Productivity and Empowerment

Alasdair Thompson, the CEO of the Employers and Manufacturers Association, today legitimised the pay gap in New Zealand. He claimed that women’s lesser pay relative to men was due to their having to take more time off work, due to having their period and looking after children. The statement, on behalf of New Zaeland’s business community, is abhorrent for a number of reasons: Firstly, it is clearly discriminatory in that, with no evidence to support it, it insults the value of a marginalised group of people. Further, it seeks to validate society’s broader unwillingness to support ill or disabled people in the workforce. However, in this post, I’m going to focus on another issue: what the EMA’s approach to employment indicates about New Zealand’s approach to productivity, and why it is erroneous.

Both the National Government, and the majority of businesspeople who support them, operate under the belief that workers should be employed at the minimum level at which they are willing to work. The approach sees wages as a function of productivity, in that the owner of a business will pay a worker equivalent to the value that that worker gives to the business. This is seen as a good thing, because it incentivises workers to work harder, so as to raise their productivity, be worth more to the business, and so be paid more. Further, it means that unemployment will be minimised, as a worker will employed at the level he is worth to a business, and so any worker willing to work at the right pay rate will be worth.

The implications for this approach can be seen both within National Government policy, and the approach of much of the private sector. Along with their unwillingness to do anything substantial about women being paid less than men, the unwillingness to pay a fair minimum wage indicates that they believe that low-paid workers are already being paid as much as they are worth: if not, then why would they stay in their current jobs?

The problem with this approach is that the effect goes both ways. Although wages may be a function of productivity, how much you’re paid also impacts how productive you’ll be: if people feeled valued by their employers, then they’ll respond by honouring that value. If I feel empowered by my employer, by that employer honouring my work with a wage that is fair and equitable, then of course I will strive to be seen by my employer, and by wider society, as deserving of that wage. So, a fairer employment system – one that treats everybody as capable of being a valuable member of society – will increase productivity, not decrease it.

The evidence for this new approach, an approach that empowers and values workers, is increasing. Recently, the work of a Victoria University economist, Professor Morris Altman, has validated this approach, concluding from internationally collated evidence that “If people are treated well they will work harder”, and so that both the private sector and wider society stands to benefit from increasing pay rates and conditions for workers.

This approach can also be applied in a macroeconomic context. Traditionally, economists and politicians have seen the distribution of wealth within a society – societal inequality – as a trade-off between egalitarianism and productivity: too equal a society will result in no incentives to work harder. However, just as better conditions in work lead to higher productivity, leading economists like IMF advisor Jeffrey Sachs and Nobel Prize winner Joseph Stiglitz have concluded that more equal societies tend to do be wealthier, so that everybody is better off. Further, former IMF Chief Economist Raghuram Rajan has concluded that the Global Financial Crisis was, in part, caused by social inequality.

It’s time that we accepted that, as a society, empowering our workers leaves us all better off. Although the private sector, the likes of Mr Thompson, stand to benefit, our government clearly has a role: only it can reduce inequality on a societal level, only it can raise the minimum wage so that our workforce feels empowered, and only it can eliminate the gender discrimination that is telling women that they are worth less than men. This economic leadership takes courage, but doing so will reap rewards for all of us.