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18 November 2005 Full Employment: Not There
Yet Last week Statistics New Zealand
reported that the unemployment rate fell in the September quarter
to 3.4 % of the labour force, a 24-year low. This is an important achievement.
New Zealand now enjoys the lowest unemployment rate among OECD member
countries. The situation is a turnaround from
1991, when unemployment reached 11 percent. At that time there was
widespread pessimism that New Zealand could return to anything like
full employment. Comments like "We cannot hope
to see unemployment fall below about 5-6% of the labour force",
and "Children must be taught to prepare for the reality that
they may never get a job" were commonplace. Such statements were appalling
and wrong. I wrote in 1992 that "Full
employment - the opportunity for anyone who wants a job to get one
- is not an impossible dream." I was confident that the freeing-up
of the labour market with the Employment Contracts Act would lead
to high employment growth and rapid falls in unemployment. Indeed it did. By 1996 total employment
was 18% higher than in 1991 and the unemployment rate had fallen
to 6.1 percent. In a 1994 study for the Business
Roundtable, Australian academic Judith Sloan suggested unemployment
could be as low as 4% by 1998 given further policy improvements,
such as a rollback of damaging Employment Court rulings and stricter
welfare rules. These did not happen, however.
Unemployment rose during the Asian economic crises and it took New
Zealand until 2004 to get it below the 4% mark. Some people think employers want
unemployment to stay high - an ODT correspondent on 12 September
spoke of them wanting to manage unemployment back to "their
acceptable level" : "Six to 8% would do nicely." This idea harks back to Karl Marx's
notions of a "reserve army of unemployed" and wages at
subsistence levels. Like most of Marx's ideas, it is bankrupt. An employer is perfectly happy
to hire someone if their contribution to the value of output of
the firm exceeds their cost. Firms' markets are expanded if more
people are employed and higher wages generate more purchasing power. Should we be happy now that the
unemployment rate is 3.4% (and 2.2% for 'European/Pakeha')? Certainly
not. The Maori unemployment rate is still 9.1% and youth unemployment
(15-19 age group) is 12.4%. Full employment is not a measured
unemployment rate of zero - there will always be people taking time
searching for jobs - but it is certainly closer to 1-2% than 3.4%. In addition, there are many people
on other benefits and many potential older workers who could be
productively employed. It is wrong to argue that the only way that
New Zealand can now grow is through higher labour productivity.
The key to full employment remains
fewer barriers to getting a job and fewer welfare disincentives,
along with better general policies for growth. The Australian government is currently
reducing employment barriers by scrapping unfair dismissal laws
for SMEs (firms with under 100 employees) and establishing a 6-month
probation period for larger firms. The removal of hiring and firing
restrictions benefits marginal workers in particular. As I wrote
in a paper for the Hui Taumata earlier this year, the most disadvantaged
Maori (or non-Maori) should be able to say to an employer: "Give
me a chance. I realise I have a bad employment record, I've been
on drugs and in prison, but I'm now determined to get my life back
together. I know I can do the job you're offering and I'll work
hard at it. I don't even care if you won't pay me much for a while
as my family will support me, and if things don't work out you're
free to dismiss me, no questions asked. But I'm confident I'll make
the grade and that you'll be happy to give me a permanent job and
good wages down the track." Sadly, that employment contract
is unlawful in New Zealand today, or at least unenforceable. Excessive employment protection
laws leave marginal workers without jobs and without hope - as the
riots in France demonstrate. The best protection for any worker
against unfair treatment is a state of full employment (so that
alternative job opportunities are available) and common law sanctions
against such things as misrepresentation and duress. With respect to welfare, US experience
has shown the dramatic reductions in welfare numbers that can be
achieved with tighter rules, with most of those joining the workforce
being better off than they were on benefits. Today, the job market is generally
a buyer's market - employers nationwide are crying out for staff. This is as it should be. At full
employment, firms able to pay better wages bid workers away from
lower-valued employment - that is how wages rise. But we are not there yet. There is ample scope to absorb more people into the workforce as well as to raise productivity by policies that encourage investment and growth, including investment in skills. Roger Kerr is the executive director of the New Zealand Business Roundtable. For more information, contact: Roger Kerr Web: www.nzbr.org.nz |