I’m not one of those who thinks wage and salary earners as a whole have had some sort of raw deal. From time to time I’ve run this chart
suggesting that over the last 15+ years, wage increases in New Zealand (it is different in some other countries) have outstripped that rate of growth in what I (loosely) term the earnings capacity of the economy: nominal GDP per hour worked, a variable that incorporates productivity growth and gains in the terns of trade.
To the extent there is some sort of “raw deal”, it is one the public has put up with: voting for politicians who, in office, do nothing about removing th roadblocks in the way of fixing our poor rate of productivity growth. Fix that and we’d be considerably better off. But across the economy we can’t consistently pay ourselves what hasn’t been earned.
But if wages growth across the economy has been, if anything, surprisingly high given the lack of productivity growth (I say “surprisingly”, but there are decent explanations as to why it has happened), there are still some wages puzzles.
One of them perhaps only puzzles public sector economist types who’ve never themselves had to make a payroll or face a market test for their services.
The Reserve Bank has long run a regular programme of business visits. I always enjoyed participating (especially in visits well away from Auckland and Wellington) and often came away from the visits with a heightened admiration for the people who have built and maintained businesses, through good and bad economic times. But there was one question that I never really got a satisfactory answer to. In periods when the economy was doing well (for example the early 2000s) we would regularly hear from firms we talked to that it was really hard to get decent staff. We’d nod understandingly, jot that down in our notebooks, and then ask “so what is happening to wage inflation?’ and “so are you increasing the wages you are willing to offer to get people”. And often there was a look of almost incomprehension (perhaps it was really disdain for Wellington economists), and only rarely would anyone suggest that, indeed, it was really hard to get the right staff, and that they were paying over the odds to get people. For some reason, a conversation on this issue at a firm in Timaru, probably in 2002, sticks in my memory.
There are strands to a possible good story. Increase wages materially for new arrivals and before long you’ll have to increase them for everyone. It is easy to raise wages and hard to cut them (if labour market or business conditions reverse). Simply bidding more might attract a class of worker more likely to move on quickly if someone else offered a little bit more. And so on. So I get that there are reasons why wages move somewhat sluggishly (relative to, say, prices for oil or other commodities). But I was always surprised at how weak a link managers/owners of private businesses appeared to draw between difficulty hiring and (what an economist would think of as) putative changes in the market-clearing price for such labour.
Which is all by way of introduction to a Stuff story I noticed yesterday about an industry having difficulty getting staff. I’ve written previously about bus companies and bus drivers, and the bizarre situation in Wellington where the contracted companies get away with endless cancellations (with apparently minimal penalties) because they choose not to pay what it would take to employ the necessary number of drivers. One might grant that that is a difficult situation – a government-controlled “market”, in which both fares, operators, and service frequency are all supposed to be simultaneously controlled.
But yesterday’s article was about jobs in a fully private sector industry, with lots of individual employers, and with a significant export orientation: fruit-picking, including “grapes, apples, and kiwifruit”. The article is quite a substantial piece, including a couple of quotes talking of a “dire” situation finding staff, and repeatedly talk of severe labour shortages. And, remarkably, not one mention of wage rates. It must not have occurred to the journalist to ask, let alone to the various employers (and employers’ representatives) to mention it. Even though, when there is a “shortage” of tomatoes, tomato prices rise – so that actual quantitity demanded at the going price is roughly equal to the actual quantity supplied. At present, there is a “shortage” of avocadoes – it gets a line perhaps somewhere in a newspaper, but prices adjust and so do (potential) consumers.
But not, it seems, in the fruit-picking industry.
The industry seems to think this is a problem for the government (admittedly, this is an approach fostered by successive governments, who also seem to think it is a “problem”, rather than (say) an opportunity for individuals who could capture the premium prices growers might otherwise pay to ensure their fruit was picked). The article includes a quote from the head of something called the “Central Otago Labour Market Governance Group”, a title that sounds as if it could have been derived from some centrally-planned eastern European economy in the 1950s.
Perhaps there really is some movement in market rates for fruitpicking and the journalist just forgot to tell us. But if so, you’d have thought the industry representatives would have been keen to get the message across – apart from anything else, it would be free advertising to people in those districts with a bit of time on their hands that there was (unexpectedly good) money to be had.
But again I’m left with a bit of a puzzle – and perhaps it is only one to city-based macroeconomists – as to why a competitive bidding process isn’t at play. One can understand the Wellington bus companies not raising wages (temporarily or permanently): they don’t have to, the passengers (mostly) bear the consequences, and entry to the business (Wellington bus routes) is restricted. But for an individual grower (apples, grapes, kiwifruit or whatever), the situation is surely a lot different. If there is a incipient shortage of pickers for the whole industry, that doesn’t mean your orchard has to miss out. Offer better wage rates and presumably people will choose your orchard over another one down the street (on the other hand, choose not to compete and you risk fruit rotting on the tree/vine). Of course, that invites the other orchards to increase their rates too, but that is how markets work. And yet, if this Stuff story is to be believed, it doesn’t seem to be happening. And that is even though much of the picking workforce seems to be itinerant or with no established and committed long-term relationships. It isn’t obvious why offering more to pickers this year – if the harvest is particularly early, or particularly good, or labour “shortages” are particularly severe – need entrench higher rates for all time.
In fact, of course, much of the article channels an ongoing industry push to avoid paying higher wages to New Zealanders to do the job (not just this year, but permanently) by using the immigration system. You might think that the case for using immigrant labour at times might be stronger than otherwise if there was evidence that wage rates in this industry had been rising particularly stronly (employers putting their money where their mouth is). But apparently the industry doesn’t see it that way – and neither (one deduces from their silence) does our current left-wing government, despite its key support base including workers and trade unions.
We are told
Key visa reforms sought by the industry include removing the need for annual reviews once a three-year visa is granted, giving those on three-year visas a pathway to permanent residency if no New Zealand residents are available for the job, and reworking the labour market test to make it more aligned with the employment conditions faced by employers.
It is fruit-picking we are talking about here, not the most skilled of jobs. And an immigration system that, we’ve been told for decades, is supposed to be skills-focused, contributing to a lift in overall productivity growth, in ways that would raise wage levels for everyone.
As a reminder, there will be few/no/inadequate numbers of New Zealanders offering to work in a particular sector when wages (and overall conditions) in that sector are no longer particular attractive. In the 1970s presumably our fruit was picked, our old people’s homes were staffed, our supermarket checkouts were staffed, by New Zealanders (whether those of longstanding or more recent immigrants – but you couldn’t hire people from abroad specifically to fill these modestly-skilled jobs, and in the process keep down wages in that specific sector).
I presume much of what is going on here is that many of these fruit-based industries just aren’t that internationally competitive at current exchange rates. It probably isn’t the case with, say, gold kiwifruit, but for some of the other industries it seems quite conceivable that the economics is pretty tight and it might not be worth being in business if they had to pay materially higher wage rates to pickers. There are hints of that in the article
“The growers are starting to think whether they are going to invest money because they need to have assurances about labour. It is a bigger issue than probably it is given credit for.”
To which I guess I have two strands of response:
- first, there are lots of industries that are no longer viable here based on old production technologies (try making a living milking 50 cows by hand) or running a suburban petrol station (in my suburb there were four forty years ago and there are none now). There might be issues of scale to consider, and/or investment in technology-based solutions, and
- second, the real exchange rate (averaging more than 20 per cent higher since about 2003 than it did in the previous two decades, despite feeble economywide productivity growth) is a real symptom of the severely unbalanced New Zealand economy. As a result, our export/import shares of GDP have been shrinking, not rising. But however attractive the immigration option genuinely looks (and locally is) to an individual employer, on a large scale it exacerbates the economywide problems, not eases them. For outward-focused industries in particular, a much lower exchange rate – which would follow directly from substantial permanent cuts in immigration – would improve NZD returns, and would also make producers in those industries better placed to bid competitively for New Zealand workers to fill their vacancies (or to invest in technological solutions, or the sort that help lift average labour productivity).
Firms simply shouldn’t be able to use immigration to fill positions requiring only modest skills or training without at least being able to demonstrate that the wage rates they are paying for such skills have run well ahead of other wage rates for several years. But to get bureaucrats and ministers out of the business of picking favoured sectors/firms – at present, the rewards to lobbying seem quite high – I continue to commend to anyone interested my model for temporary work visa policy. It is pretty simple
Institute work visa provisions that are:
a. Capped in length of time (a single maximum term of three years, with at least a year overseas before any return on a subsequent work visa).
b. Subject to a fee, of perhaps $20000 per annum or 20 per cent of the employee’s annual income (whichever is greater).
If apple-growers really can’t get workers locally, and are happy to pay a substantial fee to the Crown, on top of a decent wage, I guess I’d be okay with temporary overseas recruitment. As it is, they seem to simply want to undercut potential returns to New Zealand labour.