Tracy Watkins indicated that the National is in a pickle surrounding compulsory employer contributions in Kiwisaver. One way of keeping these contributions and regaining the support of business would be for National to allow wage cuts on the basis of entry into Kiwisaver (with its compulsory employer contribution). The Standard laments such a move, however there are two reasons why I don’t think it’s a big deal:
- In most cases such a policy won’t change anything,
- In this cases where the policy leads to lower wages it may actually be “fairer”
Let me explain myself:
Firstly I said that in most situations this policy won’t change a thing. Why? Because wage increases will be a function whether someones in Kiwisaver – whether firms say it explicitly or not! The reason this can occur is because:
- Employees cannot easily compare wages,
- Wage increases are based on increases in productivity – which is subjectively measured by the firms owner
- Employees willingness to work and provide effort depends on their renumeration – not just their take home pay
- Firms want to create their output at the lowest cost
Taking these factors together, in most industries, it would be difficult if not impossible for the government to prove that employees wage increases were based on whether they were in Kiwisaver or not. Furthermore, in the industries where this is possible, it is unlikely the employee will find out and complain. As a result, the probability of getting in trouble for doing this is low for the firm – so it is more likely they will do it.
But what about fairness – whats fair about a pay cut!
Assume that it is fair for two employees who do the same job, are just as productive, and work just as hard to get the same total renumeration. If one of these individuals is in Kiwisaver and one is not it is not fair for their total renumeration to differ (ignore the tax credit for now – as that merely makes the employee with Kiwisaver more productive and so some of the surplus should be passed on 🙂 ).
However, current government policy demands that someone in Kiwisaver should get higher renumeration than someone not in Kiwisaver, because the employer will soon have to pay the Kiwisaver employee an extra 4%.
Although the government may want to favour people in Kiwisaver – it doesn’t make it fair. As a result, the firms choice to cut employee wages so that both employee types are treated equally is the fair result.