What the settlement for residential care employees means

John McGill wonders if the settlement for residential care employees is the labour market equivalent of the Kaikoura earthquake.

Pay increases affecting large groups of workers have a long history in New Zealand. Some may remember the General Wage Orders, through what was known as the Arbitration Court. They were seen at the time as a mechanism for addressing issues around pay increases for large groups of unionised employees (over 40 percent of the workforce back in the day) within an economy where the government was comfortable with its control of much of it. General Wage Order’s died in the early 1980s.

Although the circumstances and environment surrounding the residential care employee’s settlement could not be more different, as it affects a very specific group and is related to pay equity, the size of the agreement, an announcement from the Prime Minister, and clear union jubilation, all hark back to an earlier era. 

In addition, it was always reasonably clear with the earlier mechanisms that non-union employees (i.e. those not directly affected by the GWO) would receive them, often at precisely the same level, and so it proved over many years.

This settlement with care workers affects 55,000 low paid employees spread across many organisations, although obviously concentrated in the health sector. The initial effects will be felt immediately (from July 1, 2017) with implications across a number of areas. These include:

• Pay compression with respect to reporting relationships. Our not-for-profit survey covers these groups and even the most casual examination of the survey data shows pay relationships with supervisors and managers now virtually reversed. This situation is not sustainable.

• Relativity with groups that deem themselves to be similar, or have had actual linkages between pay levels in the past with the caregivers. Despite the Prime Minister being clear that the relativities have changed and arguments around these will not be entertained, I think this will be difficult to sustain over time. Perhaps relativities will shift somewhat but they are unlikely to change dramatically. This latter issue can become divisive as addressing it is both time consuming and expensive.

• Generally raised expectations. While the feel-good factor of a group of employees long seen as deserving, get what most see as a fair increase, other groups may well have the view that they too are equally deserving. As employees from the care sector are such a large group and the percentage increases they will receive are relatively large, coupled with the agreement having generated very widespread interest, many other employee groups will be looking at their options.

On the latter point, although the low levels of inflation have resulted in real increases in pay, other pressures have only been all too real. Housing and transport cost rises in Auckland for example are the most obvious.

Although the settlement parameters have been clearly outlined, the detail of how the settlement was reached, i.e. what comparators were used and what weight was given to what groups, has not been forthcoming. 

New legislation around the conduct of pay equity claims is being enacted; the draft legislation came very shortly after the settlement announcement and it is clear the government has a good idea of how it wants future cases conducted. There has been much talk of the “bar being set high” and the like. There is no doubt this is a groundbreaking settlement (a very big earthquake), let’s see how the aftershocks affect the landscape, it looks like there will be a lot of them. M


John McGill is the CEO at Strategic Pay. 

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