Employers favour freeze extension

Press, 27 April 1983, Page 14

Employers favour freeze extension

When the talks on wage-fixing procedures between the Government, the Employers’ Federation, and the Federation of Labour resume tomorrow, a crucial topic will be the measures to be taken immediately the freeze on incomes and prices ends officially on June 22. The Government has put forward two options and in this article Mr J. W. Rowe, executive director of the New Zealand Employers’ Federation, explains why the employers favour an extension of the freeze — with two qualifications.

The Government put two options for the period immediately following the anniversary of the introduction of the freeze, before the transition committee of the Wages Policy Talks at the meeting on April 15. They were:

(1) Extend the wage freeze by six months and grant a wage order of about 2 per cent, with relaxation of the price freeze to accommodate it;

(2) Extend the existing freeze on incomes and prices by six months with no wage order.

The Employers’ Federation is strongly of the view that the second option is to be preferred, subject to two qualifications. The two qualifications are that there should be taxation or welfare benefit relief for lower income earners with dependent families who derived least benefit from the 1982 Budget, and that the end of the freeze is linked with progress of the committee on long term reform of the wage-fixing and industrial relations system. This would ensure that the gains made during the period of the

freeze are consolidated and become the base for economic recovery.

Business is suffering under the prices and associated freezes, through compression of margins and reduced profitability. The impact of the freeze is not being borne solely by wage and salary earners. Following on from this it must be stressed that if a wage order were granted there would have to be a substantial relaxation of the price freeze, and the resulting price increases would cancel out the gains to date.

Moreover, it is almost certain that in terms of real disposable income the two options would yield virtually the same result on average, that price increases resulting from the necessary relaxation of the price freeze would offset the increase in after-tax earnings. The first option unlike the second, would reduce employment because it would push up costs.

The following points should be noted:

® The great majority of firms have no capacity to sustain wage increases without compensatory price increases. It seems clear that this situation will persist for the rest of the year, at least. © Any further increase in costs, especially labour costs, would lead to more labour shedding, just when there are signs and prospects of unemployment reaching a plateau. ® Employment cannot be permanently boosted by wage-led growth. That sort of reflation would only lead to further inflation and unemployment.

© The only way to achieve sustained growth is to restore and improve competitiveness, both for export industries and import-sub-stituting industries, and to stimulate investment. Both export-led and investment-led growth would be encouraged by further dampening inflationary expectations which would allow real interest rates to decline, and by holding and reducing unit labour costs.

The inescapable fact is that there

is no national capacity to meet wage increases without re-fuelling inflation and increasing unemployment.

Given that the recent devaluation will inevitably lead to higher costs, further pressure through wage order would be unsustainable. It would make the maintenance pf the price freeze impossible and endanger the whole attack on inflation just when it is starting to bear fruit.

Looking further ahead, we remain convinced that reform of the country’s wage fixing machinery is essential to achieve sustained growth and prosperity, and that such reform can hardly be achieved while inflation is rampant. Constraints on wage increases will need to remain until the shape of the new and permanent wage fixing system is known. It should be emphasised that for the majority of wage and salary earners there is practically no difference between the options, after taxes and increased prices are taken into account.