Welfare and economic impacts of Fair Pay Agreements in Aotearoa

This paper performs the first quantitative economic analysis of the proposed Fair Pay Agreement (FPA) and analyses the welfare (or wellbeing) implications and economic effects of the proposed FPA for Aotearoa New Zealand. The new FPA system is designed to address weaknesses of the labour market in A...

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Bibliographic Details
Published in:Journal of the Royal Society of New Zealand 2022-10, Vol.52 (5), p.580-586
Main Author: Wesselbaum, Dennis
Format: Article
Language:English
Subjects:
Agreements
Comment
Economic analysis
Economic conditions
Economic impact
Economics
Fair Pay Agreement
Labor market
Labour
labour market
Macroeconomics
policy reform
Viewpoint
Wages
welfare
Well-being
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Summary:This paper performs the first quantitative economic analysis of the proposed Fair Pay Agreement (FPA) and analyses the welfare (or wellbeing) implications and economic effects of the proposed FPA for Aotearoa New Zealand. The new FPA system is designed to address weaknesses of the labour market in Aotearoa. Using a standard dynamic macroeconomic model with labour market imperfections via search and matching frictions calibrated for Aotearoa New Zealand, we simulate the macroeconomic and welfare effects of the FPA. To be precise, we model an increase in worker's bargaining power. We find that this labour market reform will reduce overall welfare (or wellbeing) in the economy and will lead to increased unemployment, lower production and incomes, and higher inflation. In conclusion, while the reform will increase wages, it will reduce overall welfare and harm the economy and should, therefore, not be implemented.
ISSN:0303-6758
1175-8899
1175-8899
DOI:10.1080/03036758.2022.2030371