The Editor

The Australian Financial Review

January 15, 1997

Dear Sir/Madam,

Geoff Hogbin's comments about New Zealand in a recent article - "Wage Flexibility is a Clever Move" - are somewhat misleading.

• The rapid employment growth in New Zealand from 1994 has to be understood in the context of the prolonged recession from its 1985 beginnings in rural New Zealand to its employment lows in 1992. Thus, the belated recovery is the key factor, not the 1991 Employment Contracts Act.
• Hogbin's claim that there has been "less proliferation of part-time employment" in New Zealand than Australia is misleading. The Quarterly Employment Survey of workplaces with more than one employee shows that part­time jobs have increased by 34.5% since August 1991, whereas full­time jobs have increased by only 15.3%. Furthermore, in 1996 there were fewer full-time jobs in New Zealand than there were in 1987.

The main impacts of greater wage flexibility appear to have been in the areas of income distribution and productivity. Wage workers have had to work many more hours in order to maintain their income relativity with other stakeholders in the New Zealand economy. Productivity growth per hour of labour supplied has fallen significantly below the historical pattern in the 1990s, presumably because low wages has meant a reduced need by employers to take steps to raise the productivity of each worker. The labour force participation rate for males is almost certainly lower in New Zealand than it is in Australia, although it is higher for females, reflecting the greater difficulty in New Zealand for a single earner to support a family. According to official figures, the percentage of men over 15 employed in New Zealand is three percentage points higher than in Australia.
. The percentage of such men officially classed as unemployed is similarly lower in New Zealand. But comparisons are made difficult by differences in the processing and presentation of the data. The Australian data I have is for the civilian population only. More importantly, Australian labour force survey data is adjusted to the quinquennial census. New Zealand data is left unadjusted, despite significant discrepancies between the 1986 and 1991 censuses and the surveys. After making the necessary corrections, the New Zealand male employment rate comes out as about the same as Australia's, and the percentage of working age males classed as outside the labour force becomes higher. This last problem, of discouraged workers, reflects an area of considerable inflexibility in the New Zealand labour market. It relates to the very tight means-testing procedures faced by social security recipients. While there has been a proliferation of part­time jobs, very few people on social welfare benefits are willing to give up their benefits for part­time or insecure employment. This applies equally to their partners. Compared to Australia, New Zealand has more women and more young people employed. Many are over-employed, in that they are also secondary or tertiary students, or caregivers of young children who would prefer to work less. Since the raising of the age of eligibility for a public pension in 1991, there has also been rapid employment growth amongst older Kiwis. These groups are largely on the margins of the labour force. New Zealand still faces a major problem in providing satisfactory employment opportunities for middle­aged adult males and for young adults generally.

© 1997 Keith Rankin

Keith Rankin teaches economic history at the University of Auckland.

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