Published in the last issues of The Jobs Letter 254, 9 September 2006 (http://www.jobsletter.org.nz)
Keywords: Labour Studies;
It seems a such long time since unemployment peaked in early 1992 in at 11.1 percent of the labour force, when over 181,000 New Zealanders were jobless and actively seeking work. Others had become so disheartened that they were not even bothering to seek work.
Even that figure is mislead as to the size of the trauma. In the 57 months between October 1988 to June 1993, 754,312 had enrolled on the New Zealand Employment Service register. To give some idea of this magnitude, the average size of the labour force was about 1,612,000 people, so the enrolled unemployed represent about 47 percent of that total. Because people were entering the labour (from school leaving, returning to work, and immigration) this overestimates the proportion. But because not everyone who was unemployed registered the actual numbers involved were considerably higher. Whatever the true and meaningful figure there is no question that fifteen years ago New Zealand was going through its worse period of unemployment since the Great Depression.
The official rate of unemployment is now 3.6 percent which underestimates the change, since there has also been a reduction of those not-in-the-labour force. Why has this happened?
The first reason is that the economy has expanded, creating some 660,00 jobs, or around 45 percent more than 15 years ago. The second reason is that in the early 1990s the government introduced a more active labour market program, although many saw this as the stick of forcing people to look for work, to go with the carrot of pay and training.
We cannot rely on either trend in the future. First, past economic growth has involved low productivity growth and the taking aboard of additional labour. The labour reserves are running out – New Zealand now has high labour force participation by OECD standards, and it appears that the annual hours worked by New Zealanders are among the highest in the OECD (although the data may not be internationally comparable). Future economic growth is going to have to greater productivity growth, which means higher skills, more capital, changing workplace practices, and the abandoning low productivity jobs for high productivity ones. Labour market programs need to be more pervasive.
A second difficulty occurs from the anti-inflation regime. The Reserve Bank has shown it has no ‘target rate’ of unemployment, below which it will try to reduce demand in contrast to the 1990s when a 5 percent rate seemed to be the target. But can unemployment get so low that it will take action? In fact the labour market inflationary pressures are not likely to come through a shortage of unskilled labour, which low unemployment indicates, but by a shortage of key skilled labour who push up their wages as employers compete for them. If other workers follow the wage rises then the labour market adds to other rising costs. Higher unemployment among the unskilled is just collateral damage – but very damaging to those concerned.
Moreover, we cannot rule out that there will be an economic downturn which will slow down economic and jobs growth. Hopefully it will not be a self-induced one as occurred in the 1987-1993 period and, if it is an internationally induced one, it will short and not too deep – more like the Asian crisis of the late 1990s rather than that of the Great Depression..
So macroeconomic concerns wont go away, Even if they did there will still be ‘frictional unemployment’ – workers moving from low productivity to high productivity jobs passing through a transitional (and hopefully brief) period of unemployment. But there is likely to remain a core of those who will not easily return to employment. Some will have various limitations, others have got so embedded into the culture of welfare through a long – and often inter-generational – period of unemployment, that it will be difficult to shift them into employment.
It was worth recalling the clumsiness of the jobs service when it first began using the stick. (More than one unemployed worker suffered an undeserved thwack.)The service will have lift its performance another step to deal with this rump of unemployed.
We also need to review the carrots. An important one was from first reducing the real value of the unemployment benefit in 1991 and then maintaining it since, even though wages have risen faster. Thus the gap between wages and benefits has risen, providing a greater income boost when someone finds work. But there is an absurdity here. The standard social security benefit has the same real value as it had fifty years ago, and is projected to remain there for another 50 years. Real wages will quadruple in the 100 years. Does that make sense?
Especially as it is punishing the unemployed by excluding then from belonging to and participating in society. Surely the frictionally unemployed deserve better.
The current situation is even more vicious to families with children. In order to get as big an income boost on returning to work, a key element of income assistance (In Work Payment previously the Child Tax Credit) is given only to working families, this punishing the already poor children of the unemployed. Just as the unemployed can be a collateral sufferers of macroeconomic policy, children are collateral sufferers of the labour market policy. Is either deserved?
Implicit in this brief review is an agenda for further work. It is sad that the Jobs Letter wont be there to think about it, as it has been pursuing the earlier agenda set by the trauma of the 1987-1993 period. Who will?