The union pay premium

Summary In August, the Centre for Labour, Employment and Work (CLEW) at Victoria University released their annual analysis of collective employment agreements (CEAs)1 . It shows again that people who are part of a collective do better in pay rises. In this commentary I update the “union premium” for 2016 – how much more people on CEAs, negotiated by unions, receive.  For the year to June 2016 CLEW finds that on average wages in collectives rose by 1.9 percent, which is higher than the 1.6 percent last year. Over the same period, the Labour Cost Index (LCI), which is dominated by people on individual rather than collective employment agreements, rose considerably less: by 1.5 percent. Private sector collective pay rates rose 2.3 percent (the same increase as for both 2014 and 2015) while the private sector LCI rose only 1.6 percent. Central government CEA rates rose 1.6 percent (up from 1.0 percent in 2015) while the central government LCI rose only 1.3. Finally local government CEA pay rates rose 2.6 percent (a little below the 2.7 percent in 2015), much more than the local government LCI which rose only 1.7 percent. In every case in 2016 there was a clear union premium so the year confirms the longer term picture: that there is a worthwhile premium for being on a CEA, particularly in the private sector. Further, virtually all jobs on CEAs get a pay rise (only 1 percent didn’t in 2016) but of those not on a CEA, only 45 percent got a rise. Looking at the longer run, a job on a wage of $15.00 in June 1993 (around the average hourly wage) would be paying $26.58 in June 2016 if it had risen at the rate of increase in CEAs, but only $24.06 if it had risen at the rate of the LCI, a 10.5 percent CEA premium. For the private sector, the premium is 16.8 percent: $27.89 for CEAs compared to only $23.87 for the LCI. For Central Government (which includes the wider state sector such as health and education), the premium is quite small at 3.3 percent, which would be expected as the result of much higher unionisation in that sector. In Local Government, the premium is 13.6 percent. However the number of working people directly benefitting from these union-negotiated increases is falling according to CLEW. Coverage in 2016 was 328,700 people compared to 333,000 in 2015. That is about one in six New Zealand employees in the year to June 2016. More positively, private sector coverage rose from 139,300 to 141,400. Not quite as pessimistic a picture comes from the recent HLFS survey for June which showed 410,300 employees said they were on CEAs. Whichever is true, it is little wonder unions are struggling to do their job of creating a fairer balance in who gets income, resources and power in New Zealand – yet they are still doing that job, as the pay premium illustrates