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Gareth Morgan thinks we should be doing spot checks on premises for compliance with employment laws in the same way we check for hygiene standards. Your view?

Gareth Morgan thinks we should be doing spot checks on premises for compliance with employment laws in the same way we check for hygiene standards. Your view?
The latest youth unemployment figures

By Gareth Morgan*

The Living Wage campaign is quite rightly drawing attention to the issue of pay and working conditions in New Zealand.

With record numbers of Kiwis heading for Australia, it’s certainly time for that debate.

Regardless of where you sit on the issue of what level of wage employers should be paying, information coming out of this campaign about the wage and working conditions of our youth should stop you in your tracks.

Last week the Herald reported the plight of foreign student workers in Auckland, some getting paid the princely sum of $3 an hour or less.

Legally, the lowest anyone can get paid is currently $10.80 an hour (first time youth workers working their first 200 hours).

The image we’re left with is of dodgy back-alley owners of cheap-eats willing to break all sorts of laws – employment and immigration law, and probably tax if we bothered to look closely.

But we don’t seem worried do we?

Maybe we never eat in places like this, so think the problem is limited to very small numbers, or maybe we appreciate our cheap dinners.

But it’s not just dodgy back alley cheap-eats where employment rules get broken or where the affects are felt. No-one knows for sure about many employers break minimum wage laws in sectors like hospitality and retail because we don’t proactively monitor firms for compliance, we only react to complaints and tip-offs – and that’s a serious problem in itself.

However if you ask around among any group of kids trying to get their first job you’ll hear plenty of horrors. Most kids don’t need employers to sign off on their visa form or have large debts to repay, but they’re desperate for work just the same. They need a first employer to get that all importance reference. From there they can go onto bigger and better things, but without it they’re stuck.

In any market the price of the next best alternative is the price that counts. The labour market for youth is no different.

Any kid wanting a job has the option of working at the same rate or slightly lower than they last person employed. That means all kids – not just foreign students – have to be prepared to work at these sweatshop rates or else forego work. And kids are working but they’re getting exploited doing it.

We’ve heard anecdotes about youth workers – ordinary kiwi kids – being employed without written contracts; working for weeks serving customers alongside paid staff and contributing fully to the revenue of the business only to be told they their work days are unpaid “training days”; working long shifts without breaks which flies in the face of health and safety laws; being dismissed without a fair process; the list goes on. All the conditions we have listed breach current employment law.

Are these kids likely to take complaints to the Department of Labour (now buried within the new Ministry of Business, Innovation and Employment)? And risk getting branded a troublemaker? Yeah right.

The knee jerk reaction of many readers to this will be – “So what? The kids are getting experience and references, the willing ones are getting ahead. And it’s creating work”.

The so what is this – society has decided what the minimum wage should be, if you don’t like it get society to change its mind. If we want a country of entrepreneurs who can only get ahead not by being smarter at how they use their staff, but by cheating society’s laws then we’re on the right track.

Of course we should be aiming for an economy made up of employers who get ahead by being smarter in how they do things, not law breakers. But these employers, who do follow the rules, currently operate with a handicap – they ultimately can’t compete with the cowboys paying staff rates of $3 an hour or less when they pay $10.80 or higher. So they go out of business. Some of Wellington’s best known eateries for example, have been feeling a sufficient pinch to consider closure.

If we cleaned up these practices – by doing spot checks on premises for compliance with employment laws in the same way we check for hygiene standards –  then we’d have a business sector full of firms who compete by being smart, not by cheating and exploiting the vulnerable.

Firms who compete by being smart would not only survive while following our laws, but the smartest ones would grow too – filling much of the gap currently filled by cowboys. Or we would go without our $5 dinner, but building an economy on those is hardly progress.

There is a risk of course that unemployment for workers with no or very low skills will rise when we shut down the cowboys.

There will be some workers who not even smart employers can profit from unless they’re practically free. But the proper place to correct that problem is the education and welfare system – and the minimum wage may well be the trigger that usefully directs people there.

Let’s take the current model to the logical limit. Once we’ve driven the pay rate for youth down close to zero the only employers we’ll have left are those who know nothing but how to profit while paying third world wages. The smart but honest businesses will have all gone to the wall. And how will our population be faring? For youth supported by their families it will make little sense to accept work at $3 an hour even if does come with a ‘reference’. They’d spend more money travelling to the job than they’d earn. Workers who have no other income or support will have to work at these wages, ending up indebted, unable to make ends meet and queuing for planes headed for Australia. Hang on a minute, we seem to be there already. This is an extreme example, but you get the drift.

This week the latest youth unemployment figures were released. They showed that 31% of kids aged 15 to 19 were unemployed in December 2012, up from 24% the previous December and an average of 17% over the 10 Decembers before that.

This is a huge waste of the country’s human resources, and a preventable disaster.

We need to re-establish a level playing field so smart and honest employers aren’t driven to the wall by dodgers.

It won’t solve everything, but it’s a start.


Gareth Morgan is a businessman, economist, investment manager, motor cycle adventurer, public commentator and philanthropist. This opinion piece was first published on his new blog and is reprinted here with permission.

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I'm not sure that spot checks can work.
I know of a business that is keeping all their wage records in order and doing the appropriate filing with the IRD.
The employer has been employing migrant labourers and on record paying them $18.00 per hour. The business files everything and pays the correct level of taxation..
The business has however not been paying the employees the nett amount. They have been paying them substantially lower and in cash. The employer apparently pockets the difference between the cash paid to the employees and the nett amount on the tax records.
A spot check would only look a the wage records and not be able to determine an actual amount paid to an employee.
Bad employers are undermining good employers/operators and the viability of those good employers business without a doubt.

So, what are you saying, sanctioning it IS an option? No no no. We have to do everything possible to stamp this out, this is a contributor to the destruction of our scoiety.
How about undercover employees then, to expose this sort of thing and when done, hefty, hefty penalites, deportation, jail, not allowed to own a business again.
We are being dragged down and down and down by the whole Asianisation of NZ, time they pulled their damned heads in and lived according to OUR rules.

Raegun - No I personally do not approve.
There is a system already and these employees are choosing not to use it. They don't go and place a complaint within the official channels. Why?
 I don't believe that Gareth has the full picture. Employees are not taking action for a multiple of reasons. One is the high cost of taking any action. Lack of knowledge of the process involved is another.  The mediation process is a day off work of which some people cannot afford. Cost of lawyers is another.  Cost of the Courts is another especially if the plaintiff loses his/her case. If people are dealing in cash to pay wages where’s the proof that they weren’t paid? Some people do not have banking accounts for various cultural or religious reasons.
Why add another layer of bureaucracy to an already bloated system.
What I am saying is that I can't see spot checks working. Cleary the Wage records are in order it is the cash payments which cause the issues and where a lack of traceability of the actual amount of payment.
You have made the assumption that this is only an Asian problem. This is incorrect as the case I have put forward has nothing to do with Asian business.

If the law was that wages had to be paid into a bank acount then it would solve that problem. It is easy to check ones bank acount and go back as far as necessary.

Mike B - Or as an employee you can issue a receipt for payment and keep a file of transactions. I would rather empower the individual to take responsibility than create more expensive bureaucracy that penalises good operators who would have to wear the costs associated with spot checks.

Gareth - you are touching an important issue.
The bigger one is if we want to have a society or bunch of individuals fighting each other for a piece of "more".
I am afraid that the second option would prevail - it is purely biology in action....

Well said.

Yeah terrible bosses are a real problem. Just ask Ricki Herbert :)

Ricki Herbert's cat must be feeling especially victimised :-)

Gareth Morgan should have someone come and inspect the Phoenix football team.
The bosses of Phoenix FC told the team manager Riki Herbert he was safe in his job. Now Herbert has been kicked out.
The bosses of Phoenix FC think they know a lot about football so have tried to impose a style on the team. It is causing the players terrible stress, because they are not good enough to play that way.
The bosses of Phoenix FC bought a team that had made the finals play-off series two years in a row and now the team is dead last. Morale among employees is awful.
Perhaps the Phoenix bosses should re-train their employees so they are good at catching cats.

Minimum wage increasing:
Labour Minister Simon Bridges today announced the minimum wage is to rise to $13.75.
The current wage rate is $13.50.
The training and new entrants’ minimum wages will increase from $10.80 to $11, which is 80 per cent of the adult minimum wage.
“Setting these wage rates represents a careful balance between protecting low paid workers and ensuring jobs are not lost as the economic recovery gains pace,” says Mr Bridges.
“The Government is firmly focussed on growing the economy and boosting incomes.  Through our Business Growth Agenda we are creating opportunities to help grow more jobs in New Zealand, for New Zealanders.”
The new minimum wage rates will come into effect on 1 April.

"as the economic recovery gains pace",
Thanks for that one, Minister.                       :)

There should be an equiry into the top wage earners aswell.
Does the CEO of telecome actually earn ALL of that pay
Does the CEO of Christchurch city council actually earn ALL that pay
Do all the heads of our SOE's actually earn ALL of their pay
Do our judges and administrators actually earn All their pay
And so on
Or is their pay topped up by the privilage factor
I think it is safe to conclude that the majority of the well off did not earn their wealth but aquired it through privilage.

you might be scratching to get that off one the ground,Mr Morgan -  fur will be flying  !

"31% of kids aged 15 to 19 were unemployed in December 2012". Errr, wait a sec. Shouldn't kids that age be studying anyway if they ever want to stand a chance to get off the minimum wage and be able to some day support a family without govt assistance?

Heavens no.  The idea that everyone or even a majority need a higher education is something we need to get away from.  Think of your own families basic needs - the bulk of them being food, shelter, light/warmth, clean drinking water and proper sanitation.  Then ask in providing those things what percentage of the workers in the chain needed a university degree to fulfil the functions of getting that stuff to you and yours.
We need to start recognising the real value of manual labouring jobs and pay a living/family supporting wage for the performance of those duties.  For example, where would any of us be if there weren't people fit enough and experienced enough to put on a proper roof, or fence a paddock to keep animals properly contained, or to propogate a plant or plumb a house?  The reality is the bulk of 15-19 year olds should be in some type of apprenticeship/work.   

Heavens to Betsy.
I had no idea GM was so into the 'I'm from the GumNut and I'm here to help' meme.
First Cats, now Kids.
I look at that there Graph, and notice the massive climb starts in - oh - 2007-2008.
Wonder what happened back then?
And if that 'Something Happened' (y'all rilly haveta read the book to get that)  could be reversed?

Our economy, our regulations , pretty much everything is done to maintain property prices in Auckland. Nothing else matters.
So we turn a blind eye to 3rd world labour terms and conditions because that means that there are some employers out there that are able to lower  their wage costs  and other things so that they can pay the excessive rents on Auckland retail space.
We let in 'business' migrants so they can pay the excessive rents on Auckland retail property and also to buy Auckland Houses.
All must be sacrificed to prop up Auckland property prices.
Cheap rent and property prices are actually essential for our economy.  But wierdly we have been brainwashed into thinking that expensive rent and expensive property prices can make us all rich

This reminds me of someone telling me that once German and English newpapers announced the same news with a slight difference. The English paper called it good news, while the German paper called it bad news!