Why can’t we have full employment in New Zealand?

Somewhere in the last 30 years politicians and economists decided real full employment was “inefficient” and damaging to the economy. So they redefined full employment as the natural or equilibrium rate of unemployment, the lowest level of unemployment at which inflation remains stable. (Also known as the “non-accelerating inflation rate of unemployment” (NAIRU).) Economists start to get antsy when unemployment drops to around 4-5% as they are worried about inflationary wage demands. Now I’m sure you can see the issues here.

Firstly, increasing wages for the masses is regarded as bad. A large pool of unemployed people keeps downward pressure on low paid workers who are aware (and reminded) they are easily replaceable. This usually does not apply to upper management, directors and advisors who are involved with running businesses. They get rewarded for keeping costs, including wages, low. Politicians from all the major parties may talk about upskilling and higher wages but they don’t mean for everybody. That would be inflationary, the great evil under our current economic system.

Secondly, it euphemises and normalises joblessness for hundreds of thousands of people. People with families. People who want to work. They become collateral damage in the economy. It is essential that they remain out of work and in poverty so that others can prosper. Calling it “natural” rubs salt into the wound. Remember neither Labour or National, Liberals, Conservatives, Democrats, Republicans or any other mainstream political party in a western neoliberal economy really want zero unemployment. This makes the regular beneficiary bashing and welfare cuts of all parties all the more cynical.

Thirdly there are all sorts of smoke and mirrors involved in the statistical measurement of unemployment to disguise its prevalence. The headline or widely reported unemployment figure used to be the U6 number which included part timers looking for more work. Now it is the much smaller U3 number. This makes modern unemployment look far better in historical terms. In most dominions a person only has to work a couple of hours a week to be regarded as employed. Underemployment is massive. There are huge numbers of people now on low paid zero hour contracts who have no guarantee of even a few hours work each week. This “flexibility” in the workplace creates insecurity in employees and forces them into a very precarious position vis a vis their employer. They have few protections in a casualised and often outsourced workforce. There are massive numbers of people who are “self employed” contractors but not out of choice.

Fourthly, there are a very large group of unemployed or under employed who cannot consume to any great degree undermining the economy. As Yvonne Roberts noted in the Guardian recently in an article titled Low-paid Britain: “People have had enough. It’s soul destroying”

The lack of money  in the  pockets  of the many – who spend proportionately more than the wealthy – has led many experts to cite it as a fundamental crisis in capitalism. In the US, economists such as Paul Krugman and Robert Reich support  the  analysis of Thomas Piketty, author of Capital in the 21st Century, which states that squeezing the majority while allowing the richest to accrue unprecedented levels of wealth does not create “a rising tide that lifts all boats”. On the contrary, unrestrained capitalism that ignores the rules of fair play in employment  destroys its own customer. In his documentary Inequality for All, Reich points out that 70% of the US economy is dependent on consumer spending. The problem is that more and more people have less and less money to spend.

In the current New Zealand election campaign, the Internet-Mana alliance is the only party with a true full employment policy. Yet before 1984 this was an article of faith. All the parties were actively involved in pursuing full employment. Rob Muldoon once half joked he knew all 70 odd registered unemployed by name. Yes that was 70! What was different? Basically the government through various state departments acted as the employer of last resort. People liked to joke about Ministry of Works employees standing around leaning on their shovels but they were employed and had an income to support their family and local economy. Unlike today, many “marginal” employees with mental health or other issues could find a place. And regardless of how “inefficient” they were, much of New Zealand’s current infrastructure was built by them. Mana are proposing something similar, retraining the unemployed to work at minimum wage on community, environmental and housing projects. They are also looking at a Guaranteed Minimum Income.

Labour and National should be ashamed of how far they have moved from this policy of social responsibility in the last 30 years. Former prime ministers from Savage to Muldoon would be turning in their graves, so savagely has the social compact been smashed. The “market” simply does not provide or care for marginal, or increasingly, surplus employees, who have done everything they were advised to do, including education, only to find not enough jobs available. The 5%+ plus natural rate of unemployment is something to be managed with subsistence welfare payments rather than something to be solved. No one will say it openly; certainly not John Key, David Cunliffe, Bill English or David Parker; but they are the “acceptable” collateral damage of the economic theories National and Labour adhere to.

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4 comments

  1. […] net result of this philosophy is a series of financial crises culminating in the GFC, structural unemployment, huge levels of debt and grossly inflated house prices. We have a Prime Minister who personifies […]

  2. […] and how instead of asking Harre and Harawira about their poverty policies or the great unspoken, their full employment policy, he trivialised both their party and the important issues kiwis should be thinking about. That’s […]

  3. […] and evaluate the more interesting economic ideas – see, for example: Stephen Keys’ Why can’t we have full employment in New Zealand?, Thomas Vautier’s Universal Basic Income, and Andrew Chen’s $20k Tax-Free Income and […]

  4. […] are the full employment policies; the regional development initiatives; the genuine attempts to reign in property inflation and the […]

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