Union negotiators for the 145 locked-out workers at the Essity toilet paper mill walk into today’s meeting with management optimistic about the outcome.

Pulp and Paper Union Kawerau secretary Tane Phillips says the workers have asked for a 7.3 percent rise – the latest headline inflation figure reported by Statistics NZ.

Rightly or wrongly, the consumers price index has set the benchmark for pay talks the length of New Zealand. Few negotiators worth their salt will ask for anything less than that number; workers see anything below inflation as in effect a pay cut – and as interest rates and rents and food prices continue to rise, few can afford that cut.

Countdown supermarket workers are in talks seeking a 16 percent increase; egg producer Zeagold agreed to a 10 percent rise after staff went on strike. So too at timber company South Pine in Nelson, where 60 workers went out for a day-and-a-half, before their employer met them more than halfway.

They accused South Pine management of a “low-ball” offer of 6.25 percent; in the end the company agreed to a minimum of 7.2 percent rise, increasing to 14.5 percent for skilled tradies whose pay had slipped well behind the market. They will now be brought up to a minimum of $34 an hour, says First Union.

Kurt Collier, 31, is jubilant at that result. He’s got increased mortgage payments, groceries, fuel, power bills to pay; his daughter is about to start primary school – he and his wife need to pay for her uniform.

He tells Newsroom South Pine’s revenues have been “booming” in the heated construction market, but for too long that hasn’t been shared with workers. He’s a timber machinist and had been paid the lower trade rate of $29.80 an hour; now that’s been increased to $34/hr. “It’s life-changing, for quite a majority of us.”

Wages put cost pressures on firms

Some employers and economists have been warning of a wage-price spiral. That’s when increased cost of living persuades workers that they need to negotiate higher wages; those higher wages are passed on by businesses to their customers, sharing higher prices. Household costs increase still further, and so wage-earners return to the bargaining table for more pay increases. Rinse, repeat.

Eight out of 10 trucking companies report they have increased pay for their drivers over the past year, most of them by at least 6 per cent, some considerably more. “If companies fail to act, they will only have themselves to blame and they will get left behind,” says Nick Leggett, chief executive of industry association Transporting NZ.

There are social media reports of hotel housemaids in Queenstown getting $30 an hour. “It wouldn’t surprise me that folks are paying that much,” says Hotel Council strategic director James Doolan. 

Room rates are already up 23 percent on pre-Covid, and he warns that higher wages will have to be passed on to paying guests. “Hotels are currently suffering from a significant shortage of room attendants and cleaning staff … Entry-level hotel wages have increased significantly in the last 12 months. Many properties offer additional incentives such as assistance with moving and accommodation, retention bonuses, subsidised or free meals and discounted hotel stays.”

Melanie McKay from the Employers and Manufacturers’ Association says they’re hearing from manufacturers that the starting rate for basic roles has increased from $24/hr to $27/hr.

Catherine Beard from BusinessNZ says people are moving around for proffered pay rises of $30,000-plus, including civil servants bouncing around jobs. “It is not just higher wages, it is more generous packages, for example, sign-up bonuses, relocation packages and higher starting rates. I heard Australian companies are recruiting new ICT grads on $90,000.”

That’s what’s happening now – but will it continue?

Not so great: expectations of pay rises drop

Beneath the bold pay demands are, on the most part, more subdued expectations. The locked out Kawerau workers will almost certainly settle for less than 7.3 percent.

And a new Reserve Bank survey shows fewer workers expect big pay rises in the coming year, damping down fears that higher wage increases will drive accelerating inflation.

This month’s Tara-ā-Whare Household Expectations Survey shows 52.2 percent of people expect their earnings will stay the same in the next 12 months, up from 45 percent in May. “Households are on average expecting lower growth in their earnings compared with last quarter,” the bank concludes.

Those dampened expectations are critical – in many ways, expectations of what inflation will do are more important than the consumer prices index record of that it’s already done. “It’s really important,” says BNZ senior economist Doug Steel. “If people expect stuff to happen it can become a self-fulfilling prophecy.”

At the same time, an accompanying survey of employers and economists reveals they expect unemployment to rise to 4.31 percent over the next two years, meaning workers will no longer be in such a strong negotiating position.

In short, the window for employees to seek big pay rises is fast closing – and may in many businesses already be closed.

Steel says there’s no wage-price spiral at this point. “By definition, you need one to go up, the other to go up, the other to go up, the other to go up – it needs to happen for many rounds.

“What we’ve seen is a big supply side shock, and we’ve had prices and wages lift, but that isn’t in itself a wage-price spiral. You always need to be mindful that that could develop. So what we’re seeing is the Reserve Bank lift rates to try to prevent such things from developing.”

Who should bear the cost to slow inflation?

Anita Rosentreter is First Union’s strategic project co-ordinator. “Wages have been spiralling down compared with profit for the past 30 years,” she says. “Any improvement in wages is an unreservedly good thing for the majority of Kiwis. We should be taking action to promote wage growth – through collective bargaining by unions – not to suppress it.”

She rejects employers’ concerns that increasing pay demands would feed a dangerous spiral. “What we’re seeing right now is a labour market correction, not a wage-price spiral,” she says. Over past decades, union representation had dropped from 50 percent, when she says unions could reasonably influence prices, to less than 20 percent. “So any impact of wage growth on prices will be small and short-lived.”

In Nelson, Kurt Collier doesn’t buy suggestion from employers or the Reserve Bank that workers should temper their expectations. “We’re the ones who turn up to work every day and put in the hard yards, you know. We don’t get seen on the TV and stuff like the Reserve Bank, you don’t hear of the little guys doing well.

“So a win’s a win, I reckon.”

Newsroom Pro managing editor Jonathan Milne covers business, politics and the economy.

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