Is the so-called “race to the bottom” just a myth and if not is the government’s fair pay agreements legislation the solution we need? BusinessDesk investigates what could be the biggest shake-up in industrial relations for over 30 years.

In his first reading speech on his fair pay agreements (FPA) bill, workplace relations minister Michael Wood dedicated it to the cleaners, supermarket operators, security guards and bus drivers who have been signalled as the top priority for its implementation.

He also said the bill was for the major employer who told him how much he wants to end the race to the bottom “so that his team can have fair pay and conditions”.

Wood went on to explain that race wasn't necessarily about employers deliberately doing the wrong thing, “… it's the inevitable consequence of a system that has incentivised competition based on low labour costs”.

Judging by the submissions made by the business lobby, the race to the bottom is generally seen as the stuff of fairy tales, particularly in today’s tight labour market.

However, the providers of bus services at least agree that driver wages are an issue for their sector. 

Greater Wellington regional council chair Daran Ponter told BusinessDesk driver wages were “a casualty” of the tendering process for public transport contracts.

The Bus and Coach Association (BCA) agreed with him on this point but believes FPAs are the wrong way of tackling the problem.

Ponter said “there's a hell of a lot at stake” with the bus contracts in the 2017 tender round being worth more than a billion dollars.

“They're making the tenders based on the best price and if they get it wrong, they lose the tender altogether, and maybe the services that they were already providing.

“So, there's a lot riding on actually driving the numbers down as far as you can and I suppose the fear is – it's more than a fear, it’s the reality in some cases – that driver wages had been affected as a consequence.”

Council intervention

Ponter said last year the council “stepped into the market”, initially to provide bus companies extra funding to ensure all drivers were paid at least the living wage and then a second time, to lift their wages from $22.50 an hour to $27.

Despite the driver shortage, he said this was “something that none of the best companies were willing to do, possibly they would say ‘able to do’ of their own right”.

When asked if that proved it was within councils' abilities to stop the race to the bottom, Ponter responded that it was the only council intervening in this way and the tendering process would work a lot better if operators across the sector weren’t significantly out of kilter with each other on wages and conditions.

BCA chief executive Ben McFadgen points the finger at the government’s procurement rules, which have a very strong focus on price.

He said that when you’re operating a business which has large fixed assets like a bus fleet, it is very difficult to cut costs other than wages.

“We believe the procurement methods that we've been working under have adversely affected driver wages significantly and changed the perception of bus driving as a skilled profession as well.”

But rather than introducing an FPA, the BCA wants the procurement rules changed to put the emphasis on value delivered for the public, rather than price.

McFadgen said they had been working on improving drivers’ conditions in the hope of staving off an FPA for their sector.

Alternative approach

He said bus transport is quite a unique sector, with some drivers having to work split shifts and others unsociable hours, which have become exacerbated by a driver shortage.

The work they were doing on bus driver conditions was looking at recognising these things with extra allowances.

“There's a whole lot of different ways that employers can make the role more attractive without having to use an FPA,” which he called “a 20th century solution for a 21st century problem”.

He alleges FPAs are "too blunt", however, the proposed bill does provide for pay scales that mean not all drivers would need to be paid the same, and that different districts could have their own provisions.

“We're not saying the fair pay agreement isn't flexible, we're just saying that it lacks a flexibility that is required in a 21st century workforce to reflect workers’ needs and to really get the productivity gains that we need to be seeking in New Zealand.

“We're living in a global economy and the game's changed. I think that the government needs to recognise that, because otherwise they're going to go back to the 60s and 70s.”

Parliament’s education and workforce committee is currently hearing submissions on the FPA bill and is due to make its report in October.