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War Economy

Wage Stabilisation

Wage Stabilisation

Before the introduction of the Economic Stabilisation Regulations in December 1942, wages legislation in New Zealand had been concerned mainly with establishing minimum wage rates to prevent unreasonably low standards of living. The awards of the Court of Arbitration, which was the principal wage-fixing authority, established minimum rates and conditions of work for the many types of worker coming within its jurisdiction. No attempt had been made to establish maximum rates.

The provision, in May 1940, for the Arbitration Court to make general wage orders, and the two general orders in August 1940 and April 1942, were discussed in Chapter 11. The general order system protected those workers whose bargaining strength was weakest, but, because it led to wage changes ‘across the board’ rather than piecemeal, it increased the impact of wage changes on the economy.

It would, however, be unreasonable to blame either wages policy or prices policy for the lack of stability up to December 1942. Wages and retail prices both rose 14 per cent, and, though they certainly interacted on one another, the main contributing influences page 316 leading to the increases were the rise of over 50 per cent in import prices and the growing scarcity of goods and services. The purpose of the new economic stabilisation policy was twofold: to gain a respite by holding back for a while the interaction between prices and wages, and to provide more effective institutions to restrict cost increases generally.

When regulations for the stabilisation of wage and salary rates were introduced in December 1942, the machinery of wage regulation had to be adapted to provide not only a ‘floor’ under wages, but a ceiling also. Awards continued to be issued by the Court of Arbitration in the usual way, but the circumstances in which both the minimum rates established by awards and the actual rates paid could be increased were strictly limited. The Court could not make any general order changing wage rates until the Wartime Prices Index had moved an initial 2 ½ per cent. Apart from this, it could not increase minimum rates of wages in any award except to adjust anomalies.

The effect of the regulations was to peg rates of remuneration at the levels ruling on 15 December 1942, those levels to be called the ‘basic rates'. Remuneration was defined as including, besides salaries and wages, overtime rates, bonuses, allowances, fees, commissions, travelling expenses, directors' fees, and any other emolument. The basic rates related, not to earnings, but to the rates at which those earnings were calculated. They applied to positions held, rather than to persons, so that it was still possible for a person to earn a higher income by changing his position, or by working longer hours.

To deal with applications for increases in wages or salaries above the basic rate, in cases affecting individuals or small groups of employees, three Wages Commissioners were specially appointed under the regulations. Applications had to be made jointly by employer and employee, and approval was to be given only where there were additional duties, responsibilities, or risk, where an anomaly called for adjustment, or where remuneration was abnormally low. Care was taken to appoint as Wages Commissioners only men who would abide by the spirit of the stabilisation scheme and refuse to approve increases unless there were adequate grounds. As this often meant refusing increases which employers and employees had already agreed to, it required a different attitude from that usually taken by Conciliation Commissioners.

The new stabilisation scheme was to apply to all salaries and wages, not just those previously under the jurisdiction of the Court of Arbitration. To cope with the usual arrangements for salary scales in many institutions, it was permissible to pay rates of page 317 remuneration above the basic rate in cases where rates were fixed by a scheme of classification approved by the Economic Stabilisation Commission. By a scheme of classification was meant any salary scale as commonly understood, or a schedule of rates for any position which involved annual rises up to a maximum. In giving its decision on these schemes of classification, the Commission followed the same principles as the Court of Arbitration and the Wages Commissioners.

The practice whereby the Court of Arbitration, in fixing award rates of wages, took account of changes in the cost of living was a long-standing one, but except in the period 1919–25 had had no statutory basis. The Rates of Wages Emergency Regulations 1940 provided a statutory basis, but did not establish any definite formula linking changes in wage rates to changes in a price index. The Economic Stabilisation Emergency Regulations provided such a formula. The previous Retail Prices Index was no longer published and was replaced by the new Wartime Prices Index, covering the retail prices of a group of essential items considered to provide a minimum standard of living in wartime. The Government's aim was to keep that index stable, though not necessarily the individual prices within it; but, if the index should move up or down by more than 5 per cent, the Court would automatically issue a general order revising wage rates by a similar percentage. The first increase was to be granted, however, when the index showed a rise of 2 ½ per cent. Apart from this formula, the Court was not to take the cost of living into account when making new awards.

Thus for two and a half years from December 1942, there was a definite formula linking wage rate increases to a price index. As it turned out, it was not until 1947 that the Wartime Prices Index rose the initial 2 ½ per cent necessary to provide the basis for a general order. Meantime the automatic formula linking wage rates with the Wartime Prices Index had been revoked in June 1945. In the two and a half years when there was a statutory provision linking wage increases to price increases, there was no occasion for the Court to apply the provision in making a general order. The Wartime Prices Index showed a maximum increase of just over 1 per cent during this period, and this only temporarily, a fact which provides a good indication of the Stabilisation Commission's achievements.