Reading between the jobless lines

AUSTRALIA V NEW ZEALAND -- THE LABOUR MARKET SCORECARD

THERE has been much recent debate, triggered in part by the Federal election, about the respective merits of the workings of the Australian and New Zealand labour markets since the NZ Employment Contracts Act was passed in mid-1991.

In this connection, a paper entitled So You Want To Go To New Zealand? was recently published under the ALP's name.  It's real origins, however, were revealed by the fact it was released on January 18 by the ACTU President Martin Ferguson under cover of an ACTU press release.

This release claimed that, under the new regime, NZ has experienced "stagnating real wages and slow productivity growth" and that between 15 and 40 per cent of NZ workers have suffered reductions in one or other working conditions.  The paper paints a picture of the NZ worker struggling to conclude individual contracts in a "law of the jungle" setting while his Australian counterpart is being protected under the Accord and the award system.

Any comparison of developments in the two labour markets since 1991 needs to recognise not only that major changes in the regulation of employment conditions take time to have effect but that there are factors other than employment regulation that influence the demand for labour.  In particular, New Zealand has been pursuing considerably "tighter" macro-economic policies.  On conventional wisdom, these might have been expected to result in a more restrained demand for labour and a higher rate of unemployment.

In fact, since the Employment Contracts Act was passed in mid-1991, the NZ unemployment rate has dropped much more than the Australian.  Using OECD standardised unemployment rates, both countries had around 10 per cent unemployment in mid-1991 but, while Australia's rate is currently around 8 per cent (and likely to rise in the immediate future), in September 1995 (the latest date for which data is available) NZ was just below 6 per cent (and was showing every sign of continuing to fall).  Moreover, the rate of unemployment among the European section of the NZ population was only 4.3 cent.

Further, even with a slower workforce growth, NZ employment has grown at a fast rate than in Australia.  Again using standardised OECD data, between June 1991 and September 1995 employment increased by 12 per cent in NZ compared with 7 per cent in Australia (up to October).

This faster growth in employment may explain why there has been a slower growth in labour productivity in NZ:  instead of trying to squeeze more out of their existing work forces, NZ businesses have evidently taken on additional workers.

It is true that average real wages in New Zealand have been comparatively stagnant over this period, but the difference is not all that large.

Of course, with little change in average real wages some sections of the NZ labour force will have experienced declines in real take home pay.  Some have probably also done so in Australia.  Another report -- in this case a joint one by the ACTU and ACOSS -- claims that the low-paid in NZ are earning significantly less and the higher paid significantly more since mid-1991.  Whether such claims will be substantiated by later research remains to be seen.

However, even if there has been some increased inequality in the distribution of earned income, this has to be weighed against the improved employment situation.  Certainly, only a small reduction in earnings may be required to produce improved employment.  This is suggested by the result produced by the Treasury's model which indicates that an improvement in the functioning of the labour market which lowers the NAIRU (the rate of unemployment at which inflation starts to accelerate) would result in a substantial increase in employment with only a very small reduction in real wages.

A system that allows greater flexibility in real wages, as in NZ, is in any event arguably more equitable because it gives a higher proportion of the working age population the opportunity of becoming employed.  It should not be a function of the labour market to deliver an appropriate distribution of incomes.  That is the proper function of the tax and social security system.

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