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.
croaking cassandra 
I like your idea here about work visa provisions a lot.
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I like your article; I hope politicians are reading it. I’ve chosen this as the core idea “” But however attractive the immigration option genuinely looks (and locally is) to an individual employer, on a large scale it exacerbates the economy wide problems, not eases them. “”
Cheap fruit pickers cost me a $125 speeding fine. I was driving on an empty road past my local fruit & veg shop and it had a sign advertising “Braeburn Apples 79 Cents per Kilo” and I lost concentration on my speedometer while trying to estimate the shops mark-up, the growers costs and profit margin, and the transport distribution costs in order to estimate what the pickers must have been paid. I still cannot grasp how anyone would be willing to just pick up endless apples and put them in boxes for a few copper coins per kilo.
In New Zealand there is a hint of racism whenever they say “New Zealanders are not willing to do this work so we must bring in immigrants”; they don’t mean bringing in people from rich countries. Fifty years ago as a student in Aberdeen they brought in American welders to work on the oil rigs; they had the experience and British welders could not pass the welding tests. The Texans were paid roughly forty times the wage I received for my summer job and I assume British welders eventually localised those jobs.
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A Cromwell orchardist says when she hires locals, at Christmas they say “we want to camp with our friends at Albert town”.
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There are plenty of people in Hawkes Bay (several thousand) that the government pays not to work ie those on the dole. Also the government restricts the number of backpackers who can fill this role.
Fruitpicking is an unskilled job, but with apples especially NZ is competing worldwide.
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Referencing Wellington buses I heard a rumour (and it was only that) the change of contractor was achieved with a major contribution from reducing the wage rates being offered/forced on to the drivers.
A similar comment seemed to arise when part of the Auckland contract was changed.
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I read in the newspaper that my beloved BirkenHead Bus Company was for sale. It has been providing a service for over 80 years and it is easily the best of the Auckland bus companies. Maybe related to this issue – bing forced to cut wages because of Richie’s immigration game.
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On a tangent a ‘fiscal responsibility rules’ could be eased using a bit of QE which would lower the exchange rate and allow better wages to be paid by the growers.
Of course their BMWs would get a little more expensive and the petrol just a smidgen dearer.
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Yes it is strange that market forces are not applied even when you think they should be.
For instance the advantages of pricing roads when there is a shortage of space (i.e. when roads are congested) should be logically overwhelming yet people fight against it.
Although if Wellington implemented a road congestion charge then buses would definitely be more popular and more bus drivers would be needed and the bus companies would need to pay more.
Unless the bus recruitment problem is due to Wellington’s high housing costs being a barrier of entry to employment.
In which case, whilst implementing the road pricing scheme, Wellington should also build a large affordable housing transit oriented development somewhere close to employers with staff shortages, such as, bus companies.
Something like what was published in Talking Wellington today.
https://talkwellington.org.nz/2019/eco-city-done-well-could-solve-housing-crisis-part-two-of-three/
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If I could buy or rent an affordable home close to Wellington I might consider retraining as a bus driver. There is a bit of a trend in places like Finland for people to take up low stress people oriented jobs in their last years before retirement.
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I had the impression of you as a mere kid say under 30 so don’t think of retirement. And as a goldcard holder (one of the great concepts but it ought to have a photo) I am all for keeping old timers of the road. Physically we are OK but reflexes and eyesight decline but as per your road congestion charges nobody notices because it is imperceptible.
If you live in say Dargaville the idea of paying for the wide empty roads criss-crossing the township would be madness but put your car in the middle of Auckland CBD and you take up valuable space that would otherwise be available for everyone. Go and visit old schools – many have lost half their play area to teacher’s car parking. Well to be fair that is true in England but in NZ many schools were endowed with massive area so the school buildings are surrounded by fields and gardens. The point is cars take up space that would otherwise be available to the public. I’d be happy to see rational parking charges and I suggest in Auckland we have them – otherwise why do commercial organisations provide parking for a fee? A decent flexible congestion charge would make more sense than Phil Goff’s fuel tax which penalises the trip to see a relative in the Hospital on a Sunday afternoon the same as the journey across the Harbour bridge in the rush hour.
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Bob in a year or two I will be 50. I quite like driving. I have good eyesight -no glasses yet. I haven’t had a crash since my twenties and that was another car failing to see me on my motorbike.
So I could retrain in a few years time as a bus driver and work for a decade or so to 65. I probably won’t. But it would be nice to have the option.
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These days you need to plan to work until you are well over 70. Unless you are lucky like myself with accidental wins in the property lottery and a working wife. A younger working wife is your best financial investment. Probably driving a bus is age restricted – will they reissue a bus drivers class license when you get older? Merely car driving at 65 and 70 they insist on an eye test; I was told to be aware that I’m blind to the right – that is easy solved I just get in the outside lane and stay there knowing nothing can come past me on the right. Merging motorways in mid Auckland are fun but usually so slow as to be innoculous. So look for a job where mental and physical deterioration don’t matter – ask Winston or Mick Jagger for advice.
However split shifts on a minimum wage means you will have the time to keep posting and no money to distract you from it.
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As a grower I could spend much time replying to your post.
For a start apple picking has become a skilled job because of tighter grade standards.For instance picking Pacific Queen at present requires one to be aware of diseases that may be present, the amount of russet allowed ,the damage stem puncturing can cause,size requirements,minimum colour requirements, shape, no tolerance for black spot in some markets. Packouts are critical to growers.
That is before it gets to the packhouse.
I could add a lot more on different varieties.
It is the corporates that are having trouble getting labour and they have essentially alone suppressed the wages in the industry be hiring RSE workers and always paying minimum wage.
In Hawkes Bay there used to be around 1600 growers , many family owned orchards .That figure is down to about 350 but area planted is up.
The corporates expect to plant 1000 acres and when the trees begin producing the workers will be available to suit them for a few months of the year.
Recently I was told of a supplier of labour who had workers with all sized growers.He has informed the smaller growers that corporates have said stop supplying to small growers , we want all workers.
I could expand considerably but will refrain at this time.
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Thanks for those comments.
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Very interesting. So you think corporate consolidation would be a factor in the industry.
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The fruit picking industry is an interesting one. Part of the problem is the seasonal nature of the work… locals seem less interested in this, by all accounts.
Lots of fruit growers in the BoP import labour from the Pacific Islands and they are good workers and don’t bitch and complain like the locals… although wage rates may not have increased some growers are paying higher wages through extra hours…
Kiwifruit have to be picked dry – thus if it has rained no picking, or they have to wait for the fruit to dry before starting for the day. So to keep good workers the growers pay staff even if they are sitting around. Normally they would only pay of the workers were in the field (as it were) harvesting. The upshot is an effective increase in wages and thus higher incomes for pickers – not an increase in the rate per se, but an effective rate increase…
The problem is that wages are not as flexible as you would like… you have to pay the best and the worst workers the same hourly rate no matter their productivity… so to compensate the average rate has to remain the same as the average productivity of workers from one season to the next is about the same… if workers were more productive then they should get higher wages…
Even with high youth unemployment it seems that locals represent the worst end of the distribution when it comes to employability etc etc… so you really are trying to hire out of a pool of people who really don’t want to work and are prepared to live lesser lives to continue to smoke weed (or whatever) and live on benefits… I suspect that no amount of wages would encourage some of these people to get into work – so why pay it?
Given the fruit picking season is time constrained it is much better to have a hard working immigrant who wants to work than a bitchy whiny local who has no interest in working.
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Thanks for those comments. I don’t claim to have the answers as to what the appropriate labour force model for a seasonal industry should be, but (a) when labour is in short supply, the price shld rise, and it isn’t obvious it has (indeed an earlier comment suggests RSE may be effectively helping hold wages near the min floor0, and (b) no modestly-skilled industry should be able to rely on immigrant labour to solve its problems.
As i noted, the persistently overvalued real exchange rate seems to represent the real issue for an industry like apples.
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“although wage rates may not have increased some growers are paying higher wages through extra hours”.
But this is not more per hour, just higher weekly amount for higher weekly hours worked. Seems a strange idea that paying for extra hours worked makes for a special employer.
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A lot of the agricultural industries are on slim profit margins and labour costs in fruit and vegetable industries will be a significant cost. It’s no surprise growers will favour foreign workers on minimum wage rates. The problem with horticulture compared to some industrial industry is it’s not that easy to highly automate to reduce the labour component.The issue of hand picking produce. There is some automation but labour is still a major requirement. And of course the season nature of the work makes it unattractive to those wanting full time employment.
In the Dairy industry since the 1990’s they’ve gone corporate scale presumably for economies of scale, but some labour is still required to milk cows, feed out silage,etc. The problem with increasing scale is you can end up with a b—- of a job. Workers assigned to only milk cows or drive tractors, where once a young worker did a bit of everything and learnt the farming trade. Now they are just cogs in a machine with little job satisfaction or chance of advancing to farm ownership without having land owning or wealthy parents. I think the dairy industry has made a rod for it’s own back with regards farm labour. They’ll be stuck with Philipinos and Fijians as their work force in the future and only Chinese corporates to buy their farms on retirement. By then it won’t be a New Zealand owned industry.
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Like you, I think it best to see this from the perspective of the employer rather than a Wellingtonian, former government/bank economist. Can I suggest the reason why growers were left silent by your question is that they struggled to map it to the reality of their lives. In an economics language:
– In general, if economists observe people not taking an “obvious” approach, it usually means they have misunderstood the incentives and therefore mis-specified the choice problem. Increasing wages will work if the marginal benefit equals the marginal cost of getting the extra workers. The benefits seem pretty clear, so if we think wage rises are an option we have probably misunderstood the constraints, overstated the beenfits or understated the costs in our analysis.
– Your comparison with 1970s is deeply misleading. The world economy has changed, including the end of the imperial preference with the UK that guaranteed markets for NZ farm produce. It was probably always the case that NZ farming was unprofitable without migrant labour.
– A wage increase for additional workers will not just go to those workers but to all workers. ie if the farm employs 50 people and needs an extra 10, then the wage increase goes to 60 people not 10. In an idealised model this may not be true, but people working in farms talk to each other and in a tight labour market that means everyone gets a raise if some do. In other words there is a substantial deadweight cost to using wages as an instrument.
– The marginal financial benefit to native New Zealanders who are. I unemployed is the difference between the benefit payment, and the wages minus the costs of working in the middle of nowhere. In addition working on a farm is hard, mind numbingly boring and does not lead to any better job. In comparison, benefit payments are not made to migrants to New Zealand, so the marginal financial benefit of working on an NZ farm is considerably higher. There are lots of good reasons for this, but it creates a constraint the growers have to deal with. It is not surprising they struggle to find native New Zealanders for whom it is worth their while to do this job.
– Another way to understand the last paragraph is that a key trade off in benefit payment systems is between work incentives and reducing income poverty. If our society believes that all families with children should have a set of basic standards regardless of their parents, then one of the costs is some kinds of work are not worth it for native born New Zealanders. Whether or not the right macro-balance has been struck, it is not the growers fault if the trade off has been set in a way that penalises their industry by reducing the available workforce.
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