Robbing Peter to pay Paul: Okun’s Law and labour market reform, NZIER Insight 80

29 May 2019

With teachers striking, and New Zealand’s first “Wellbeing Budget” about to be released, Robbing Peter to pay Paul: Okun’s Law and labour market reform is a poignant reminder that competitive markets are the “welfare engines” of the economy. Okun’s law illustrates how New Zealand’s economic fortunes are tied to its labour market rules. When employment terms and conditions are agreed between employees and employers, without the threat of union monopoly sanctions, then the economy as a whole becomes much more dynamic, innovative and rewarding for everyone.

You can’t legislate people wealthy, and returning New Zealand to occupation-based labour market bargaining will not improve welfare for all New Zealanders. It will be the unemployed that become locked out of employment opportunities who will ultimately pay the price if the recommendations of the Fair Pay Agreement working group to return to a union-dominated occupation-based bargaining system are adopted.