NIZER report: useful pointers, but no wages strategy

The report on the productivity gap with Australia released today by NZIER has some useful pointers to what New Zealand should focus on to raise productivity says Bill Rosenberg, CTU Economist. "But it does not address the heart of the issue for most New Zealanders: how to raise wages. Raising productivity is necessary, but the history of the last twenty years is that wages don't necessarily follow."

Rosenberg pointed out that labour productivity has rose 48 percent between 1990 and 2010 but the average wage rose only 18 percent after CPI inflation.

"Productivity must continue to rise to enable us to afford higher wages", he said. "But we must also ensure the benefits of productivity increases are spread fairly through higher wages. Collective bargaining is the most effective way to do this."

"The CTU proposes extending the benefits of collective bargaining to many more employees. We should also raise the value of the minimum wage immediately to $15."

"One of the strengths of Australia's economy is its more effective system of awards and collective bargaining which does a much better job of sharing productivity through wages. The share of the economy's income that went to employees in Australia remained almost flat over those two decades, but fell in New Zealand, despite a small rise in the mid 2000s."

The NZIER report also shows underinvestment in skill development - both technical skills and management. "We need more active government and employer investment in these areas, and a commitment to involving employees in organisational improvements that could raise productivity," Rosenberg says. "NZIER's results show the effects of the lack of investment in skills during the 1990s, which takes a long time to recover from. We are still losing skills in New Zealanders migrating to Australia."

The report shows the big shift from higher wage and higher productivity manufacturing to low productivity, low wage service sectors brought about by the opening of the economy in the 1980s and 1990s. "We need effective industry strategies to reverse this shift", says Rosenberg.

"Coincidentally, the International Monetary Fund [1] released an official report in the last few days that shows international supply chains, which involve multinational companies moving production from higher wage to lower wage economies, leading to hollowing out of most 'advanced' economies. The picture is the same as here: workers have been moved from higher productivity, relatively well paid jobs in manufacturing to low productivity, low paid service sector jobs. The result is sluggish productivity growth. Their remedy is education, training, and addressing income distribution. It looks like New Zealand has suffered these effects more than most, and the proposed Transpacific Partnership aims to take us further in that direction," Rosenberg concluded.

[1] "World Economic Outlook - September 2011 - Slowing Growth, Rising Risks", IMF, p.41-46, available at http://www.imf.org/external/pubs/ft/weo/2011/02/index.htm.

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