New Zealand's recovery is likely to be largely jobless, writes Peter Lyons.
The much heralded economic recovery is apparently upon us. The key drivers are the Christchurch rebuild and commodity exports, particularly dairy. After almost 30 years of massive economic restructuring, we remain largely reliant on agricultural exports to drive our economy, circa 1973. The Christchurch rebuild is a temporary boost that will largely be paid for through increased insurance premiums.
As we enter a new year with high hopes of getting our economy back on track, there is one statistic we should monitor closely. It is the official unemployment rate. This has hovered above 6% since the onset of the global financial crisis (GFC).
It understates the actual problem. Australia has provided a safety valve for many Kiwis facing unemployment. The official unemployment rate also only measures those actively seeking employment. It fails to account for those discouraged to seek work or those working in casual or part-time jobs who would prefer full-time permanent employment.
We are not alone. This is an issue in most Western economies. It should be a defining issue in this election year. The political response so far has been that many other countries have a higher rate of unemployment so we are not doing too badly. This is a cop-out.
Before the GFC, our official unemployment rate was about 3%. But in those pre-2008 years, our economy was driven by a massive credit build-up that disguised an underlying problem. The problem is that rapid technological change and the globalisation of labour markets is leaving more and more people behind. Their skills and labour are simply not needed.
A recent report by The Economist identified three broad categories of employment. Transformative work involves manufacturing. Transactional work involves processing stuff such as basic accounts or clerical work. Interactional work involves dealing with people such as teaching and healthcare. The first two categories are particularly susceptible to outsourcing to cheaper overseas options. Competitive pressures are forcing firms to outsource low-skill transformative and transactional jobs to cheaper overseas workers.
Before the GFC, the impact of rapid technological change and a global labour market had been masked by rampant demand driven by easy credit and inflating house prices. This is no longer the case. This is likely to be a largely ''jobless recovery''. Those in decent jobs will experience rising incomes. Those without decent jobs are likely to be left further behind.
Anyone offering easy solutions should be treated with extreme caution. Government can finance ''make work'' schemes but these are not a viable long-term solution.
It is likely part of the solution lies in the flexibility and relevance of education and training a nation provides.
Like many countries, our education system at both school and tertiary level is failing to match the skills needs of an increasingly dynamic work environment. There is a growing mismatch in what is being taught and how it is being delivered and what is required to ensure people are equipped with the skills to gain meaningful employment. I continue to teach academic economics to students, many of whom would be much better served with an intense course in financial literacy.
We continue to churn out lawyers and management and marketing graduates when realistically the jobs aren't there for them. We continue to operate a tertiary system with lengthy breaks and courses that could be compressed. We fail to make any meaningful attempts to try to identify employer needs and future trends and ensure fast, efficient delivery of courses to match these skill requirements. We seem to have introduced a qualification system into our secondary schools with few sharp edges. Students learn to game the system to attain easy credits. Sadly, the result is they are acting against their own long-term interests and employability.
Our education system at all levels is largely moribund in its willingness to adapt to a rapidly changing economic and social environment. There is a justified suspicion of political motives for change. Our politicians operate within three-year time horizons.
Meaningful transformative change would be long-term in nature. But there are also vested interests in education that actively fight against such change. The result is we are selling our young people short. This fundamental issue is being faced by most Western societies. Those that deal with it best will ensure their prosperity.
- Peter Lyons teaches economics at Saint Peter's College in Epsom, Auckland, and has written several economics texts.
