Surviving on the Brink: Neo-Liberalism, Unions and Collective Bargaining in New Zealand

Union strategy, decentralisation and deregulation: New Zealand 1991-2007

George Lafferty[1]

Abstract During the 1980s, the ‘New Zealand experiment’ ushered in an era of sweeping deregulation, decentralisation and privatisation, setting the country at the forefront of ‘New Right’ policy developments internationally. The Employment Contracts Act 1991(ECA) provided the industrial relations expression of this process, inaugurating a legislative framework of individual contracts and negotiations. Unions were to be viewed as external to the employment relationship, rather than as workers’ sole representatives and bargaining agents – their role under the previous centralised system. Following the election of a Labour-led government in 1999 and the passage of the Employment Relations Act 2000 (ERA), the industrial relations environment became more favourable for unions and collective bargaining – for example, through legislative encouragement for ‘good faith’ in the employment relationship. This paper examines the impact of these two legislative regimes on unionism and collective bargaining from 1991 to 2007, with a particular focus on the effectiveness of union strategies within New Zealand’s neo-liberalised industrial relations context.

Introduction

New Zealand provides a distinctive example of the potentially devastating impact of neo-liberalism on workers, unions and collective bargaining. Following the swift deregulation and decentralisation of the industrial relations system implemented through the National Party’s Employment Contracts Act 1991 (ECA), the pay and working conditions of many workers worsened dramatically, while unionism and collective bargaining coverage declined throughout the 1990s. The election of a Labour-led government in 1999 promised some improvement to this situation. Its Employment Relations Act 2000 (ERA), included in principle encouragement of unionism and collective bargaining, promoting good faith in the employment relationship.

These two legislative regimes provide the backdrop for this paper’s assessment of New Zealand unionism and collective bargaining from 1991 to 2007. A particular concern is the effectiveness of union strategies over this period, and the extent to which New Zealand possesses an institutional framework that supports unionism and collective bargaining. The paper begins with an overview of the historical context which precipitated the rapid deregulation and decentralisation decentralisation of industrial relations, going on to analyse the respective impacts of the ECA and ERA, in relation to union membership and collective bargaining outcomes. It then evaluates the effectiveness of union strategies during the period 1991-2007, exploring the possibilities for a future reinvigoration of unionism and collective bargaining.

In addressing these issues we drawthe paper draws on a number of data sources held by the Industrial Relations Centre (IRC) at Victoria University of Wellington. These are: (a) New Zealand’s mostits database of collective employment contracts and agreements since 1991; (b) the annual surveys of trade union membership conducted by the IRC since 1991, when the ECA ended the practice of union registration and the collection of official data (see Harbridge and Kiely, 1995); and (c) interviews with New Zealand union leaders about their experiences of and responses to the ECA, and about their perceptions of the environment for unionism and collective bargaining under the ERA.

Deregulation, Decentralisationisation and Individualisation

Along with Australia, New Zealand pioneered industrial relations reform in the late nineteenth and early twentieth centuries, a period during which the two countries were seen as embodying an Australasian ‘socialism without doctrine’ (Metin, 1904). New Zealand’s Industrial Conciliation and Arbitration Act 1894, supplemented by subsequent legislation, established a national system of industrial awards and dispute resolution through which pay and conditions were regulated. This system endured, despite periodic threats, for almost a century, until New Zealand once again emerged at the forefront of industrial relations change – although in a very different way.

During the 1980s, the Fourth Labour government (1984-1990) broke with its mildly social-democratic tradition to introduce a series of ‘New Right’ economic policies, widely dubbed the ‘New Zealand experiment’ (Kelsey, 1995). This process encompassed a wide-ranging program of privatisationprivatisation, deregulation and decentralisationdecentralisation, transforming New Zealand’s economy and society in line with neo-liberal policy prescriptions and the demands of business lobby groups.

The influence of this process on industrial relations institutions and legislation remained limited during the 1980s, although the Labour government had made some significant concessions to the neo-liberal agenda, most notably the State Sector Act 1988, whereby public sector organisations were restructured to resemble private corporations. It was only with the election of a National Party government in October 1990 that the application of neo-liberalism to the employment relationship gathered momentum, as New Zealand emerged as the crucible of industrial relations deregulation and decentralisation during the 1990s. Employer groups, Right-wing political parties and commentators internationally (particularly in Australia) looked to New Zealand as the flag-bearer of ‘market freedoms’ within a globalising globalising economy.

The ECA established a system of individual negotiations and contracts, whereby unions lost their previously guaranteed role as the sole representatives of labour in collective bargaining. The Act abolished the country’s industrial relations framework of centralisedised conciliation and arbitration, while collective bargaining was decentralised decentralised to the enterprise level. References to unions were omitted from the legislation itself, symbolising their marginal status and the overt individualisation of New Zealand’s industrial relations environment. Various agents were permitted to conduct collective or individual bargaining – for example, a group of employees within a workplace could negotiate a collective agreement themselves, without the involvement of a registered union.

In the wake of the ECA, union density and collective bargaining in New Zealand fell throughout the 1990s, most dramatically in those industries where small workplaces predominated, such as hospitality and retail. The impact of the ECA on union membership (see Table 1) was swift and devastating –, but not uneven: w. While some unions disappeared, lost much of their membership or amalgamated in order to survive, others retained or even increased membership: the effectiveness of union responses to this rapidly deregulated environment also varied widely.Nor can the decline in union membership be attributed solely is not solely attributable to legislative change, though. Several other factors contributed significantly: the expansion of the service sector, privatisationisation of major public enterprises, rapid growth in part-time and casual employment, and job losses in manufacturing. Overall, this created a more volatile labour market, less conducive to union recruitment and retention.

Table 1: Trade Unions, Membership and Union Density 1991-2007

Sources: Statistics New Zealand Household Labour Force Surveys; Industrial Relations Centre Surveys.

Widespread disparities in wages and conditions emerged within and between collective contracts, as well as between workers on collective contracts and those on individual contracts. Collective bargaining soon covered only a small minority of workers, as employers were able to enforce the introduction of individual contracts. Further, even though small sections of the collectivised workforce did relatively well in a deregulated environment, many workers received minimal increases, zero increases or even wage cuts: over the first five years of the Act, 43.5 per cent of employers had either reduced or frozen hourly wage rates. (Institute of Economic Research, 1996) New Zealand’s workforce, then, became thoroughly polarised and segmented throughout the 1990s, as restrictions were removed on the length of both the working day and working week. (Blackwood, Feinberg-Danieli, Lafferty and Kiely, 2007: 25-37) This protracted erosion of working conditions has generated a long-term reconfiguration of the balance of power between employer and employee, under the familiar neo-liberal banner of increased ‘flexibility’– all under the banner of ‘flexibility’.

These changes completed the transformation of New Zealand from a protectionist, regulated economy and society, into a neo-liberal showpiece. As one prominent National Party figure exulted just before the 1999 general election:

The Employment Contracts Act 1991 is the most successful piece of industrial relations legislation in New Zealand's history. The eight years since the legislation passed into law have shown that National has provided the right basis for our industrial relations framework into the next millennium. Once considered radical legislation, the Employment Contracts Act has become the model for flexible labour market legislation. (Bradford, 1999)

Unionism and the New Middle Ground

This was the context in which the Labour-led government of Helen Clark was elected in November 1999, offering the prospect of some respite for unions and workers. Despite the presence of the Left-wing Alliance Party as a minority government partner, though, a reassertion of public ownership, regulation or centralisation was not on the agenda. This was a modest government occupying a middle ground that had been shifted substantially to the Right during the 1980s and 1990s. In October 2000, the new government’s Employment Relations Act (ERA) came into effect, offering an ostensiblyoffering an ostensibly more congenial environment for both unions and collective bargaining. The legislation was founded on the assumption of unequal power as inherent to the employment relationship and on the expectation that employers and unions would negotiate in good faith– a principle unfamiliar at the time to most New Zealand practitioners (HRINZ 2000). Unions were given greater rights of access to workplaces; only registered unions were able to negotiate collective agreements; and in principle encouragement was also given for the negotiation of multi-employer collective agreements (MECAs). New agencies, the Mediation Service and the Employment Relations Authority, were introduced to deal with employment relationship problems more efficiently – although these problems were to be classified primarily on an individualist basis (as ‘personal grievances’).

Subsequent industrial disputes and court cases highlighted the legislation’s shortcomings, however. This formal legislative encouragement for unionism, collective bargaining and good faith remained unaccompanied by any substantial institutional framework. The Government’s response was the Employment Relations Amendments Act, passed in December 2004.Prompted at least in part by a growing body of evidence that a main objective of the ERA, the promotion of collective bargaining, was not being achieved in practice: employers have various avenues whereby they can pass on union-negotiated pay and conditions to non-union members or undermine multi-employer negotiations. The most important amendments in this regard were: 1) the prohibition of the employer practice of simply passing on collectively bargained terms and conditions to employees on individual agreements (whereby employees on individual agreements work under identical terms and conditions to those on collective agreements); 2) enabling the payment of a bargaining fee by non-union employees who want to have the same terms and conditions as those contained in the relevant collective agreement; 3) the expectation that the parties must support collective bargaining, including the negotiation of multi-employer collective agreements, where practicable and reasonable.

Despite these changes, the ERA has not been accompanied by any great upsurge in union membership. Indeed, union density in New Zealand has been remarkably stable since 1998, two years before the Act, remaining consistently between 21 and 22 per cent, within the context of an expanding labour force (increasing by over 25 per cent during the period). Yet this overall stability masks a picture of considerable volatility in the memberships of different unions. Not only did some unions disappear and a substantial number amalgamate; while some unions had quite steady membership numbers, the membership of several other unions fluctuated dramatically over the period. The overall number of unions grew substantially during the early ERA period, from 82 in 1999 to a peak of 181 in 2003 (see Table 1). Much of this increase in the number of unions is attributable to the change of legislation, whereby groups of employees can no longer settle a collective agreement: since the ERA permits a registered union to have as few as 15 members, many small unions have emerged – these are often groups of workers in a single site. Under the ECA, collective contracts could be negotiated without the participation of a registered union, leading to a situation in which collective bargaining coverage exceeded union membership. The situation has been reversed under the ERA, though: since only union members can be covered by a collective agreements, union membership now exceeds collective bargaining coverage.

Aggregate data do not reveal the situation in specific areas, however. Of particular concern is an ongoing decline in the traditional union heartland of manufacturing, which accounts for the largest proportion of union members in the private sector, as many unionised jobs have been lost with companies moving offshore. Particularly significant is the redistribution of union membership across industry sectors, indicating a distinctively segmented labour force. For example, in 2007, public and community services accounted for 24 per cent of wage and salary earners, but 52 per cent of union members. In contrast, the retail and restaurants sector comprised 24 per cent of wage and salary earners, but only 4 per cent of union members. (IRC union survey data) The union presence in certain industry sectors, then, is minimal.

Overall, the precipitous 1990s decline in union membership has been arrested, but unionism has become increasingly concentrated in a few industries and in the public sector. There is a very clear union/non-union demarcation at an industry level, with very few signs that the non-unionisedised areas are likely to become unionisedised. Also, since the stabilisationisation in union density is apparent from 1998, well before the introduction of the ERA, we should be wary of attributing an exaggerated impact to legislative change.

Unions continue to be handicapped by the persistence of free-riding: the 2004 amendments have had a negligible impact in this regard, as exemplified by a recent Employment Court case in which the National Distribution Union (NDU) accused General Distributors Limited (GDL), the operator of three supermarket chains, of undermining the bargaining process by passing on collectively bargaining terms and conditions to non-union employees. The Court, however, ruled in favour of the employer, indicating that unions face a very high threshold to convince courts that passing on has occurred (see Blackwood et al, 2007: 95-101). This particular legislative attempt to encourage good faith may prove ineffectual without institutional support for collective bargaining. In this regard, the 2004 amendments have been at most a minor irritant for employers, and there remains little incentive for non-union workers to join, in a situation where collectively negotiated wages and conditions are informally passed on.

Nonetheless, the legislative encouragement for multi-employer bargaining has no doubt had significant consequences, as a number of unions have sought greater standardisation of pay and conditions. There has been a steady increase in recent years in the proportion of collectivisedised employees covered by MECAs, growing from 18 per cent in 2000 to 33 per cent in 2006, although with a slight decline in 2007 to 28 per cent (IRC collective bargaining surveys), indicating that this trend may have peaked. One major obstacle to multi-employer bargaining has been the loss during the 1990s of national bargaining and organisational structures for employers, which atrophied under the ECA, as enterprise-level bargaining proliferated. As one union leader commented, unions are often required to assist employer groups to organise, in order to provide a basis for national-level bargaining. Improvements to pay and conditions have also been partial, as many workers continue to be adversely affected by the neo-liberalisation of the 1990s.

Polarisation, Segmentation and Collective Bargaining

Despite the influence of MECA bargaining, the fragmentation wrought in the 1990s has continued to a considerable degree, and the polarisation of wage outcomes that emerged during the early 1990s has had an ongoing, cumulative effect, with workers in some industries falling steadily behind others, even within the collectivised workforce (there are no comparable data for those workers on individual agreements). Table 2 shows the average annual wage change data calculated for the period from 1991 to 2007. Across the 16-year period, wages growth is a modest 2.3 per cent per year on average. There is, though, a considerable divide between the various industries, with a gap of 2.5 per cent between the highest (3.8 per cent – insurance, although with a small number of collectivisedised workers) and the lowest (1.3 per cent – government administration and defence). Thus, some workers have fared considerably better than others over an extended period, and the polarisation of collective bargaining outcomes has continued. In areas of considerable employment growth such as retail and hospitality, both collective bargaining and unionism have, with few exceptions, remained weak and wage increases have been chronically low.

Table 2: Weighted mean annual wage change by sector and industry (1991 to 2007)

[Source: Industrial Relations Centre Surveys, 1991-2007]

During the period from July 2006 to June 2007, there was an average annualisedised wage increase in collective agreements of 3.8 per cent. This is the highest increase reported by the Industrial Relations Centre since it began its collective bargaining surveys in 1991 – the average annualisedised wage increase for the previous year (2005-2006) of 3.2 per cent had also been a record. These still modest increases should be understood in relation to the low unemployment and high demand for skilled labour of recent years. While there has been substantial improvement in relation to the 1999, there are still areas, as indicated in Table 3, which have experienced zero or very low (under 2 per cent) increases.