New Zealand has problems, but the idea that it is a "low wage economy" is a myth

AVIS: The problem with myths is that, left uncontrolled, they become accepted as facts. We can all think of some – eggs are bad for you, carrots improve night vision.

Much of the well-meaning comment that New Zealand is a low-wage economy risks falling into the same trap: an uncontrolled myth becomes accepted as a fact.

Pandits cite homelessness and low wages as endemic. We are witnessing an explosion of wage claims based on "catching up" and "avoiding a race to the bottom".

The OECD analysis shows, however, that New Zealand is not a low-wage economy. We are in 16th place out of 35 countries in terms of average wages

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But the analysis of The OECD also shows that among these countries our relative purchasing power parity (PPP), a measure of how much of a given item can be bought by the average salary of each country, is lower .

New Zealand is part of a group of countries – Australia, Denmark, Iceland, Norway, Sweden, Switzerland and the United Kingdom – where wages do not buy as much as they could.

That's right: Australia – where grass has always been considered greener, and Switzerland – that has long been praised for its quality of life.

There are several possible explanations for wag The Nordic countries have high tax rates, which support their social infrastructure but dilute their purchasing power.

We have lower tax rates – but housing costs, as obvious, for example, are much higher in terms of PPP than in other countries.

That our wages compare well to many developed countries, but do not buy as much in other countries, is not a simple wage problem. a problem of economic performance. And that's what we should focus on.

The solution is not as simple as increasing the wages of the lowest paid jobs. This simply creates the inflationary question of relativity.

Employees in jobs requiring a high level of skills and knowledge expect a higher rate of pay than workers in less demanding jobs

. The increase in low wage levels will therefore raise the bar on all pay rates – the classic wage inflation scenario. In the end, this translates into increased costs and interest rates – which, on the contrary, have the greatest impact on the lowest wages.

To determine "the solution," we must understand the consequences. For example, what can we do about excessive restrictions on land use? The BusinessNZ family has sought RMA reform to reduce the cost of land, among other things, by advocating for easing the boundaries of urban construction.

Simply increasing wages will not solve this problem. But we have an essential platform to take the momentum towards the high-performing, highly skilled and high-wage economy and society we want to be.

Increasing the value of production relative to production is the only sustainable approach to tackling the issue of low wages. And productivity is a key aspect of this situation.

Increasing low incomes without facing the consequences in other areas will slow down New Zealand's responses to the challenges of becoming a successful economy.

create unsustainable pressures on many businesses and the economy in general.

In the end, as in the plow before the horse idiom, sustainable wage growth must follow and not result in sustainably improved productivity

We can not rely on slogans or myths convenient

We compare very well with many other developed countries for a wide range of measures.

low wages. But we have high costs in some areas. And productivity is the key to restoring that balance.

We must first make efforts to improve productivity, and then push for sustainable wage growth.

Kirk Hope is the Managing Director of BusinessNZ.

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