It is extraordinary to find people who believe – or at least used to believe – that the labour market is somehow ‘special' (in an economic sense) and that employment contracts need to be regulated differently from other contracts.

Thus Colin James, then editor of the National Business Review , described the Business Roundtable's push for what became the Employment Contracts Act as “pretty theorising”, “purist”, reaching for a “fanciful degree of freedom” and painting “a make-believe world in which workers choose between competing unions in their workplace or even negotiate their own wages.”

Make-believe? Today, nearly one worker in ten in the private sector negotiates their own wages through individual contracts.

At the heart of the debate about the Employment Relations Act and the proposed changes to it is the Margaret Wilson view that there is “unequal bargaining power” between firms and their staff, which necessitates unionisation, collective bargaining and special rules.

This idea is fundamentally Marxist – Marx saw the world as a class struggle between workers and owners of capital. But it is easy to show it is wrong, both empirically and in theory.

Empirically, if employers had systematic bargaining power, wages would never rise. Indeed a wage of, say, $20 an hour would be driven down to $15 then $10 and then to a bare subsistence level. That is exactly what Marx thought would happen. But of course real wages rose strongly even in Marx's lifetime in the developed world, and have done so ever since.

Another empirical test: if Ms Wilson were correct, high wages would depend on high levels of unionisation and collective bargaining. But there is no such relationship. Hong Kong is a country where unions hardly exist yet wage levels are among the highest in the world.

What is wrong with the Marx/Wilson theory? It is simply that the adversarial view of employment relations is fallacious.

Firms (buyers of labour) compete with other firms for staff and workers (sellers of labour services) compete with one another for jobs. As in any other market, sellers do not compete with buyers. Wages are driven up by productivity increases and competition for scarce labour.

At times there may be a buyer's market or a seller's market for particular skills in particular locations. But this is no different from what happens in other markets (like housing). Bargaining ‘power' depends on the alternative opportunities available to parties on both sides of the market.

Other fallacies follow from the initial misconception. For example, unions complain about ‘take-it-or leave-it' offers, not recognising that we face take-it-or-leave-it transactions every day, such as when we deal with a bank or a supermarket. Any other way of closing a transaction would indeed be the stuff of a make-believe world. But neither workers nor consumers are exploited in competitive markets: people who can go elsewhere are very hard to exploit.

The idea of inequality between firms and workers in setting wages is the hoariest of myths.

We need sound, normal laws of contract to ensure fair employment bargains are made and enforced, but Marxist labour theories should be consigned to the dustbin of history.

For more information, contact:

Roger Kerr
Executive Director
Ph: 04 499 0790
Email: rkerr@nzbr.org.nz

David Young
Communications Manager
Ph: 04 499 0790
Email: dyoung@nzbr.org.nz

Web: www.nzbr.org.nz