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According to public belief, the New Zealand labour market is doing incredibly well: 93,000 Kiwis are unemployed, which equals an unemployment rate of 3.2% — the lowest in decades.
However, at the end of the 2021 December quarter, 106,362 Kiwis were in the work-ready Jobseeker Support programme, which is more than 60% higher than five years ago, when Labour took office. Therefore, the ‘‘true’’ unemployment rate stands at around 6%. Add to that the increase in people ‘‘not in the labour force’’ over the past five years and the picture looks less impressive.
Further, businesses face worker shortages: job postings have been increasing to record highs, especially job postings for low-skilled workers, which are substantially higher than vacancies for high-skilled workers. Wages over the past year have increased by 2.6%, but inflation is north of 5%.
We are also still waiting to see if the so-called Great Resignation will be imported to New Zealand. In the US people quit jobs and either take time off or find a new job due to high levels of job openings. These turnovers are costly to the economy, because they create transition costs.
What is more worrying to
me is that the labour
market will see disruptive
and transformative changes
if Labour gets its way. At the heart of these changes are the Fair Pay Agreements (FPAs), the social unemployment insurance scheme (NZIIS) and changes to immigration policies.
The Labour Government has announced plans to redesign immigration policy. Among the changes are limitations for tertiary students, low-skilled migrants and, potentially, families of high-skilled migrants.
Further, once borders fully open, we likely will see workers leaving the country for better opportunities elsewhere. This will put additional stress on businesses, especially those employing low-skilled workers. It is also not clear whether New Zealand is an attractive destination for high-skilled migrants at present.
FPAs were introduced by the Ministry of Business, Innovation and Employment (MBIE) in early 2021. MBIE and the Government argue that some workers are vulnerable because they are not covered by collective bargaining and that wages do not keep up with productivity. Therefore, FPAs will create a mechanism for collective bargaining which will set binding minimum terms either at the sectoral or occupational level.
For some sectors FPAs imply that if only 1% of workers are union members, this would be sufficient to start an FPA process which would then cover all workers in this sector. This minority capture implies that a small minority of workers have large power. Further, with only about 17% of workers covered by unions in New Zealand it is surprising, to say the least, that unions will be key players.
Ironically, the regulatory impact statement by MBIE itself states that while the overall case for FPAs is weakly positive, there are significant downside risks and it is unclear whether the system would always have net benefits. In plain English: it does not work.
The second disruptive policy is the social unemployment insurance scheme (handled at MBIE). Under the proposed scheme, workers losing their job due to redundancy, health conditions, or disability will receive 80% of their income for up to six months.
This will be financed by higher income taxes for workers and a contribution from employers.
Both reforms have no solid foundation in facts about the New Zealand labour market and are against robust and long-standing research findings.
For example, nine years ago, I published a paper showing that higher unemployment benefits reduce wellbeing, increase unemployment, reduce income and create higher inflation. In a publication earlier this year, I have shown that FPAs will likely reduce wellbeing, increase unemployment, lower incomes and create higher inflation.
To my knowledge, this was the first quantitative analysis of the macroeconomic and labour market impacts of FPAs. This analysis is not perfect, but it took me about two days to come up with an informed idea about the quantitative impacts of this reform.
Why then is the Government trying to implement these policies? In my opinion, the Government has shown to not be interested in evidence-based decision-making. Further, I believe there is a shocking lack of economic knowledge and scientific rigour in government institutions like MBIE, so I guess we should not be surprised to see those policies come to life — we will just have to deal with the bad effects they will create.
- Dr Dennis Wesselbaum is a senior lecturer in the department of economics at the University of Otago.