labour income share can be easily understood in terms of
changes in employment law, patterns of major industrial disputes, government
actions and external events that aect returns to New Zealand producers. It is
not to dismiss eects due to changes in technology and the nature and intensity
of capital utilised in production, but they are not dominant. Analysis of the fall of
the labour income share by the International Labour Organisation (for example,
International Labour Oce 2013), for developed countries finds the fall can be
explained by increased financialisation (46 per cent), globalisation (19 per cent),
technology (10 per cent) and loss of employee bargaining power, de-unionisation
and falling government spending (25 per cent).
This article looks at the history of New Zealand’s labour and capital
income shares for the period over which sucient ocial data are available:
since 1939. It focuses largely on changes in the labour share, but that
implies complementary changes in the capital income share. It sets the
scene with an overview and then describes some existing New Zealand
research literature, followed by technical issues that need to be understood.
The article then provides a narrative of the changes in terms of changes in the
economy, employment regulation and events impacting on the labour income
share before concluding.
A Brief History of Labour’s Share of Income in New Zealand 1939–2016 81
The precise details of the dierent measures will be described below, but to
outline the narrative and argument, Figure 1 shows the relationship between
labour productivity (measured by GDP per hour worked) and real wages adjusted
by employer revenue (the real product wage), which under standard neoclassical
assumptions outlined above should follow the same paths.
Figure 1.
It shows them tracking closely from 1947, around the end of the highly
regulated period during and following the Second World War, to around 1974.
An exception was a brief boom in wool prices in the year to March 1951 due to
the Korean War. This was a period of highly regulated employment relationships
under the Industrial Arbitration and Conciliation system of court-approved
awards negotiated between unions and employer associations, and regular
general wage orders for pay increases for all workers up to prescribed pay levels.
Economic growth was strong, averagi ng 3.6 per cent per year, and unemployment
averaged around 1 per cent.
From the late 1960s unions were losing confidence in the system, leading
to increased organising and stoppages to achieve pay settlements outside the
arbitration system. There was a one-year breakaway in the year to March 1975
when the real product wage increased by 11 per cent. The real wage again followed
the productivity path until the year to March 1984 when a wage freeze reversed
the gains made. From about 1992 onwards, the real wage path steadily fell behind
82 Transforming Workplace Relations in New Zealand 1976–2016
Figure 2.
labour productivity increases in the neoliberal regime which began in 1984, but
directly attacked organised labour in 1991 with the Employment Contracts Act,
which largely deregulated employment relationships. Its successor regime under
the Employment Relations Act 2000 was only slightly more regulated. Ironically
it was in a deregulated regime designed to come closest to the neoclassical
assumptions where the relationship between wages and productivity most
persistently broke down.
The resulting labour income share for wages and salaries can be seen in Figure
2. The actual share rose steadily throughout the period from 1947 to 1974, in
large part because of a reducing income share of the self-employed. The ‘plateau’
in the actual share between 1976 and 1983 corresponds to the sharp increase in
the real product wage in the March 1975 year and the precipitate fall in the March
1984 year. Ater a brief respite in the year to March 1988 following intensive
industrial activity (the most worker-days of stoppages in New Zealand’s history
occurred in 1986) it began a long fall to 2002. A recovery to 2009 under the 2000
legislation is now being reversed.
A Brief History of Labour’s Share of Income in New Zealand 1939–2016 83
In contrast, the path the labour income share would have traced if the
real product wage had followed labour productivity can be seen in blue.
Its slope follows the rising actual share until the early 1970s, then levels out
until the early 2000s. It then continues to rise. By 2016 the gap between the
theoretical and actual labour income shares was worth approximately $6,000 or
11 per cent on top of the annual income of the average wage and salary earner. It
is notable that over the whole period from 1939, the theoretical trend would be an
increasing one, largely a result of the shrinking of self-employment.
Previous New Zealand Research
Easton (1983), in his definitive volume Income Distribution in New Zealand,
devoted a chapter to factor shares of income from 1947 to 1981 (though mainly
to 1976). He focused on the share of income of wages and salaries plus the labour
(earned) income of the self-employed. This total, sometimes called the adjusted
labour income share, represents the total income from labour in the economy.
Easton (1983) found a statistically significant rise in the labour income share
between 1947 and 1976. It was dominated by the rise in the share of wages and
salaries which rose by 0.44 percentage points a year from around 52 to 66 per
cent, while the share of the labour income of the self-employed (calculated using
a dierent method to this paper – see the online appendix) fell by 0.23 percentage
points a year from over 18 to under 15 per cent (Easton 1983, 40–42).
Bertram (2000) updated earlier papers on the subject and looked at the
period 1962 to 1998 in response to claims that a rising wage and salary income
share in the 1970s had led to a “profit squeeze” among companies, reducing
their ability to invest to increase productivity and capacity, thereby leading to
slower economic growth and unemployment. He found an unequivocal fall in
the share of wages and salaries during the post-1984 free market reforms (ater
Easton’s series ends), though no evidence of a specific eect of the Employment
Contracts Act (ECA). He found no shit in the income share of corporate profits
but a “massive transfer” from local into foreign hands. Self-employed income
“suered a massive squeeze from the early 1960s to the late 1970s” in ater-tax
terms. Most of the apparent rise in capital’s share of income was attributable to
rising house prices and hence the imputed rents of home ownership.
More recently, the New Zealand Productivity Commission analysed the
labour share in the part of the market economy for which current productivity
data exists back to 1978 (Conway, Meehan and Parham 2015). Their main focus
was the relationship between productivity and real wages.
The real wage in this context is the nominal wage adjusted (deflated) by the
price level that determines employer revenue, sometimes called the ‘real product
wage’. It represents the wage seen as a cost to the employer. The most readily
84 Transforming Workplace Relations in New Zealand 1976–2016
available index of these prices is the GDP Deflator, which tracks the price level
for the whole economy. Evidence in New Zealand (for example, Rosenberg 2010)
is that, particularly since the 1990s, real product wages have failed to keep up
with labour productivity. The labour share will fall if real product wages fall
behind productivity growth.
This is in contrast to the ‘real consumption wage’, which is the wage adjusted
(deflated) by the consumer price index (CPI) and is the most common use of the
term ‘real wage’. It represents the wage as income to employees, adjusted for their
cost of living. In the long run (over decades) the CPI and the GDP Deflator rise at
similar rates, but they can be very dierent in the short run. Bertram and Wells
(1983) point out that both forms of the real wage should also take company and
personal taxation into account. I do not address this matter here for lack of space,
but both they and Easton (1983) find a falling ater-tax labour income share.
The Productivity Commission’s researchers (Conway et al. 2015) found a fall
in the adjusted labour income share of 8.5 percentage points between 1978 and
2010 in the sector of the economy they investigated and that the real product
wage grew more slowly (1.7 per cent on average) than labour productivity (2.2
per cent). They noted a fall in the early 1980s due to a price and wage freeze
which “proved more a wage freeze than a price freeze” (Conway et al. 2015,
37). Following the neoliberal reforms beginning in 1984, labour productivity
rose strongly driven by widespread lay-os of workers creating a deepening of
capital. Initially strong wage growth raised the income share but another fall
in the income share occurred in the early 1990s: “Wage restraint following the
earlier period of high wage growth and labour shedding and the introduction of
the Employment Contracts Act (1991) were possible likely key factors” (Conway
et al. 2015, 38) Compared to Australia, they wrote, “New Zealand’s earlier and
deeper foray into labour market reform may be an important contributing factor”
(38) to the fall in share when Australia’s did not despite extensive structural
economic changes. Another fall in the early 2000s was due to wages not keeping
up with product price inflation.
Bridgman and Greenaway-McGrevy (2016) analysed the fall in labour share
between the mid-1980s and mid-1990s from the point of view of the neoliberal
reforms of the period. They found a steep decline in the labour share of the state-
owned part of the market sector of the economy (that part subject to commercial
pricing) as a result of commercialisation. They concluded that this accounted for
almost all the decline in labour share over this period. The labour share in the
subsector fell from 57 per cent in 1984 to 36 per cent in 1994 according to my
own calculations (though it had been falling before 1984 and continued to fall
until 2000). However, they did not explain why the labour share also fell sharply
during the same period in the private part of the market sector.
A Brief History of Labour’s Share of Income in New Zealand 1939–2016 85
There are a number of challenges to integrating several statistical series over
a period of almost 80 years since 1939, and these need to be borne in mind in
interpreting the results. The various series do show very similar trends where
they overlap. It is therefore assumed that while the dierent statistical methods
used over the years may lead to dierent levels of aggregates, changes from year to
year will be similar, so linking series together on that basis is valid. The details are
described in a separate online appendix. I simply deal with some essentials here.
The modern use of National Accounts emphasises Gross Domestic Product
(GDP), a measure of production. The income derived from that production is
measured as Gross Domestic Income (GDI), which is the most frequently used
denominator used for calculating income shares. It is before the deduction
of consumption of fixed capital (‘Gross’). This is provision for wearing out,
obsolescence and damage to assets, similar to but wider than depreciation.
GDI includes net payments made to overseas residents (‘Domestic’). Given that
provision is required to replace worn out, obsolete or damaged assets before
an economic profit can be made, the economically appropriate aggregate for
calculating the labour share is ater consumption of fixed capital has been
deducted from Operating Surplus (the income to capital). This is Net Domestic
Income (NDI), and unless otherwise stated all income shares will be as a
percentage of NDI. Certain indirect taxes (GST, taris on imports and stamp
duties) are not able to be attributed to industries or income shares, but aect
market prices. Without them, prices are referred to as ‘factor prices’ and all
components of NDI will be at factor prices (calculating income shares factor
prices is equivalent to sharing the above taxes proportionately between labour
and capital income).
Total wage and salary income, plus other employer costs of employment such
as superannuation and accident compensation (ACC) contributions, is called
Compensation of Employees (COE) in the national accounts. The labour income
share is COE as a proportion of NDI. It is oten adjusted to take into account
the labour of the self-employed. However, their labour income is rarely explicit.
There are various methods that are used to impute it and I use one favoured by
Piketty (2014) and Inklaar and Timmer (2013), two economists responsible for
the widely used Penn World Tables. This apportions total self-employed income
(‘mixed income’) into labour and capital income in the same ratio as the rest of
the economy. I will use the terminology that the wage and salary income share is
the ‘labour income share’; while including the labour of the self-employed it is the
‘adjusted labour income share’.
It is worth remembering that fa rming is the domina nt form of self-employment
in New Zealand, averaging 55 per cent of self-employment income from 1939 to
86 Transforming Workplace Relations in New Zealand 1976–2016
1971. The proportion has fallen since then, but it still received an average of 21
per cent since 1987.
A measure of labour productivity is calculated: GDP per hour of labour. This
should be regarded as approximate (and small movements should not be over-
interpreted), but it tracks other estimates reasonably well, such as GDP per
full-time equivalent worker and the ocial Statistics New Zealand series for the
market (‘measured’) sector from 1996 though rises more slowly than both this
and labour productivity in the narrower ‘former measured sector’.
The concept of real product wages and real consumption wages have been
described in the previous section. Unless otherwise stated, ‘wages’ will refer to
average hourly wages including overtime.
Note that national accounts years are to the end of March, so 2016 is the year
from 1 April 2015 to 31 March 2016. It is therefore more influenced by the 2015
calendar year than 2016.
Figure 3 to Figure 7 will be referred to extensively throughout the remainder
of this article: the labour income share and adjusted labour share (which includes
bars indicating recessions from peak to recovery); the division of NDI into types
of income; the path of real average hourly wages both in consumption and product
terms alongside labour productivity; union membership and work stoppages as
a proportion of employees; and the terms of trade, which have a strong influence
on economic activity, prices and corporate and self-employed income. (The terms
of trade show the value of imports that can be purchased from a given volume of
expor t s.)
The Progress of the Labour Share
The Second World War and Immediate Aftermath: 1939 to 1951
The first Labour Government, elected in 1935, had embedded and extended the
system of industria l conciliation and arbitration that h ad its beg innings at the end
of the 19th century. It introduced a rat of legislation protecting and enhancing
working conditions including compulsory union membership, a minimum wage
(which by 1946 was for males 76 per cent of the average ordinary time hourly
wage, though only 46 per cent for females), paid holidays for all workers, and
maximum work hours based on a 40-hour week, backed by a greatly enhanced
system of social security, state housing and rent regulation. Rates of pay and
conditions for the majority of workers were set in awards determined by the
Arbitration Court if bargaining between employee and employer unions did not
reach a settlement. The Court could also make general wage orders, an increase
in all wages covered by awards. It worked in a tripartite manner jointly with
union and employer representatives.
Figure 3.
Figure 4.
Figure 5.
Figure 6.
A Brief History of Labour’s Share of Income in New Zealand 1939–2016 89
Figure 7. Note that ‘work stoppages’ include only those classified by the Department of
Labour as ‘industrial’ and for registered unions (which generally excluded public sector
unions until 1988). See the technical appendix and Boraman (2016).
Many controls were put on wage settlements and other aspects of working
conditions during the war, and there was widespread price control and an
additional ‘national security tax’ on incomes to finance the war activities.
These remained in place for varying numbers of years ater the war ended.
However, wage increases still took place during the war. General wage orders
raised all wages in 1940 and 1942, and there was strike action at times. The
real consumption wage was flat during the war, but the real product wage was
rising. Easton (2010) describes how government authorities avoided wage
orders by manipulating the price index, but perhaps the price controls tended
to reduce revenue to employers even more, contributing to the increase in the
labour share.
The war’s most direct eect on the labour income share was the mobilisation
of large numbers into the armed forces, creating a peak in 1944 in the wage
and salary labour share. According to the national accounts, by the year to
March 1944, pay to the armed forces was $117 million, not far from half of the
remaining salary and wage payments of $281 million. With mobilisation, men
(mainly) moved into the armed forces from unemployment, education and self-
employment such as farming. This included enlisted Māori, who were then
largely rural and to the extent that they had a subsistence living would have been
significantly under-represented in national income (censuses excluded them in
labour counts until 1951). In addition, more women were brought into the labour
90 Transforming Workplace Relations in New Zealand 1976–2016
force to replace men as they enlisted. Consistent with a movement from self-
employment into the armed forces, the adjusted labour share increased, but,
unlike the wage and salary share, remained high as the war ended.
At the end of the war, though prices were still controlled (inflation was negat ive
in the year to December 1946), pressure was building for pay rises. Reductions in
wartime subsidies in 1947 and in 1950 following the 1949 election of the Holland
National Government added to the pressure, creating annual CPI inflation above
10 per cent. In the year to March 1948, the labour income share fell below its 1940
level. The first post-war recession hit the country from 1948 to the beginning
of 1950 (Hall and McDermott 2016). However, registered unemployed numbers
barely changed, peaking at a monthly average of 92 in 1949.
Industrial action almost tripled from approximately 100,000 working days
lost in each of 1947 and 1948 to 271,500 in 1950 in demands for wage rises. The
labour share recovered sharply in the year to March 1949. With general wage
orders in June 1950 and February 1951 totalling 15 per cent, by the year to March
1951 real consumption wages had risen 8 per cent above their level at the end of
the war (year to March 1946): from $14.47 to $15.68 in June 2016 dollars.
However, the real product wage fell 8 per cent over the same period,
reflecting a strong and steady rise in employers’ revenue. A contributor
was the Korean War, which began in June 1950 and led to a short-lived
boom in commodity prices, with wool export prices in 1951 averaging $0.81
per pound, over double the already high $0.38 in 1949 and $0.37 in 1952.
The consequent rise in profits benefited the self-employed (mainly farmers): a
ravine in the labour income share in the year to March 1951 was due not to falling
wages (though real wages were under pressure from 12 per cent inflation) but to
windfall profits. The income share of the self-employed went from 30 per cent to
37 per cent to 28 per cent. Indeed, 1951 was the peak income share of the self-
employed (see Figure 8).
New Zealand’s bitterest industrial dispute began in February 1951, sparked
by a clash over how the 15 per cent general wage order would apply to waterside
workers. Ater the workers refused to work overtime, they were locked out
by the employers. The long and bitter dispute lasted 151 days until July, with
draconian powers taken by the government, intervention of the armed forces and
suppression of normal civil liberties. The long stoppage and sympathy strikes by
other workers made the lion’s share of the 1.16 million working days reported lost
in 1951 by the Department of Labour. However, the corresponding loss in wages
is dicult to identify in the labour income share for the year to March 1952,
which was dominated by resumption to normal profits ater the 1950 commodity
price boom. In dollars of the day, the loss in wages would have been in the order of
$0.5 million (waterside workers on ordinary cargo earned on average a minimum
of $1.60 per week at 31 March 1950 and $1.95 per week at 31 March 1952), which
A Brief History of Labour’s Share of Income in New Zealand 1939–2016 91
was about 0.1 per cent of the country’s total wage pay-out for the year and would
have been partly balanced by reduced profits.
The Long Boom: 1951–1968
This period until 1967 is what Easton (1997) describes as the “long boom” (88).
The recession which began in 1951 was over by 1954 and the average growth in
GDP between 1953 and 1967 was a strong 4.4 per cent. Unemployment over this
period according to the Census was between 1.0 per cent and 1.4 per cent (slightly
higher for women) (Easton 1997, 196). Wages grew steadily in real terms – the
real consumption wage rose at an annual rate of 1.4 per cent between 1953 and
1967 (from $15.34 to $18.52 in June 2016 dollars) and the producer wage by 1.7
per cent. The latter closely followed labour productivity growth. Wage rises were
helped by a series of general wage orders between 1954 and 1959, totalling a 24 per
cent increase. The last, in 1959, followed new Economic Stabilisation Regulations
under the Nash Labour Government elected in 1957. Industrial action was at a low
for the post-war era under the industrial conciliation and arbitration legislation,
averaging less than 40,000 working days lost per year between 1952 and 1965.
The terms of trade were strong over the period, at an average level only
reached again since the 2000s. However, as is the fate of a commodity-based
export economy, they were very variable. There was a sharp fall in 1957 resulting
from a collapse in dairy and wool prices (Easton 1997, 74). This triggered a fall
in the labour share of the self-employed, while the share of salaries and wages
continued to grow steadily. It is likely to have been boosted by self-employed
moving to waged or salaried jobs. The New Zealand Ocial Yearbooks of
this period (for example, 1973) note a tendency during this quarter century
(which likely continues) for sole traders or partnerships to convert to company
ownership, reducing self-employment.
The fall in the terms of trade bottomed out in June 1958, rising to its previous
level by September 1959, but collapsed again. The so-called ‘Black Budget’
of the Labour Government in response to the fall in farm incomes and rising
current account deficit was its death-knell electorally and National returned to
Government in 1960 under Prime Minister Holyoake.
The incoming Government had the good fortune of another steep rise in terms of
trade from September 1961 and they stayed high until a nother collapse in September
1966. Three general wage orders between 1962 and 1966 increased wages by a total
of 14 per cent, in the face of 20 per cent inflation from April 1959. There was growing
unhappiness among workers at the eectiveness of the arbitration system.
As a result, direct bargaining between unions and employers on large
sites grew during the 1960s, according to Franks (2009). Between the years
to March 1959 and 1967, the real consumption wage rose 17 per cent. Labour
92 Transforming Workplace Relations in New Zealand 1976–2016
shortages “meant that many employers, particularly in the cities, paid higher
wages than the minimum rates in Arbitration Court awards. There was growing
dissatisfaction with the Court’s conservative approach to margins for skill and
ruling rates” (Franks 2009).
The labour of the self-employed was particularly important over this period.
Its labour income share peaked at 24 per cent of income in the year to March
1950 and then again at 29 per cent due to the Korean War in the year to March
1951. Given that the dominant portion of self-employed were farmers, that is
not a surprise with record commodity prices such as wool and meat. Total self-
employed income had a share of 30 per cent and 37 per cent in the two years.
Those levels have never since been reached: their share has steadily declined (see
Figure 8).
There were other influences at work leading to the rise in the wage and
salary labour income share. A strong union-led movement forced the Labour
Government to pass the Government Service Equal Pay Act in October 1960,
requiring equal pay for all female government employees by April 1963. This
dierential rise in women’s wages and salaries is probably barely perceptible in
the labour share, but was a precursor of the 1972 Equal Pay Act. It recognised
growing participation of women in paid work and growing demands for equal
rights and recognition.
Hill (2009) describes a “massive migration” of Māori from rural to urban
areas in the third quarter of the 20th century; “By some definitions, more than
80% of Māori eventually ended up living in urban environments – as opposed to
less than 10% in 1926” (2). Most will have found jobs as employees, which in itself
would not have necessarily raised the labour income share, but to the extent they
moved from self-employment with taxable income (such as farming or fishing)
their move will have increased the wage and salary share at the expense of the
self-employed labour income share.
Finally, there were changes in the structure of the economy. Manufacturing
grew from 14 per cent of National Domestic Income in the year to 1940–41 to 20
per cent in 1966–67.
It had a higher labour share than the average 56 per cent for the whole
economy, though falling from 72 per cent to 65 per cent over the period. The
rise in manufacturing would consequently increase the labour income share.
Easton (1997) notes a rise in the proportion of the economy engaged in services,
particularly finance, insurance and communications, which typically have a
relatively high labour income share, particularly before technology became a
large factor. At the same time the GDP share of the self-employed-dominated
agriculture sector was falling steeply (according to Easton (1997), from 22 per
cent of GDP in 1952–53 to 12 per cent in 1969–70).
A Brief History of Labour’s Share of Income in New Zealand 1939–2016 93
Figure 8
The High Plateau: 1968–1984
The sharp fall in the terms of trade starting in September 1966, again led by a
collapse in wool prices, led the Government to introduce counteracting measures
in 1967, including a 19.45 per cent devaluation of the New Zealand dollar. CPI
inflation, which had from 1960 to 1966 averaged only 2.4 per cent, began to rise:
in the 1967 calendar year it was 6.6 per cent, and at the same time the economy
was entering its first recession since the early 1950s. The union peak body, the
Federation of Labour, applied for a general wage order of 7.6 per cent in March
1968. Under political pressure, the Arbitration Court judge rejected the case
and in an unprecedented decision the Court refused to grant any increase, the
employer representative voting in favour and the workers’ representative against.
The outrage at this ‘nil wage order’ led to widespread industrial action. FOL
President Tom Skinner persuaded the Employers Federation to take a new case
to the Court. In what then Minister of Finance Robert Muldoon called an “unholy
alliance”, the worker and employer representatives on the Court overrode the
judge to grant a 5 per cent wage increase in August 1968. While the immediate
problem was mitigated, the decision “undermined the credibility of the
Arbitration Court and marked the end of its pre-eminence in wage fixing”, says
Franks (2009). While the industr ial protest against the Nil Order was short-lived,
it was followed by a wave of industrial action over the next two years, as unions
engaged in extensive second-tier bargaining outside the arbitration system. In
1970, the equivalent of 12 per cent of workers were involved in strikes. From the
late 1960s to the late 1980s, strike action reached levels that were unprecedented
94 Transforming Workplace Relations in New Zealand 1976–2016
since 1951. It was apparently popular: the number of employees in private sector
unions rose 45 per cent from 1968 to its peak in 1982 of 527,797, and 723,000
including the state sector, an estimated 56 percent of employees.
It would be tempting to attribute the sharp rise in the labour income share
between the nil wage order and the early 1980s to this breakdown in the
Arbitration system and greater activity by workers pursuing better pay and
conditions, but if that was the case, the eect was not immediate. The labour
income share remained flat between 1968 and 1970, through a recession that
began at the start of 1967, to recovery at the end of 1968.
There was only one appreciable break away of the real product wage from the
increase in labour productivity before 1974: the March 1971 year when labour
productivity fell and the real product wage rose 6 per cent. But the blip was as
much due to a further fall that year in the already low terms of trade, which
bottomed out in the March 1971 quarter, reducing self-employed incomes and
corporate profits in real terms.
By 1972 a rapid recovery in the terms of trade was occurring, raising product
prices, particularly for meat and wool. While the real consumption wage rose on
average by 10 per cent between the March 1971 and March 1973 years, the real
product wage rose only 2 per cent because of rapid increases in product prices:
the GDP Deflator rose 26 per cent. As a result, in the March years from 1972
to 1974 the labour share fell lower than the level before the temporary March
1971 peak. Both self-employed (farming) and corporate incomes benefited, each
rising from 15 per cent of National Domestic Income in the year to March 1971 to
17 per cent in the 1974 year.
Ater years of struggle for equal pay for women, the Equal Pay Act was passed
in October 1972 by the outgoing Government, requiring equal pay to be reached
in five steps by 1978 (brought forward to 1977 by the next Government). The
impact of these changes on the labour income share are dicult to determine,
but would have contributed to the increase over the implementation period.
A rise in wages was initially helped by the election of the Kirk Labour
Government in November 1972. It moved immediately to repeal the previous
government’s Stabilisation of Remuneration Regu lations, bringing a retur n to the
Industrial Conciliation and Arbitration Act 1954 and free collective bargaining.
It raised the minimum wage in May 1973 to 58 per cent of the average wage
(though only 44 per cent for women), with annual increases while it was in oce.
Accelerating wage increases in early 1973, however, led to new Economic
Stabilisation Regulations. By the end of the year the Government was confronted
by the first oil shock following the Oct ober 1973 Yom Kippur War in the Middle East
when OPEC oil-producing states raised their crude oil prices by over five times.
The consequent collapse in the terms of trade was intensified by a simultaneous
fall in the previously booming meat and wool prices (Easton 1997, 159). By 1975
A Brief History of Labour’s Share of Income in New Zealand 1939–2016 95
the terms of trade had fallen from its highest level to its lowest level between
1951 and the present. The Economic Stabilisation Regulations were replaced in
June 1974 by ‘long term wage stabilisation measures’ allowing limited collective
bargaining. General wage orders were suspended, but restricted general wage
adjustments totalling 14 per cent were made from July 1974 and January 1975
with CPI inflation raging at 13 per cent in the March 1975 year.
In all, the real consumption wage rose steeply without break beginning in
1970 and peaking in 1975. In June 2016 dollar terms it rose 30 per cent over that
period, from $18.86 in the year to March 1970 to $24.59 in the year to March
1975. The real product wage rose 26 per cent. In the year to March 1975 it rose 11
per cent, easily a record between 1939 and the present. It was this that created
the labour income share plateau from the point of view of employers.
If the Kirk Government thought the initial freeing of collective bargaining in
1973 was a mistake which it quickly corrected, that did not show up as a blowout
in the labour income share. It initially fell and did not rise until a leap from 60 per
cent to 66 per cent in the year to March 1975 and then a peak of 70 per cent in the
year to March 1976. The steep rises in the two years to March 1976 were partly
due to industrial pressure, as seen in the increasing number of work stoppages
and the strong rise in the real consumer wage prior to 1975. But they were also
partly due to the fall in commodity prices, loss in profitability due to the huge
increase in the price of oil, and the beginning of a five-year recession. CPI inflation
reached a record 17.2 per cent in the year to March 1976 and the real consumption
wage fell by 2.8 per cent while the real product wage rose by 1.4 per cent.
While the self-employed saw a fall in income share from March 1974 to the
following year, it had recovered by the year to March 1976. It was the income
share of locally owned corporates that was hit hardest. From 17.4 per cent in the
year to March 1974 the corporate income share fell to 15 per cent the following
year and then crashed to 6 per cent in the year to March 1976 (from which it
recovered only a little before 1982).
Not all of the 9 percentage point 1976 fall in the corporate income share
went to wages and salaries, whose share rose from 66 per cent to 70 per cent.
Consumption of fixed capital made a permanent increase in that year from 16
per cent to 20 per cent of NDI, due to rocketing replacement values of assets
(a 22 per cent increase in the year), eectively subtracting 4 percentage points
of NDI from all operating surpluses. This is likely to have aected corporates
disproportionately to the extent that they are more highly capitalised than the
self-employed. The share of income going to overseas investors (net of relatively
small receipts from New Zealand investment overseas) rose by over two-thirds
from 1.7 per cent to 2.9 per cent, a permanent increase that continued to rise. With
a rapid rise in rents in the middle of house-price boom (15 per cent in the year to
March 1976), the income share of the imputed rents of owner-occupied property
96 Transforming Workplace Relations in New Zealand 1976–2016
rose 22 per cent from 3.8 per cent to 4.6 per cent. The fast-rising rents and a
housing construction boom (relative to the population, the greatest New Zealand
has seen since 1966 (Statistics New Zealand, 2016)) doubtless contributed to the
incomes of the self-employed in the housing sector.
The fall in corporate profits coincides with a slowing economy. Hall and
McDermott (2016) date the start of a long recession from the third quarter in
1975. GDP did not return to the same level of activity until the June quarter 1981.
A fall in company incomes is therefore not unexpected, but the size of the fall is.
The sizeable 9 percentage point fall in corporate income share is very dierent
to Bertram (2000), who found 4.5 percentage points fall in the year to March
1975, which recovered partially the following the year and fully the year ater.
There are some technical reasons that could at least partly explain this. The
dierence in years could be because the ONA series which he was using was not
on an accrual basis. The ONA made a dierent, lower allowance for deterioration
in asset values than the modern series (depreciation vs consumption of fixed
capital) and there was a rapid rise in the latter in the year to March 1976, which
could account for almost the entire dierence between 9 and 4.5 percentage
points fall. The measurement of the corporate sector operating surplus is
problematic. Some incorporated firms are ‘closely held’ companies, which are a
form of self-employment. I include those as self-employed in order to recognise
the reality of the relationship rather than the form, following Statistics New
Zealand’s practice. Since both Bertram and I calculate corporate income as a
residual in National Domestic Income, it is not equal to the various ocial series
for net corporate operating surplus (which in any case are incomplete). The fall
is smaller and shorter lived if income on overseas investment in New Zealand
and corporate profits are taken together (though part of this was rising overseas
debt, much of it government debt). The dierence requires further research.
At any rate, the March 1976 peak in labour income share was again short
lived. It fell from 70 per cent to 65 per cent in the year to March 1977 before
beginning another rise. In the November 1975 general election, Labour was voted
out and National became Government under Prime Minister Robert Muldoon. It
introduced a series of further regulations and amendments to Labour’s Industrial
Relations Act 1973, restraining wage increases other than general wage orders
and in late 1976 a price and rent freeze.
CPI inflation was 14 per cent for the year to March 1977 – but the GDP Deflator
rose even faster, at 22 per cent, contributing to the fall in labour income share.
The real consumption and product wages both fell in that and the two subsequent
years. Though industrial action had slowed to an average of 220,000 working
days lost per year under the Labour Government, they rose to an average of
400,000 under the National Government.
A recovery in the terms of trade began in 1976 which peaked in June 1979. It
A Brief History of Labour’s Share of Income in New Zealand 1939–2016 97
was set back by the second oil cri sis which bega n in Februar y 1979 ater revolution
in Iran and oil prices did not return to pre-crisis levels until the mid-1980s. Wool,
meat and dairy prices all fell, and the terms of trade declined until 1986. In the
year to March 1981, the labour income share rose to 71 per cent, its highest point.
It then began a precipitate decline. The Government increasingly intervened
in disputes under changes to employment legislation, which also weakened
compulsory unionism. Wage orders continued but for lower rises than before
despite annual CPI inflation at 15 per cent to 16 per cent. But the real consumption
wage rose 4.1 per cent in the year to March 1982. Though the self-employed
income share continued to fall, the corporate income share continued to rise
In June 1982, a one-year wage, rent and price freeze was imposed, later
extended until February 1984. This was a much more eective wage than price
‘freeze’. The CPI still rose 8.3 per cent in the first year of the freeze and 3.5 per
cent in the year to March 1984. The average hourly wage rose just 2.8 per cent
and 1.9 per cent in those years. In each March year 1983 to 1985 it fell steeply
in real consumption and product terms, a total of 9 per cent and 8 per cent
respectively. Though the labour income share was already declining in the year
to March 1982, the wage freeze extended it to a four-year collapse from 71 per
cent to 61 per cent. Apart from a few years of recovery it was the beginning of a
long fall.
Neoliberalism: 1984–Present
The Muldoon Government was replaced by a Labour Government under Prime
Minister Lange and Finance Minister Douglas in July 1984. It quickly began
implementing a radical neoliberal programme, which would have been a surprise
to most of the electorate, particularly Labour voters. It removed the wage and
price freeze, the New Zealand dollar was floated, domestic and cross-border
finance deregulated, subsidies withdrawn from agriculture, import controls
removed and taris greatly reduced. ‘New Public Management’ principles were
applied to the state sector, with widespread commercialisation and privatisation
of state functions. As will be seen, these had a direct eect on employment and
income shares. The Government fell in internal acrimony in the 1990 election, to
be replaced by the even more right-wing neoliberal National Party.
During its period in oce, however, the Lange-Douglas Labour Government
made only relatively modest reforms to employment law (for which it was criticised
by those on the right who were otherwise enthusiastic about its programme).
The Labour Relations Act 1987 strengthened conditions for compulsory union
membership, raised to 1,000 the minimum size for unions to be registered
(aecting two-thirds of unions according to the 1988–89 Yearbook) which led
98 Transforming Workplace Relations in New Zealand 1976–2016
to a degree of deunionisation, for the first time included State Sector unions on a
similar basis and opened up competition between unions for coverage. Automatic
links of public sector wages to the private sector were broken. Corporatisation
and privatisation of the public sector also made marked contributions to reducing
union membership and employment conditions.
The minimum wage, which had fallen to 27 per cent of the average hourly
wage in 1984, was increased in December 1985 to 49 per cent of the average
wage. Despite annual increases it had fallen to 44 per cent of the average wage
by the time the Government had been voted out of oce.
Union activity ramped up from 1984 to try to recover lost wages. From around
400,000 days lost per year in stoppages since 1977, there were 756,000 in 1985
and 1,329,000 (the most since the 1951 Waterfront lockout) in 1986. The real
consumption wage fell 2 per cent, while the real product wage rose just 1 per
cent over the March 1984 to March 1991 period of that Government. The labour
share rose from its March 1985 year low of 61 per cent to 64 per cent in the year
to March 1988. It was an appreciable rise – a partial recovery from the wage
freeze – but well below its 71 per cent peak. The share then began an almost
uninterrupted 14-year fall to March 2002.
There was little dierence in the behaviour of the adjusted labour share.
Farmers over this period lost heavily as a result of the removal of subsidies.
Real income per self-employed person fell to a low in 1987 not seen since the late
1940s. As farmers went out of business, and the remainder tended to intensify
production, agriculture’s share of the self-employed shrank. By occupation,
agriculture and fisheries workers fell from 35 per cent of the self-employed in
1991 to 18 per cent in 2011 according to Statistics New Zealand’s Household
Labour Force Survey, while professionals grew from 5 per cent to 16 per cent and
managers, administrators and legislators increased their representation from 11
per cent to 16 per cent.
The terms of trade bottomed out in 1986 and rose until 1990, ater which they
began a trend of a slow decline until the commodity boom star ting in 2000. A share
market crash in October 1997 – an almost inevitable result of irrational exuberance
following the deregulation of finance – triggered a recession which began that
quarter and ran straight into another recession beginning at the end of 1990. The
whole recessionary period did not recover until the first quarter of 1993. Easton
(2011) calls the period from 1985 to 1995 a ten-year stagnation because output per
capita had by 1995 only regained its 1985 level. He describes the recession as self-
imposed, beginning at a time of improving terms of trade. He contrasts that to all
other medium-term stagnations, which can be attributed to external ‘shocks’.
Unemployment rose to 8.9 per cent by the end of the 1984–1990 Labour
Government (seasonally adjusted) and then continued to rise to 11.2 per cent in
September 1991. It remained above 10 per cent until June 1993 and then fell only
A Brief History of Labour’s Share of Income in New Zealand 1939–2016 99
slowly, never falling below 6.2 per cent in the 1990s decade. This was easily the
highest unemployment seen since the Great Depression of the 1930s: census data
show between 0.8 per cent and 1.4 per cent between 1945 and 1971, rising to 2.1
per cent in 1976 and 4.5 per cent in 1981.
The incoming National Government in 1990 wasted no time in making
further major changes. Most notably for our purposes it enacted the Employment
Contracts Act in May 1991. This deregulated employment relationships,
emphasising ‘choice’ in representation and between individual and collective
agreements. Unions, which were mentioned only in transition provisions,
became ‘bargaining agents’ with no dierent status to lawyers or any other
group or individual, and voluntary membership. There was no extension of the
benefits of collective bargaining to all workers in an industry as there had been
in awards. Individual ‘contracts’ were encouraged and collective agreements
made dicult to obtain. Private sector employers refused to negotiate multi-
employer collective agreements, let alone national agreements, and they all but
disappeared except in the state sector.
Union membership, which was 52 per cent of employees in 1989 (648,825
people in both private and public sectors), had halved to 25 per cent by 1996
(338,967) and 23 per cent by 2000.
At the same time, the Government made substantial cuts to social security
benefits and toughened conditions for receiving them, reducing support for
people suering from the extensive changes, and further undermining wage
It continued the programme of privat isation of public assets a nd almost complete
removal of taris and protection of manufacturing. This triggered a continuous
decline in manufacturing until the present in share of GDP (from 26 per cent in
1984 to 12 per cent in 2015) and jobs (from 21 per cent in 1989 to 10 per cent in 2016).
Its labour income share, averaging 70 per cent over this period, is high and its
loss would tend to lower the share for the whole economy (for more detail see
Conway et al. 2015, 48).
Real wages largely stagnated between their trough in 1986 and 1996. In the
year to March 1986 the real consumption wage was $22.76 in June 2016 dollars
and was only 3 per cent higher in the year to March 1996, while the real product
average hourly wage rose somewhat more but still only 6 per cent over the decade.
Real wages then began to rise, but only by 2004 had the real consumption wage
returned to its 1982 peak (the real product wage matched its 1982 peak in 1998).
Stillman, Le, Gibson, Hyslop, and Maré (2012) find that households increased
their work hours to compensate for declining real earnings over this period, over
which one of the greatest increases in household income inequality in the OECD
occurred (mid-1980s to mid-1990s).
An important aspect of capital deepening during this period has been
100 Transforming Workplace Relations in New Zealand 1976–2016
pointed out by Bridgman and Greenaway-McGrevy (2016). They argue that
“the decline [in labour share] from the mid-1980s onwards is due to public
sector reforms. Corporatisation re-orientated the public trading enterprises
away from a broad range of social and trading objectives towards generating
profits” (22). The point of their argument can be seen clearly in the path of the
labour income share for the publicly owned market sector, seen in Figure 9a.
The labour share, which first fell with the rest of the economy from 1982, crashed
between 1989 when it was at 55 per cent to 2000 when it was at only 32 per cent. It
recovered a little with a change of government, but remained around 40 per cent.
The change from a social to a commercial purpose required these operations
to make a commercial rate of profit, increasing the capital share of income,
and at the same time they reduced employment and the wages and salaries of
employees, a two-fold downward pressure on the labour income share. It is likely
that the same eect occurred on privatised operations, but the data is not readily
available to quantify this.
Bridgman and Greenaway-McGrevy (2016) assert that this accounts for
“most of the decline in aggregate labour share from the mid-1980s onwards”
and that “there is a smaller, short-run decline in private sector labour share
that is reversed over the long run reforms” (18). However, as Figure 9b shows,
the private market sector also experienced a decline only slightly less than (but
in the same proportion as) the whole economy, which requires explanation.
Privatisation could be part of that explanation. The reversal is only partial and,
as will be seen, can be accounted for by other factors and now appears to be
declining again. Nevertheless, the point they make is important and reinforces
the view that the decline in the labour share was in significant part a result of
deliberate political choices.
The Clark Labour-led coalition Government was elected in 1999. It reversed a
small number of privatisations but retained most of the commercialised structure.
It replaced the Employment Contracts Act with the Employment Relations Act
2000, which was far from a return to arbitration, compulsory union membership
and awards. It is based on good faith relationships and reserves collective
bargaining to unions, but has been ineective in returning to multi-employer
collectives. A 2004 amendment, which attempted to make multi-employer
collectives more achievable, was largely unsuccessful. Union membership
continued to fall as a proportion of employees. The Government raised the
minimum wage faster than wages generally between taking oce in December
1999, when it was at 40 per cent of the average hourly wage, to 50 per cent of the
average hourly wage in its last year in oce in 2008.
A Brief History of Labour’s Share of Income in New Zealand 1939–2016 101
Figures 9a and 9b.
102 Transforming Workplace Relations in New Zealand 1976–2016
Terms of trade were on a strongly rising trend from 2000. Following the
recession caused by the Asian Financial Crisis from mid-1997 to late 1998, there
was strong economic growth until the Global Financial Crisis. New Zealand was
already in recession from late 2007 due to a drought, but the full recession lasted
through to mid-2011 and unemployment was still higher in 2016 than before the
The labour income share bottomed out in the year to March 2002 at 54 per
cent, 17 percentage points below its 1981 peak and at a level not seen since 1954.
It began to rise, perhaps as a result of industrial campaigns by unions and with
the help of the strong rises in the minimum wage. Both consumption and product
real wages rose 10 per cent between the March years 2000 and 2009.
A National Party-led Government under Prime Minister John Key and Finance
Minister Bill English won the 2008 election. They made a number of amendments
to the Employment Relations Act, making collective bargaining more dicult
to conclude, and withdrawing the 2004 amendment supporting multi-employer
agreements. The minimum wage continued to be reviewed annually, though
rising at a slower rate than before (at September 2016 it was 51.2 per cent of the
average wage).
The labour income share increased sharply by three percentage points during
the Global Financial Crisis, perhaps as a result of declining profits at the outset
of the crisis, reaching 61 per cent in the year to March 2009, the level it was last
at in 1991. From that point it has declined. In the year to March 2016 it was at
60 per cent. The adjusted labour income share fell below its immediate post-war
level of 72 per cent in 1993 and in 2003 was at a record low of 65 per cent. In the
year to March 2016 it was at 68 per cent. The self-employed then had their lowest
share of income since 1939. The largest beneficiary has been corporate profits,
which rose to a 19 per cent share in 2016, a level reached before only in 1940
under wartime conditions (and shaky statistics).
There is much more to the labour share of income, adjusted or not, than capital/
labour ratios and shits in the composition of the economy. These do have their
eects, but it is clear from the above that oten t he biggest dr ivers are employment
relationships, political decisions and balances of power. As Piketty emphasises,
the relationship between capital and labour, and their relative incomes, is a social
one, not just a mechanical one. There is therefore no ‘natural’ level of the labour
income share, adjusted or not. It reflects those social and power relationships.
Bertram (2000) takes the approach of provisional acceptance of the Ricardian
hypothesis that in a growing economy not settled into a stationary state there
is a degree of indeterminacy in the relative shares of labour and capital in the
A Brief History of Labour’s Share of Income in New Zealand 1939–2016 103
product, over a range bounded by the “subsistence wage rate” and the zero-
investment threshold rate of return (3).
The view that the high plateau in the labour income share of the late 1970s
and early 1980s was too high should be evaluated in this light. Perhaps it did
squeeze corporate profits too much – it is not possible to know without examining
their rates of return – but other factors contributed to that and the labour income
share was not at a level unusual in other advanced economies. According to data
from the European Commission’s AMECO database,1 New Zealand’s labour
income share of Gross Domestic Income has historically been somewhat lower
than the median of other OECD members, but it has been dramatically lower
since the 1980s. Virtually all followed a similar trajectory upwards in the late
1970s, but New Zealand fell much further ater that period (see Figure 10). In
this sense, New Zealand is now a low-wage economy.
Denmark, a country with similar agricultural background to New Zealand
but very dierent employment relationships and institutions since the 1990s,
and greatly reduced dependence on agriculture, has a labour income share 10–14
percentage points higher than New Zealand’s – higher than New Zealand’s peak
and rising – and an adjusted share 5–9 percentage points higher. The general
increase in labour income share in the OECD in the late 1970s points to external
factors such as the oil shocks and ‘stagflation’ of the time being major causes
rather than labour institutions as such. They responded to the impacts, rather
than caused them.
The Employment Contracts Act 1991 could be seen as revenge by employers
against the labour movement for perceived reduced profits and loss of control
during the plateau period (Anderson 1991). It was much more than a rebalancing.
As already noted, the fall in the labour income share accelerated ater the
act was passed. The economic restructuring did not necessitate this, as the
counterexample of Australia shows. Aspects of the restructuring itself also
reduced the labour income share. It was around this period that ocial measures
show real product wages departed most persistently from productivity growth.
As discussed in relation to Figures 1 and 2, the ‘more market’ employment
laws that have dominated since 1991 appear to have been less eective at tying
real wages to productivity tha n the system of arbitration, conciliation and awards
at their most eective in the two decades from 1952. But the circumstances
of the introduction of the Employment Contracts Act suggest that this was
deliberate, and the Employment Relations Act (particularly with its most recent
1 See
databases/macro-economic-database-ameco_en, November 2016 update. The data from
this study is used for New Zealand. The main dierence using AMECO data is that it shows a
lower labour income share between 1960 and 1972 and lower adjusted income share between
1986 and 2009. It does not have data earlier than 1986 for the adjusted share.
104 Transforming Workplace Relations in New Zealand 1976–2016
Figures 10a and 10b: New Zealand labour share compared to the OECD and Denmark.
Note that this compares labour income to Gross Domestic Income (GDI) at factor prices, because Net
Domestic Income is not available. AMECO adjusts the labour share by the number of self-employed
as a proportion of the labour force rather than the mixed income apportioning method used in the
above analysis, so this is used for New Zealand in 10b. For New Zealand, at least, this overestimates
the labour income of the self-employed (see the technical appendix). AMECO uses the convention that
March yea rs are identified as the previous year (for example, the year to March 2016 is identified as
201 5).
A Brief History of Labour’s Share of Income in New Zealand 1939–2016 105
amendments) has not been up to the task of returning wages to the productivity
In retrospect, New Zealand had two forks in the road of employment relations
during this period. The first one was ater the nil wage order in 1968. While
the cooperation between the union and employer parties was remarkable in an
attempt to resolve the failure of the arbitration system, the cat was then out of
the bag following the loss of faith in the system. Both the then Holyoake National
Government and the Kirk/Rowling Labour Government from 1972 to 1975
(admittedly hit by the first oil crisis and Kirk’s death) had the opportunity to get
it back on track, but resorted to patching the system rather than trying to fix it.
It was let to the polarising Muldoon, who was never likely to find a sustainable
path forward. While the system lasted for another 20 years, it was ailing.
The second fork was at the time of the radical restructuring of the state and
economy post 1984. In other countries such as Denmark the response to the
destabilising problems of globalisation and domestic structural change was
closer cooperation between unions, employers and government, recognising
that this was necessary to retain skills and obtain all three parties’ buy-in to the
changes. Instead, the New Zealand response was firstly to tinker with the old
system under the 1984–1990 Labour Government, and then completely destroy
it under the National Government. Its deregulated system ignored the reality of
large imbalances in bargaining power between employers and employees, with
predictable outcomes.
Perhaps that reflected the polarised relationships that had long been
evident. Alongside cuts to welfare benefits and deregulation of the industry
training system, this dug New Zealand into a low-wage, low-skill rut with poor
productivity performance. The employment laws since that period have failed to
provide an environment that fairly shares the income generated by workers and
encourages the development of skills and productivity-enhancing management
and investment. The labour income share is falling again.
Notes: I would like to acknowledge the very helpful comments on a drat of this chapter from Brian
Easton and Geo Bertram. As usual they bear no responsibility for its content and any errors.
An online appendix explaining technical issues and a data spreadsheet are ava ilable at ht tps://
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... At the same time as rising wages, pre-Covid-19 unemployment levels shrank to levels not seen since the Clark Government. See Rosenberg (2017b). ...
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After nine years of a National-led government, and with it a policy slanted toward business’ and away from workers’ interests, the Council of Trade Unions (CTU) welcomed a change to a new Coalition Government in 2017. There had been many changes to laws over the period of the previous government that affected the work of unions and conditions of employment that unions did not support and were eager to change. We were keen to roll back the negative amendments to employment law that had been put in place, as well as advance and improve in new areas. Of course, changes to the laws affecting employment are one thing, but the government also has an impact through the policies and activities of its agencies: as a direct employer, in procurement and as a regulator. Taken together, there certainly was an improvement over the past three years for unions and workers, but it was interrupted somewhat due to the extraordinary circumstances of a pandemic, which required an urgent and immediate response and was prioritised above all else. Below are some of the more significant changes.
Conference Paper
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The standard neo­classical model implies that the real wage should equate to the marginal product of labour, and therefore wages should, at least in the long run, rise at the same rate as labour productivity. That also underlies much of the politics of wage setting. This paper investigates the empirical relationship between real wages and labour productivity in New Zealand. It first looks at the labour share of income (GDP) and finds that the share has fallen in recent years indicating that real wages are also falling behind increases in labour productivity. It then considers variants of three wage measures that are available: the average hourly wage, the Labour Cost Index and the Compensation of Employees measure which is part of the National Accounts. In real terms, increases in the average wage and in the Compensation of Employees measure fall well behind increasing labour productivity. An analytical (non­official) series of the LCI measures tracks productivity very closely whereas the published LCI is essentially flat or falling when deflated. The paper concludes that real wage rises vary widely from labour productivity increases even over several business cycles. This has implications for wage setting, for the measurement of wage rates and productivity, and for the economic and wage models tested.
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This paper investigates the relationship between individual labour market outcomes, household income and expenditure, and inequality and poverty in New Zealand using detailed data from the 1983/84-2003/04 Household Economic Survey (HES). We begin by discussing and summarising measures of income and expenditure calculated from the HES. We next examine the relationship between individual labour market outcomes, and household income and expenditure for households with different characteristics. In particular, we focus on how this relationship varies over the life cycle and over time. This analysis is then extended to examine inequality in labour market outcomes, household income and household expenditure. In the last section, we examine the determinants of the levels and changes in poverty in New Zealand using both expenditure and income data. We also apply a newly developed methodology for combining income and expenditure data to produce poverty indicators.
The Employment ~Contracts Act 1991 radically alters the system of labour law in New Zealand by moving its focus from the collective to the individual level, and the locus from the industry or occupation to the individual employing enterprise. At the same time, the Act significantly shifts the balance of bargaining power further towards employers. The Act also alters the nature of labour law in 2 significant ways: it abandons the system of registered awards enforceable in their own right and instead opts for enforcement through the law of contract, albeit with separate procedures, and it brings all employment contracts within the new regime. This article covers the nature of the changes to the bargaining system and the implications of moving to a labour law reg.ime based entirely on contract.
During the 1970s, the number of ‘non-industrial’ (including ‘political’) work stoppages dramatically increased in New Zealand. In that decade, hundreds of thousands of workers participated in such stoppages, making up 30 per cent of the total number of workers involved in all recorded stoppage activity, and 15 per cent of the total number of days not worked due to all recorded stoppages. Hitherto these stoppages in their entirety have been overlooked in previous statistical analyses of the period, thus giving the impression that the extent of workplace conflict was considerably lower than it actually was. Further, many if not most of the significant and controversial strikes of the period could be considered non-industrial. Because the vast majority of these stoppages were struggles over wages and working conditions, yet directed against the government, the traditional division between economics and politics in trade union activity is difficult to sustain for the 1970s.
The share of national income going to labour in New Zealand fell substantially between the 1970s and the end of the century. Approximately half of this decline was then recovered in the following decade. In this paper, we argue that the decline from the mid-1980s onwards is due to public sector reforms. Corporatisation re-orientated the public trading enterprises away from a broad range of social and trading objectives towards generating profits, while increased fiscal discipline in non-market government departments reduced payroll costs. Consistent with this hypothesis, we show that most of the decline in aggregate labour share from the mid-1980s onwards can be attributed to a significant fall in the labour share of the public sector. To more formally analyse the effects of the reforms, we build a simple model of structural transition. The model yields several predictions that are consistent with observed trends in sectoral labour share. First, there is a large and permanent decline in public sector labour share after the reforms. Second, there is a smaller, short-run decline in private sector labour share that is reversed over the long run. The model can, therefore, explain not only the decline in aggregate labour share from the mid-1980s onwards; it can also explain the partial recovery in labour share beginning in 2002.
We compute classical real GDP business cycles and growth cycles, and contrast classical recessions with "technical" recessions. Calling a technical recession after two successive quarters of negative growth can provide conditionally useful information, but can also send false signals. Expansion and contraction phases of classical real GDP and employment cycles have, on average, had an 86% association, but individual cycle circumstances should additionally be assessed. There is prima facie evidence that the severity of New Zealand"s recessions has mattered for a subsequent recovery path, and New Zealand"s average pattern of recovery has differed from that for U.S. NBER cycles.