CTU Economic Bulletin No. 50

July, 2004

Comment

There is continuing speculation among economists about wage increases as a response to labour market shortages. The Reserve Bank is also expressing concern about the inflationary effect of wage rises. This completely misses the point that with strong economic growth and resource constraints there is an opportunity for real wage increases alongside productivity improvements without much effect on inflation. But the main issue remains that after nearly 4 years of persistent labour shortages, wages are barely moving.

What are some of the possible explanations? It could be that there is a very long lag in a wage response to labour shortages. It could be that household incomes have been rising through more hours and more jobs so there is less pressure on wages. It could be that CPI remains the strongest determinant of wages and that everyone has become accustomed to increases near the CPI level even when labour shortages justify a much higher increase. Also, the increases in some sectors - for instance construction, distribution, and parts of the state sector - are only a small proportion of the overall labour market so don't have much effect on the aggregate statistics on wages. Also there may be a measurement problem, as the Labour Cost Index does not easily pick up higher wages for new types of job descriptions.

But one explanation is that the combined effect of employer attitude and an employment law which only weakly promotes collective bargaining means that the expected wage response to persistent labour shortages is muted. The latest research shows that collective bargaining in the public sector is at 61% compared with just 10% in the private sector. It was 21% in 1995. The reason for the falling private sector figure is partly the lack of collective bargaining, but also the removal of non-union members from collective coverage. In terms of employer attitude, employers seem to look at a whole host of options - except pay increases - to respond to labour shortages. So they want more migrants who will work for low wages. They look to relocate offshore (China) in some cases. They try to get existing staff to work longer hours and more intensively. Some employers are understandably investing in new plant and technology. But in a private sector dominated by individual contracts, employers have a lot of flexibility to confine wage rises to the new employee they want to attract or the one threatening to leave, rather than to their staff in general.

By contrast if we look at the most regulated part of the labour market in respect of wages, the Government has put up the minimum wage by 29% in those 4 years (and even more for those under 20 years) with no effect on employment. Yet wages above $9.00 an hour have only increased by a much smaller amount over those 4 years. So where there is a positive attitude to lifting wages, and a high degree of labour market regulation we see wages rising significantly. In this labour market we also see that this has not damaged employment prospects. So there is room for much higher wage increases. I am not arguing that the Government should set all wages, but it does illustrate the extent of the problem when there is such a weak promotion of collective bargaining that can deliver general wage movements.

I have been harping on about misuse of firm size statistics for a few years now. I was pleased therefore to see an excellent paper (Mills and Timmins) which showed that although 96.1% of NZ firms employ fewer than 20 workers, 59.3% of firms employ no workers at all. The 96.1% of firms employing fewer than 20 workers account for only 30% of the overall labour force. NZ does not have proportionately more small firms than other OECD countries on average. For example, 96.5% of Australian firms employ fewer than 20 workers. The figures confirm what the CTU is saying - that there is a danger of thinking too small in our policy design around economic development. But also that when employer groups complain about compliance costs for small firms and imply that these firms comprise the major part of the economy, it would be more honest to say that 60% of these "firms" employ no-one so therefore do not face higher costs from (say) the Holidays Act.

This is my 50th Bulletin. They are meant to be brief, relevant, and an up to date source of economic information, mainly but not exclusively, for union officials. Having been a union organiser for many years, I know that time is short, hours are long, pressures are immediate, and the demands of the job unreasonable! My own very small contribution with these Bulletins tries to ensure that union officials can stay up to date with economic information that is relevant to their work - including bargaining. Since 1999, we have also seen a resurgence of union involvement in a broad range of economic areas including regional and industry development, growth and innovation, productivity, industry training and so forth. In the state sector there are also more opportunities for unions to be involved in broader issues including workforce development etc. This is welcome. But once again it places demands on the scarce resources in the union movement. Deepening our knowledge of economic factors, and using economic information and analysis to benefit our members becomes more and more relevant.

Economic Snapshot

This is a snapshot of key indicators for unions. Consumer prices rose by 0.8% in the June 2004 quarter and were up by 2.4% annually. Food prices rose by 0.9% in the June 2004 year. Unemployment is at 4.3%. The minimum wage is $9.00 for those aged 18 years and over and $7.20 for 16/17 year olds and trainees. Ordinary time wages as measured by the Quarterly Employment Survey for March 2004 were up annually by 3.1% in the private sector and 3.9% in the public sector. The Labour Cost Index (for March 2004) showed private sector wages up 2.1% for the year, with public sector wages up by 2.7%. 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, the average rate of increase was 3.7% and the median increase was 3%. Economic activity (GDP) increased by 2.3% in the March 2004 quarter and 3.6% for the March 2004 year. The official cash rate set by the Reserve Bank is 6%.

Consumer Price Index

The CPI rose 0.8% in the June quarter and 2.4% in the June 2004 year. However, 72% of the quarterly increase in inflation came from housing and petrol prices. The BNZ is predicting a CPI increase of 0.2% for the September quarter reducing annual inflation to 2.2%. But by September 2005 they think annual inflation will be just over 3%. I attach a table showing CPI changes since 1987. The updated real wage calculator has been circulated.

Housing

Consents for 32,851 new dwelling units were issued in the year ended June 2004, up 3,777 (13%) from the year ended June 2003. The total number of new dwelling units for the year ended June 2004 is the largest total recorded for a June year since 1974. Median house prices fell from $248,000 in May to $243,000 in June but are still up by 15.7% from June 2003. The Auckland median is $323,710. A Survey by AMP showing lower participation in superannuation plans noted that "paying for a home has become all-consuming as people feel the pinch from larger mortgages". But rates of home ownership are falling. Also, the NZ Council of Christian Social Services found that in 1988, 16% of households with incomes in the lowest fifth of incomes spent more than 30% of their income on housing costs, but by 2001 this had grown to 42% of households.

Interest Rates

The official cash rate has gone up again to sit at 6%. Although there are some current inflationary pressures, there is still considerable debate about next year which is really where monetary policy focuses. For instance, Westpac says that the combined effects of a slowing housing market and less construction activity will reduce GDP growth to below 2% in 2005.

State Sector Superanuation

More than 44% of eligible people in government ministries and departments have chosen to join the new government subsidised State Sector Retirement Savings Scheme. This means there are 40,000 people in government departments and the state school sector covered by the scheme. Twenty-two departments (out of 40) achieved take-up rates above 50%.

Trade

The June trade balance was a deficit of $399 million. This lower than forecast result was due to higher levels of imports - particularly intermediate goods such as plant and equipment. Comparing June 2004 with June 2003, exports are up (this includes the effects of price and volume) by 19.5% and imports by 24.3%. The increase for imports in the June 2004 year compared with the year ended 2003 is a much lower 3.8%. The average foreign currency prices of NZ commodity exports increased a further 3.3% in June. This means the annual increase is 26.2%. In NZ dollars, the increase has been 18.4%.

Labour Rights in China

A recent New Statesman reports that a British importer of walnut pieces from China to supply supermarket salads had to make enquiries when bits of teeth were found in the walnut packets. Apparently political prisoners in China were cracking open the walnuts with their teeth. Forced labour - no way!

Work Stoppages

There were 6 work stoppages in the March 2004 quarter and 33 in the March 2004 year.

On the Farm

Lamb and beef prices are at an 18-year high. Meanwhile the $4.25 per kg payout by Fonterra is 17% ($969 million) up on last season.

Retail Sales

Retail sales rose 0.1% in May and 7.2% in the last year.

Manufacturing

Current figures show a general increase in activity in manufacturing. But the loss of 150 jobs at Electrolux because of economy of scale considerations in Adelaide has combined with other news of relocations to China and elsewhere to generate considerable concern about the long-term future of manufacturing in NZ.

Population

In case you hadn't noticed, the population in June 2004 reached 4,061,300.

Migration

In the year ended June 2004, there was a net permanent and long-term migration gain of 22,000. This is 48% lower than the net inflow of 42,500 people in the previous June year. This resulted from 84,300 arrivals (down 13,000), and 62,300 departures (up 7,600) in the June 2004 year. In the year ended June 2004, there was a net inflow of 9,400 from the United Kingdom, up 12% on the June 2003 year figure (8,500). There was also a net inflow from China of 5,600, down from 14,800 in the June 2003 year. Overall, net inflow from Asia has reduced considerably, from 31,000 in the June 2003 year, to 14,400 in the June 2004 year. Conversely, there was a net outflow to Australia of 12,400 in the June 2004 year.

Labour Department Publication

The Department of Labour's workINSIGHT publication is written for professional education, training and career advisors, but anyone interested in the latest job market issues and trends will find it useful. For your copy of workINSIGHT, email the editor Robert Heyes robert.heyes@lmpg.dol.govt.nz or find workINSIGHT online at www.workinsight.govt.nz.

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

ANNUAL INCREASES IN C.P.I.

Year to	March	1987 	18.3
Year to	June	1987	18.9
Year to	Sept    1987	16.9
Year to	Dec	1987	9.6

Year to	March	1988	9.0
Year to	June	1988	6.3
Year to	Sept	1988	5.6
Year to	Dec	1988	4.7

Year to	March	1989	4.0
Year to	June	1989	4.4
Year to	Sept	1989	7.2
Year to	Dec	1989	7.2

Year to	March	1990	7.0
Year to	June	1990	7.6
Year to	Sept	1990	5.0
Year to	Dec	1990	4.9

Year to	March	1991	4.5
Year to	June	1991	2.8
Year to	Sept	1991	2.2
Year to	Dec	1991	1.0

Year to	March	1992	0.8
Year to	June	1992	1.0
Year to	Sept	1992	1.0
Year to	Dec	1992	1.3

Year to	March	1993	1.0
Year to	June	1993	1.3
Year to	Sept	1993	1.5
Year to	Dec	1993	1.4

Year to	March	1994	1.3
Year to	June	1994	1.1
Year to	Sept	1994	1.8
Year to	Dec	1994	2.8

Year to	March 	1995	4.0
Year to	June	1995	4.6
Year to	Sept	1995	3.5
Year to	Dec	1995	2.9

Year to	March 	1996	2.2
Year to	June	1996	2.0
Year to	Sept	1996	2.4
Year to Dec               1996	2.6

Year to March 	1997	1.8
Year to June              1997	1.1
Year to Sept              1997	1.0
Year to	Dec	1997	0.8

Year to	March	1998	1.3
Year to	June	1998	1.7
Year to	Sept	1998	1.7
Year to	Dec	1998	0.4

Year to	March	1999	-0.1
Year to	June	1999	-0.4
Year to Sept              1999	-0.5
Year to	Dec	1999	0.5

Year to	March	2000	1.5
Year to	June	2000	2.0
Year to	Sept	2000	3.0
Year to	Dec	2000	4.0

Year to	March	2001 	3.1
Year to	June	2001	3.2
Year to	Sept	2001	2.4
Year to	Dec	2001	1.8

Year to	March	2002	2.6
Year to	June	2002	2.8
Year to	Sept	2002	2.6
Year to	Dec	2002	2.7

Year to	March	2003	2.5
Year to	June	2003	1.5
Year to	Sept	2003	1.5
Year to	Dec	2003	1.6

Year to	March	2004	1.5
Year to	June	2004	2.4

QUARTERLY INCREASES IN C.P.I.

Quarter to 	March	1987	2.3
Quarter to	June 	1987	3.3
Quarter to 	Sept	1987	1.6
Quarter to 	Dec	1987	2.1

Quarter to 	March	1988	1.8
Quarter to	June 	1988	0.8
Quarter to 	Sept	1988	0.9
Quarter to 	Dec	1988	1.2

Quarter to 	March	1989	1.1
Quarter to	June 	1989	1.2
Quarter to 	Sept	1989	3.5
Quarter to 	Dec	1989	1.2

Quarter to 	March	1990	0.9
Quarter to	June 	1990	1.8
Quarter to 	Sept	1990	1.0
Quarter to 	Dec	1990	1.1

Quarter to 	March	1991	0.6
Quarter to	June 	1991	0.1
Quarter to 	Sept	1991	0.4
Quarter to 	Dec	1991	-0.1

Quarter to 	March	1992	0.4
Quarter to 	June	1992	0.3
Quarter to 	Sept	1992	0.3
Quarter to 	Dec	1992	0.3

Quarter to 	March	1993	0.1
Quarter to	June 	1993	0.6
Quarter to	Sept 	1993	0.5
Quarter to	Dec	1993	0.2

Quarter to	March	1994	0.0
Quarter to	June	1994	0.4
Quarter to	Sept	1994	1.2
Quarter to	Dec	1994	1.2

Quarter to	March	1995	1.2
Quarter to	June	1995	1.0
Quarter to	Sept	1995	0.2
Quarter to 	Dec	1995	0.6

Quarter to	March	1996	0.5
Quarter to	June	1996	0.8
Quarter to	Sept 	1996	0.6
Quarter to	Dec	1996	0.7

Quarter to	March	1997	-0.3
Quarter to	June 	1997	0.1
Quarter to	Sept	1997	0.5
Quarter to	Dec	1997	0.6

Quarter to	March	1998	0.2
Quarter to	June	1998	0.5
Quarter to	Sept	1998	0.5
Quarter to	Dec	1998	-0.8

Quarter to	March	1999	-0.3
Quarter to	June	1999	0.2
Quarter to 	Sept	1999	0.4
Quarter to	Dec	1999	0.2

Quarter to	March	2000	0.7
Quarter to	June	2000	0.7
Quarter to	Sept	2000	1.4
Quarter to	Dec	2000	1.2

Quarter to	March	2001	-0.2
Quarter to	June	2001 	0.9
Quarter to	Sept	2001	0.6
Quarter to	Dec	2001	0.6

Quarter to	March	2002	0.6
Quarter to	June	2002	1.0
Quarter to	Sept	2002	0.5
Quarter to	Dec	2002	0.6

Quarter to	March	2003	0.4
Quarter to	June	2003	0.0
Quarter to	Sept	2003	0.5
Quarter to	Dec	2003	0.7

Quarter to	March	2004	0.4
Quarter to	June	200	0.8