CTU Economic Bulletin No. 34.

The Latest From the Labour Market - February 2003.

Comment

The business sector has composed a new song-sheet entitled "Death by a thousand cuts". Essentially they argue that the government talks about growth and innovation but delivers increased compliance costs for business.

But these claims from business indulge in misrepresentation and exaggeration. For instance, they keep saying that 96% of firms employ fewer than 20 workers while failing to mention that over half the workforce is employed by the other 4% of firms. (A Report in June 2002, SMEs in New Zealand: Structure and Dynamics noted that these small and medium enterprises (SMEs) make up 96.4% of all enterprises and 97.3% of private sector businesses.

They provide 49.9% of the full-time equivalent private sector jobs, and 42.4% of the entire jobs market). But the constant misrepresentation of these facts is deliberate. It is an attempt to portray all business as very small in order to argue for the lowest possible standards when it comes to worker rights, environmental protection and so on.

And there is a mythical firm of 20 people they say will face a $43,000 increase in compliance costs. First of all that increase is about 1% of the mythical firm's revenue for the year. But we think it is a stretch to get to a possible increase of $10,334 and most of that is based on an assumption that the Government legislates for 4 weeks leave and that applies to half of the notional firm's 20 staff.

Their figure of $43,000 includes claims in respect of local government opening up a business in competition, all staff actually working on public holidays at higher rates, health and safety training being a major cost rather than an investment with beneficial returns, and they also blame this Government for possible electricity increases. They even include a compliance cost based on lifting a packer's rate to the minimum wage of $8.50 an hour.

You could be forgiven for failing to notice a dynamic, value-added, innovative business culture in these claims. Those sections of business continuously complaining about compliance costs seem to miss the point that modern business needs a level of sophistication that can cope with environmental standards, social impacts, workplace relations and export penetration.

What is needed is more effective forms of agglomeration whether by clusters, new industry associations and so forth so that the benefits of flexibility and nimbleness of small and medium enterprises is retained, but standards are complied with in the most effective way. We should not really be against lowering compliance costs. But we should oppose lowering compliance standards.

But it is now absolutely clear that as the economy is affected by world events as well as cyclical factors, and as unions continue to push for reasonable standards in respect of holidays, employment relations, redundancy and contracting out - this particular business lobby will keep up the "death by a thousand cuts" chorus with a clumsy attempt to blame any economic downturn on compliance cost issues.

Meanwhile, the overall economic situation shows continued signs of domestic resilience as indicated by housing sales and the retail sector, but a decline in export receipts with a spike in the exchange rate. The combined effect of exchange rates, speculation on the NZ dollar, drought conditions in some parts of the country, the trade effects of a possible war, and fluctuating commodity prices should be enough for the Reserve Bank to reduce interest rates soon. But because of RBNZ concerns about housing and labour market pressures, there is no guarantee of this happening.

Economic Snapshot

This is a snapshot of key indicators for unions. Since the last Bulletin the unemployment figures have been updated as has wages measured by both the Quarterly Employment Survey and the Labour Cost Index.

Consumer prices rose by 0.6% in the December 2002 quarter and 2.7% in the December 2002 year. Food prices rose 0.8% in January 2003 but in the January 2003 year food prices have not increased. Unemployment is at 4.9%. Ordinary time wages as measured by the Quarterly Employment Survey were up by 3.3% in the private sector and 3.7% in the public sector. The Labour Cost Index increases showed private sector wages up 2.1%, and public 2.6%. The key statistic for unions to note probably is that the LCI shows that for those firms where there were wage increases in the last measured quarter (15% of those surveyed), the average rate of increase was 3.9% and the median increase was 3%. The increase in GDP for the June 2002 quarter was 1.7%, September quarter 1.0%, and 3.9% for the September 2002 year. The current account deficit is estimated to be 3.8%. The official cash rate is 5.75%.

Wages

Private sector salary and ordinary time wage rates rose by 0.6% in the December 2002 quarter and by 2.1% compared with a year earlier. In the public sector, salary and wage rates for the December 2002 quarter were up by 0.8% and were 2.6% higher than a year earlier.

Of the salary and ordinary time wage rates that rose in the December 2002 quarter, the average increase was 3.9%. The median was 3%. The median (ie middle) increase of surveyed salary and ordinary time wage rates that rose over the year from the December 2001 quarter to the December 2002 quarter was 3.0%. The average increase for the year was higher, at 4.1%. The average tends to be higher than the median increase because of the small number of large increases.

The Quarterly Employment Survey shows that in the year to November 2002, average total hourly earnings rose by 3.6%. Ordinary time wages were up by 3.3% in the private sector and 3.7% in the public sector. The QES statistics are affected by the employment of higher or lower than average paid workers in addition to actual pay increases. The average ordinary time hourly rate is $19.13, made up of $18.00 an hour in the private sector and $23.60 in the public sector. Average ordinary hourly earnings for males were $20.60 in the November 2002 quarter. Female average ordinary hourly earnings were $17.35 (84.2% of the male rate) in the November 2002 quarter.

Minimum Wage Rising Soon

From 24th March 2003, the adult minimum wage is $8.50 an hour and the rate for 16/17 year olds is $6.80.

Union margin in wages - USA

Last year, American union members across all sectors earned on average about 25% more than their non-union counterparts, the US federal Department of Labor found. Union workers averaged US$718 a week, while non-union were on $575. For further details see a copy of the paper on:
http://www.ilo.org/public/english/dialogue/actrav/publ/128/3.pdf

Employment

On an annual basis, the number of full-time equivalent employees increased by 3.6% for the year to November 2002, compared with annual increases of 3.9% and 3.1% in the August 2002 and November 2001 years respectively.

The strongest job growth was recorded in the business/finance and education sectors. The construction sector also recorded a healthy rise. This was partially offset by a fall in employment in the retail/wholesale and health/community sectors. Employment in manufacturing was broadly unchanged. The working age population grew by 59,100 (2.0%) over the year.

This increase can be partly attributed to a net gain in permanent and long-term migration of 30,500.

Seasonally adjusted full-time employment was estimated at 1,461,000 in the December 2002 quarter. Seasonally adjusted unemployment was estimated at 98,000 in the December 2002 quarter, a fall of 8,000 from the previous quarter. This is an unemployment rate of 4.9%.

But the number of jobless workers (includes those not actively seeking work, discouraged etc) was estimated at 172,600. In the December 2002 quarter, an estimated 113,000 people were employed part time and wanted to work more hours. Over the year male underemployment increased by 2,900 to reach 38,300 while female underemployment fell by 3,500 to 74,700.

Skill Shortages

The latest Department of Labour report shows skill shortages remain at high levels. The number of firms reporting labour as a constraint on expansion rose from 12% in the September 2002 quarter to 16% in the December quarter, the highest this indicator has been since 1974. Labour shortages continued to be concentrated in specific industries. Shortages are evident in the construction, forestry and mining, manufacturing, and cultural and recreational industries.

Government Accounts

The operating surplus for the first half of the year (to end of December 2002) was $2,333 million, which was $635 million higher than the forecast. Meanwhile, Michael Cullen has indicated that any big moves would be in the 2004 Budget and that if he had a large amount of money available, priority would be given to a significant change in the level of Family Support, restructuring it and simplifying it and aiming to get the best trade off for support for low income families and appropriate incentives for people to move into work.

Migration

In the December 2002 year, there were 14,900 more permanent and long term arrivals than in the previous year. Of this increase, 2,000 were New Zealand citizens and 12,900 were non-New Zealand citizens. Departures in 2002 (42,100) were almost 30% lower than in 2000. Most of the New Zealanders returning home in 2002 after a long-term absence came from either the United Kingdom or Australia (8,800 and 8,600 respectively).

These two countries were also the most popular destinations for New Zealand citizens departing for a permanent or long-term absence (9,900 and 22,000 respectively).

As a result, there were net outflows of New Zealand citizens to Australia (13,400) and the United Kingdom (1,100). The net outflow of New Zealand citizens to Australia was down by 11,100 from 24,600 in 2001. Contributors to the net inflow of 54,900 non-New Zealand citizens included China (14,900), the United Kingdom (7,000), India (6,600), South Africa (2,800), Japan (2,500), Korea (2,200) and Fiji (2,000).

World Bank Support for Union Role

The World Bank in a new global study states that union members earn higher wages, work fewer hours, get more training and stay in their jobs longer than their non-unionised counterparts. While we would not necessarily agree with the framework of this report, it does have some very supportive findings.

It states that at the macroeconomic level, high unionisation corresponds to low income inequality and can lower unemployment and inflation, increase productivity and ease adjustment to economic shocks. It says however that layoffs can be more frequent in unionised companies. The bank said unionised workers and others covered by collective agreements in both rich and poor countries earn "significantly" higher wages than non-union workers and that the wage difference is larger in the United States, at 15% (this is a lower margin than in the US Labor Dept report mentioned above), than in most other industrialised countries.

Unionisation also reduces income inequality between men and women and between skilled and unskilled workers. The study is based on a review of more than 1,000 studies on unions and collective bargaining and indicates that labour market outcomes and macroeconomic performance are strongly influenced by co-ordination between workers and employers on wage-setting, working conditions and other aspects of work.

Countries with highly co-ordinated bargaining are found to have lower unemployment, lower inequality and fewer strikes, while fragmented unionisation is associated with higher inflation and unemployment. The bank said workers, employers and governments can use national collective bargaining to protect themselves from external economic shocks.

Retail Sales

Retail sales were up by 1.5% in value (and 1.3% in volume) for the December 2002 quarter. Sales were up by 6.3% (5.7% in volume) for the year.

DHB Deficits

The Government is forecasting a significant deficit in the hospital and health service provider functions this year. In the December 2002 quarter the deficit was $64 million.

Trade

Export volumes are up, but the returns are down because of exchange rate effects. Commodity prices have risen back up to the level of about a year ago (the ANZ Commodity Price Index indicates that prices are up 4.6% than a year earlier), but the exchange rate impact has meant that returns have fallen by 15% for farmers.

For the year ending December 2002, the value of merchandise exports was down 5% from the 2001 year. Meanwhile Fonterra's payout of $3.60 is a significant drop.

And, for the year ending January 2003, the merchandise trade deficit is $1,451 million. This compares with a surplus of $610 million for the year ending January 2002 and a deficit of $1,369 million for the year ending January 2001.

Housing

Housing prices are up by 2.4% in the December 2002 quarter and 10.4% in the year. This is due to population growth, low returns on the sharemarket, accommodation for foreign students, low levels of housing construction in 2000 and 2001, and lower interest rates especially for fixed rates. Consents were issued for 1,995 new dwelling units in January 2003. This is the highest January total for new dwelling units since 1974.

Fringe Benefit Tax

Tax treatment of motor vehicles was the number one concern of people consulted in the early part of a review of FBT. Many people considered it unfair for the valuation formula to be based on the original price of a vehicle.

Other main concerns were home-to-work use of vehicles and work-related vehicles. Other issues were the tax treatment of car parks, low-interest loans, low-value business assets such as laptops and cell phones, social benefits such as subsidised health insurance, and the fringe benefit tax exemption for employees of charities. However, there will be no sudden changes.

The next step will be the publication in August of a government discussion document setting out proposals for change.

Sheep Numbers Drop

Sheep numbers are down to a mere 39.2 million from nearly 46 million in 1999. There are 5.3 million dairy cattle, and a beef herd of 4.5 million.

For further information contact Peter Conway on 04 802 3816 or peterc@nzctu.org.nz