AIRAANZ 2025 Conference, 3 February 2025.

It is perhaps extraordinary that the Ardern-Hipkins Labour Government, which said it wanted to be ‘transformational’, did not establish a Ministry of Labour. In 2012 the Key-English National Government had merged the century-old Department of Labour into the newly established mega-agency, the Ministry of Business, Innovation and Employment (MoBIE).

The logic, presumably, was the neo-liberal one that the labour market is like any other smoothly functioning market. It is not. The labour market is greatly fragmented (balkanised). Labourers do not easily substitute for brain surgeons even when they are of the same age living in the same locality. A substantial chunk of the potential labour market hovers offshore so immigration policy has to be integrated with domestic labour market policy. As does skills development policy. Workers cannot be treated like jars of peanut butter; there is a work and safety aspect in their lives. Labour markets do not provide jobs in the way markets provide peanut butter. Any system of wage determination is clunky, while workplace relations offer many regulatory challenges. For many adults, paid work is integral to their wellbeing. Labour economics is an independent part of economics with its own research program and expertise.

However, the various components of labour market management were scattered through MoBIE and other government agencies with little integration. Admittedly, the immigration and workplace relations portfolios were often held by the same minister, even if the two were administered separately. A Hipkins reshuffle in June 2023 separated them (as did the succeeding Coalition Government).

That labour markets do not work like the neoliberals think is the practical case to have a separate Ministry of Labour, integrating the policy development and implementation of the various facets of the labour market. One might have expected a Labour Government to welcome such a creation for political reasons even if it did not understand the economic ones.[1] But it took no action.

The succeeding Luxon Coalition Government has continued the fragmented management with four relevant ministers: Erica Stanford (Immigration), Brooke van Velden (Workplace Relations and Safety), Louise Upston (Social Development and Employment) and Penny Simmonds (Tertiary Education and Skills, outside Cabinet), there are also three associate ministers. Except for ACT’s van Velden, none have distinguished themselves in this area. She repealed Labour’s Fair Work Act and has been delivering for National and ACT business supporters in reviewing the role of WorkSafe, extending 90-day work trials and looking at the Holidays Act.

The Changing Approach to the Labour Market

In many ways today’s labour portfolios have a low profile in comparison to the heady days before 1984. One factor was that Stan Rodger, Minister of Labour 1984-89, refrained from getting too involved (too early) in industrial relations – hence his nickname of ‘Side-line Stan’. Industrial upheaval was curtailed by the undermining of union effectiveness by the Employment Contracts Act 1991. The Employment Relations Act 2000 only partially re-established some union power; it has not led to a marked increase in unionisation levels.

There were other factors which weakened union power, especially in the private sector. A critical one has been the opening of the economy to greater competition, especially from the abolition of quantitative import restrictions. As union power weakened in the private sector, although it has strengthened in the public sector.

One consequence of the weakening of union power has been to push tasks onto the government. Today setting a wage path – traditionally via the Arbitration Court and later by the strong unions leading the wage round – is replaced by the government setting the minimum wage. This is a more political determination than in the past. Unsurprisingly, the Coalition Government has been less generous than its Labour predecessor – raising the minium wage by less than consumer inflation in April 2025.

The government now takes a greater share of the responsibility for workplace safety since workers who are not unionised have to rely solely on it. (The effect of the ECA was to shift personal disputes to the courts, although the employee is frequently supported by a union representative.)

Unemployment

A third major change in the last three decades is an attitudinal one to unemployment. Unemployment seemed to be low in the early postwar era, when it was monitored quarterly by the numbers registered as unemployed with the Department of Labour. In fact the quinquennial censuses showed higher rates. But they were still low, typically below 3 percent and often only 1 percent, indicating a good proportion of the unemployed were not so stressed that they need to register. [2] There was a kind of complacency recalled by the Royal Commission on Social Security which said that ‘it is unlikely that and New Zealand Government will be able to escape the public insistence that it must so manage the economy that there is a market for services of all who are able and willing to work’. (1972:291)

In fact there were indications, even when the Royal Commission began its deliberations, that stressful unemployment was on the rise – but numbers were still low. It was judged transitory as a consequence of the 1966 wool price crash. However, by the end of the 1970s, registrations were rising sharply (so the numbers became a higher proportion of underlying unemployment) and the 1981 census reported an unemployment rate of 4.5 percent.

The Household Labour Force Survey (HLFS) began in 1986. Its levels in March 1986 and 1991 are not too different from those in the Population Census, so now there is a quarterly track within each quinquennium.

It suggests that there has been a step-up of the average (low) level rate of unemployment of the early postwar era. Since 1995 the average unemployment rate has been 5.2 percent fluctuating between 7.8 percent (in 1998 and 1999) and 3.2 percent in late 2007 and mid 2022. [3] This raises a number of issues of which the greatest might be ‘why?’

Curiously and in contrast to the earlier period, the issue of the upward shift is not well debated by New Zealand economists who seem to, broadly, accept a 5 percent unemployment rate as, say, a NAIRU – non-accelerating inflation rate of unemployment. [4] With the demise of the Department of Labour there has been no government agency concerned with the issue, while public good funding for a research program does seem to have been forthcoming. The Ministry of Social Development is responsible for unemployed beneficiaries but has no interest in the wider issue.

The Ardern-Hipkins Labour Government charged the Reserve Bank with taking unemployment into consideration in its monetary policy settings. The Luxon Coalition Government reversed the obligation. The consensus among economists seems to be that the RBNZ monetary settings were hardly affected by this direction, nor will its withdrawal make much difference either. It did stimulate the RBNZ to put some research effort into the labour market.

It is also instructive that the public in general appears to accept the higher rate of unemployment with a widespread belief that often it is the fault – at least in part – of many on the unemployment benefit that they are not working. However, there is public concern – especially locally – when there are job losses from factory closures and the like.

For instance, there was hardly any commentariat mention of the Treasury expectation about the employment track when it published its Half Yearly Economic and Fiscal Update in December 2024. The last survey figure had been 4.8 percent in Sep-24. Treasury expected it to rise to 5.4 percent in Jun-25 and then drift down to 4.3 percent in Jun-29 (the end point of the forecast). Covid aside, the last time the economy was about this end-point level was Dec-18. [5]

The commentariat focus was on the government deficit, as it has been for some time. The deficit contributes to public debt. New Zealand’s economic history features many debt crises or near-crises which have been disruptive to the economy.[6] They have been more common than major earthquakes and their impact is less localised. Prudence suggests that they should be minimised; that involves careful management of the debt path.

However, focussing only on the deficit at the expense of other indicators is like awarding an architectural prize to a building judged entirely on its robustness to earthquakes, neglecting its utility and comfort. The purpose of economic policy is more about wellbeing – of which incomes and employment are important dimensions – but it is rare for official documents or the commentariat to give wellbeing much attention. [7]

The Balkanised Labour Market and Immigration

Earlier we noted the view that the higher average unemployment reflected an upward shift in the NAIRU, perhaps of 3 percentage points. Suppose that is correct. Why did the substantial shift occur? Presumably the shift has been a gradual one – which raises the possibility that it is still occurring – obscured by the lack of data and by shocks and business cycles.

The most likely structural explanation for any shift is that the labour market has become more balkanised so that individual occupations have increasingly used specialised skills with much less substitution between them, in contrast to the earlier era when skills were more generic. In the 1950s it was common for schoolteachers to work in freezing works during the summer vacation; that is much less likely today. The leaky building saga illustrates how new technologies in the building industry required upskilling by those with considerable experience in, and traditional skills from, house construction. [8]

More generally, since the early postwar era there has been a rise in both the average skill requirements of the labour force and in its increasing complexity which has meant that the skill in individual jobs has frequently become more specialised. The days where everything could be done using ‘number 8 wire’ are coming to an end.

So when a worker becomes redundant they may not easily find another job because their reservation wage (expectations) is unrealistic. The skills they had are no longer of market value and they may need reskilling to retain the high wages of their previous employment.

The shadow of the need for generic skills still spreads over New Zealand trade training with a bias in the tertiary education system towards professional training. The Ardern-Hipkins Labour Government proposed a Social Unemployment Insurance scheme which would have provided short-term income protection for those who became redundant and a constructive path for redeployment of the redundant including reskilling training. It would have been a small but significant step in a more comprehensive approach towards upskilling the labour force. But in the policy bonfire of February 2023 it was abandoned without explanation.

And so the upskilling issue remains fragmented across three government agencies and three ministers. (In fairness, the record in this area of the Department of Labour is hardly memorable.) Presumably the NAIRU will continue to rise.

Immigration

Traditionally, New Zealand has resolved its skills shortage by importing labour from overseas, thereby reducing the pressures for and costs of domestic upskilling. To an outside observer, immigration regulation (by MoBIE) seems to be inadequate. It is not merely that the implementation seems to be near shambolic with unduly long administration times, slow responsiveness to changes in demand and erratic enforcement – the lapses indicating there are also policy deficiencies.

There appears to be hardly any attempt to integrate the immigration policy with the domestic labour market, which may not be surprising given the fragmentation within MoBIE. Labour force projections were abandoned three decades ago. The issue is well illustrated by the recent public discovery of shortages of healthcare workers despite this being known decades ago. It is a particularly difficult supply issue given long years of training with entry largely set by government policies and funding together with cross-border high mobility.

The neoliberal policy frame of the labour market – almost a reverse Says Law of demand (for labour) creating its own supply – has not worked. The destruction of a centre of government responsibility over a decade ago has left the labour market functioning poorly.

Disappointingly the Sixth Ardern-Hipkins Labour Government did not address the lacuna. It is unlikely the Luxon Coalition Government will do any better.

Endnotes

[1] It consolidated housing policy into a Ministry of Housing and Urban Development a year after it was elected.

[2] The exception was 1936 (8.7%) and 1896 (the first Census which recorded unemployment, 5.9%). There was no census in 1931, when unemployment rates would have been much higher. See Table 14.5 of In Stormy Seas (Easton 1995:196).

[3] Unemployment peaked at 11.0 percent in Sep-1991. Just before Rogernomics-Ruthanasia, it was sitting at a little above 4 percent.

[4] There is a desultory debate about the effect of the minimum wage on employment issues.

[5] The December 2024 NZIER forecast (based on 8 respondents) is sitting about 0.4 percentage points higher. The more recently released GDP figure for Sep-24 – a sharp fall of 1.1% on the previous quarter – suggests the unemployment rate may be even high.

[6] For some salient examples see B. Easton (2011) ‘Great Days in New Zealand Borrowing’

[7] Labour’s 2018 budget announced it on ‘wellbeing’. The notion put forward was clunky and was noticeable by its absence in Labour’s 2023 election campaign.

[8] B. Easton (2012) ‘Regulation and Leaky Buildings’ in S. Alexander (ed) The Leaky Buildings Crisis: Understanding the Issues