NZ businesses should be innovative, but aware of complicated labour market

NZ businesses should be innovative, but aware of complicated labour market

OPINION: I love Perpetual Guardian's experiment with a four-day work-week, but that does not mean I think it will work.

The great thing about flexible labour markets is that it does not matter whether I think it will work, whether you think it will work, or whether the labour regulators at the Ministry of Business, Innovation and Employment (MBIE) think it will work.

What matters is that Perpetual Guardian and its workers think it will work, and that they are able to give it a go.

When labour market regulations do not prescribe every last detail of working conditions, companies and their workers can innovate.


* Perpetual Guardian to test four-day week

* CTU keen to explore four-day working week

They can try out different ways of doing things to see what works best for them.

Every firm is different, and different firms attract different types of workers.

In some factories, leaving expensive equipment idle for three days out of seven would bankrupt the place.

In some law firms, clients put enormous value on being able to be in touch with their attorney, any time, day or night. And in other firms, things can be more flexible.

There are lots of good reasons that most companies co-ordinate around common work hours.

Planning meetings across firms can be awfully difficult if everyone is on different schedules, but those kinds of reasons hardly hold for all firms.

When firms compete for workers, they have every incentive to figure out what they can provide to attract talent.

If it winds up being relatively cheap for Perpetual to offer a four-day week, and workers value the longer weekends, both the employer and the employees can be better off.

New Zealand's relatively flexible labour markets allow this kind of innovation, but we should not take them for granted.

Australia's Awards system, for example, is far more prescriptive about the pay and conditions that must be in place in every workplace.

The rules might make sense if one size really did fit all firms in any given industry, but the market is more complicated than that.

If Perpetual Guardian's experiment works for them, firms facing similar circumstances will have to take notice. If it fails, they can revert to the more standard five-day week.

The costs or benefits either way fall with them, so they have every reason to have thought hard about this.

But when regulation sets the conditions across a whole industry, experimentation like Perpetual's becomes much too hard.

And if MBIE gets things wrong, firms and workers bear the costs.

Let's celebrate Kiwis' ability to innovate, while we still have it.

Eric Crampton is the chief economist at The New Zealand Initiative.

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