False Economy: Undermining Pay Equity Creates Business Inefficiencies
The government's rush to dismantle New Zealand's pay equity framework last week wasn't just pushed through under urgency; there is broad sentiment that it was pushed through to make the budget look better.
The government claims the rushed changes to the Pay Equity Act will save “billions”, but this completely misses the bigger economic picture.
Gutting our pay equity laws isn't a triumph of fiscal responsibility; it's a budget allocation trick creating market distortions that businesses will ultimately pay for.
When markets undervalue labour, costs just shift and multiply, leading to increased operational costs, talent shortages, and dampened economic growth
False Economy: Short-Term Savings, Long-Term Costs
Systematic undervaluation of work in female-dominated sectors distorts the entire labour market. It artificially suppresses wages in essential services, leading to chronic staffing shortages, decreased productivity, and increased costs from high turnover.
The economic inefficiency created far exceeds any short-term budget savings.
Forward-thinking businesses recognise that correcting market failures strengthens the entire economic ecosystem.
When all employees are fairly compensated they have greater purchasing power to spend. They experience lower financial stress, reducing absenteeism and healthcare costs. They stay in their jobs longer, preserving institutional knowledge and reducing the astronomical costs of constant recruitment and training – not to mention the cost of brain drain overseas.
The Technical Flaws of the New Framework
By restricting comparisons to male employees at the same employer or similar employers, the new legislation fundamentally misunderstands the structural nature of gender-based pay discrimination.
In sectors like aged care, where 93.6% of workers are female, there simply aren't enough males to make a meaningful assessment.
This isn't theoretical. The 2017 Terranova court case established that entire industries could be undervalued due to gender bias. The resulting settlement improved wages for 55,000 care workers.
The new legislation misunderstands economic frameworks.
Consider transfer pricing, the rules that stop companies from artificially moving profits between countries to avoid taxes. We have these rules because we recognise that without them the market gets distorted, and everyone loses except those gaming the system.
Pay equity legislation works on the same economic principle.
When women-dominated professions are systematically undervalued, that's not a functioning market – it's a market failure. Just as we wouldn't accept companies artificially shifting profits offshore, we shouldn't accept artificial undervaluation of entire professions.
The government claims these restrictions create a "more workable" system, but for who? Not for businesses facing chronic staffing shortages in essential sectors. Not for taxpayers funding the increased healthcare and social welfare costs that result from workforce instability. And definitely not for the people in these jobs.
The Disproportionate Impact
The statistics speak for themselves. As of June 2024, New Zealand's national gender pay gap stands at 8.2%, rising to 23% for Māori women and 24% for Pasifika women compared to Pākehā men. These aren't just numbers; they represent real economic hardship for families.
Care workers, librarians, and early childhood educators, predominantly women, often from non-white ethnicities, now face an even steeper battle for fair compensation.
For businesses across New Zealand, this translates to reduced consumer spending power exactly when our economy needs domestic consumption.
When essential workers can barely afford essentials, they aren't buying homes, upgrading vehicles or dining out.
Leadership That Counts
The economic case is clear: artificially constraining pay equity creates market distortions that harm businesses, consumers, and our broader economy.
While the moral case for pay equity should stand on its own merits, the commercial reality offers an additional compelling argument that even the most profit-focused executives cannot ignore.
Forward-thinking business leaders understand that when essential workers in female-dominated sectors are chronically underpaid, the resulting talent shortages, turnover costs, and reduced consumer spending power create ripple effects throughout the economy.
This underpayment also distorts access to critical services that your own employees depend upon daily, from quality early childhood education for their children to adequate care for ageing parents.
When these services become understaffed or inaccessible due to wage inequity, your workforce faces increased stress, absenteeism, and decreased productivity as they struggle to fill these essential care gaps themselves.
The question for New Zealand's business community isn't whether we support a particular social cause. The question is whether we support functioning markets or accept interference that creates economically irrational outcomes.
Business leaders have historically spoken out against political interventions that create market distortions, from tariffs to subsidies to regulatory overreach. The dismantling of our pay equity framework represents exactly the same economic problem.
For New Zealand to thrive, we need markets that value work accurately. Business leaders who understand this will be the ones who drive our economic future. The economics are clear. The decision is yours.
