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As the government is learning, a ‘wage freeze’ can come with unintended consequences

In a new article on The Conversation, Associate Professor Laura Meriluo explains that the underlying productivity of the economy could be compromised if workers decide to leave the public sector.

Photo / Mark Mitchell

But fiscal responsibility and the need for “moderation and restraint” were indeed the justifications for the proposed three-year freeze – or “restraint” – on public sector wages over $60,000 (except in exceptional circumstances).

Responding to pressure from public sector unions and workers, the government has suggested routine step-based pay increases could be applied more widely, the policy could be reviewed a year earlier and cost-of-living increases accounted for.

On the face of it, however, the policy would adversely affect approximately 75% of public sector workers, or about 15% of all workers in New Zealand.

Meanwhile, the vast fiscal stimulus package in response to the pandemic has helped keep businesses alive and workers in jobs. It has also driven up New Zealand’s debt-to-GDP ratio and is hardly the work of ideological slaves to fiscal responsibility.

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