This is an interesting issue. As long as the employer contribution “increases the cost of employees” this will lead to a reduction in labour demand, which will decrease real wages – true.

However, if a non-KS person can commit to staying out of the scheme this should not happen, as they can commit to being a lower cost labour resource and so can get an appropriately higher real wage.

As a result, we have to ask if there is any way someone can commit to this type of strategy before stipulating that there will be a real wage (growth) fall for non-KS employees.

“since many unionised employees will receive a given wage rise regardless of whether they personally are enroled in KiwiSaver”

All we need is a change in the wage level though – then wage growth can be equivalent. As long as someone in Kiwisaver can be paid 4% less than someone not in Kiwisaver then giving people “union negotiated” pay rises shouldn’t make a difference should it?

If doing this is legal now – then a National government making it explicit isn’t a big deal is it?

The phenomenon I describe would still be the case despite this, since many unionised employees will receive a given wage rise regardless of whether they personally are enroled in KiwiSaver; and indeed even non-union members working in unionised workplaces often have union-negotiated benefits extended to them. My analysis stands to a large extent.

L

Details here

Yes, it is a rationale for the change, but it would require a shift in the policy’s purpose to be a genuine rationale – essentially an emphasis shift away from `encouraging retirement savings’ to something like `enabling retirement savings but not at the cost of [other things]’.

It’s occurred to me that a pareto advantage is only gained from KS tax credits and employer contributions if overall wages don’t fall as a result of the policy. I believe it’s illegal for employers to deny an increase on the basis that the employee costs the employer 4% more due to KS, for instance. This creates the possibility of real wage growth slowing across the board (not just those of KS enrollees) because of pressure from KS on employers. If this happens, non-enrollees are doubly-disadvantaged: they don’t get the advantage of KS employer contributions and tax credits, and they get the disadvantage of a real wage decrease.

This cost in `fairness’ is weighed against the benefit of increased retirement savings. Although it would be objectively `unfair’, this significant advantage of belonging to KS could be a reasonable cost given the main purpose of the scheme. Of course: change the scheme’s purpose and the cost-benefit balance changes.

L

“Bringing fairness into it is nice in theory, but nothing to do with the policy itself.”

Agreed in a sense, looking at it as one instrument one goal we should only be worried about the impact on aggregate savings.

However I think fairness is an important normative consideration and when it comes to determining policy it is one way of defending this potential change.

Bringing fairness into it is nice in theory, but nothing to do with the policy itself.

L