Question 7: What happened to workers real wages during the 1987-93 recession?

15 Jun

By the mid 90s the crushing of union strength and the emergence of mass unemployment had produced a real wage decline of 25% for the vast majority of working people and real wages have never recovered since.

Wages were measured in NZ by the Nominal Weekly Wage Index (discontinued in March 1987) and the Prevailing Weekly Wage Index (discontinued in June 1993). The nominal index measured rates as set down in awards and agreements and the prevailing index measured wage rates actually being paid. These could vary over time. For instance, actual wages paid in the early and mid 1960s rose above award rates due to labour shortages. The gap was then closed in the late 1960s and early 1970s as workers willingness to struggle in order to improve their living standards increased.

The prevailing index measured wages only from December 1977. Using this index and deflating by the Consumer Price Index gives a real wage series that can be used to monitor changes in workers real incomes. Doing this we find that real wages peaked in the March quarter 1982. From March 1982 to December 1992 the Prevailing Wage Index increased 74.5% while the CPI rose 127.7% – a real wage decline of 23.4%.

The nominal index also peaked in March 1982. Using a base of 1000 in the December quarter 1977 the real wage index (based on the nominal wage index) in March 1982 was 1097. If this is deflated by 23.4% we get a real index of 840. This allows us to do an estimate of where real wages stood in 1992 after this period of decline compared to earlier periods in NZ history since the nominal index goes back to 1914 and a real wage series using the same base exists in official statistics. The real nominal wage index first reached this level in March 1951 at 838 then fluctuated at or slightly below this figure until September 1969 when a period of real wage rises set in. The index first peaked in March 1975 at 1090, declined to 987, and then rose to 1097 in March 1982.

The Labour Cost Index replaced the PWWI in December 1992. Since then the wage and salary index rose from 868 to 1255 in December 2009. That is an increase of 45.6%. During that same period prices increased 46.1% producing a further real wage decline of .5%. What this means is that the real wage decline of the 1980s and early 1990s hasn’t been restored since – including the nine years of a Labour government.

We know from experience in the industries the Unite Union represent that real wages have declined much further than that represented by the average ordinary time wage. These industries were hit by the removal of allowances, penal rates for overtime and weekend work, and casualisation of hours. We estimate the real income of housekeeping staff in major hotels is only 60% of what was earned in the 1980s

(Part of a series of extracts from “Exposing Right Wing Lies” by Mike Treen, Unite National Director)

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