Pay and equity

I went through the government's proposed pay equity legislation in last week's NBR and in The Initiative's Insights newsletter. Some snippets:

The bill would ultimately have the authority decide on allowed wages – the price of labour – if employees brought a claim that they were underpaid.

It requires that remuneration in female-dominated occupations be no less than remuneration in male-dominated occupations with substantially similar skills responsibilities and services, where work is undertaken under substantially similar conditions, and where substantially similar degrees of effort are involved.

But that gets the workings of prices in competitive markets completely backward.

Value and price do not derive simply from the skill involved in some type of labour, or from the working conditions, or from inherent responsibilities. What matters instead is how much consumers value another bit of the final product or service, and how many people are willing to provide the labour to supply it.

If two jobs have, as far as an employment tribunal can tell, equivalent skills, equivalent working conditions and equivalent responsibilities, and one pays far more than the other, that price difference is important.

It says there is a surplus of workers in lower-paid jobs, relative to demand for their services – and a relative shortage in the higher-paid jobs.

For example, translation between Maori and English, or between French and English, may require equivalent skill, training and working conditions but no tribunal could improve on existing market prices to tell you which job should pay more in New Zealand.

I went on to talk a bit about the pay equity mess in Ontario in the 1980s. I hit that part more directly in the Insights column:

The Ontario Tribunal that had to decide on pay equity claims had to choose which professions provided the most appropriate comparison for the group that claimed to be underpaid. The result, as one evaluation later put it, was a “litigation nightmare.”

New Zealand will face similar and substantial problems in assessing which occupations have similar skills and responsibilities, similar working conditions, and require similar levels of effort. While Treasury made the job somewhat easier by providing a hierarchy for selecting appropriate comparators, it would be surprising if New Zealand did not face litigation nightmares of its own.

In short, New Zealand learned little from Ontario’s experience. Neither Tribunals nor Authorities are well placed to set pay relativities between different occupations.

In this coming Friday's Insights column, I'll cover a better way for better pay. If you haven't subscribed already, the sign-up link is at the bottom of the column.

I noted in the column an OIA request of Treasury on their advice regarding pay equity and whether they provided any warnings about the mess that Ontario encountered. Doesn't look like Ontario came up. Here's the first reply, and the rest of the documentation.