CTU Economic Bulletin No. 56

February, 2005

Comment

In previous Bulletins (July 2004, November 2004), I have argued that wages have been slow to respond to prolonged labour market shortages and that employers and Opposition parties will try to make wage pressures into a call for tax cuts. There is now however widespread public recognition that wages need to rise and have been slow to respond to falling unemployment, high profits and strong economic growth. For instance, wages have gone up by 10.9% since late 1999 and the CPI by 13.4%, the minimum wage next increases in March by 5.6% and will have gone up by 35.7% in those five years, and company profits are up significantly (company tax data suggests an increase of up to 19.4% in the last year alone). House prices were up by 16.5% last year. In the section below on wages, the latest data confirms that wage increases are still at low levels. It should be no surprise to employers that unions are pushing for decent wage rises. We will no doubt hear concerns that wage pressures will drive up interest rates. In fact back in December 2001, the Reserve Bank said that a tight labour market would lead to higher wages. Three years later, not a lot has happened. In fact, when you look at CPI, productivity increases and the high levels of profits, there is plenty of room for decent pay increases that are not inflationary.

On 10th March, the CTU is holding a seminar on the future of the manufacturing sector. With unemployment at 3.6%, manufacturing output growing, and a number of industry strategies in manufacturing (e.g. textiles and clothing, wood processing, food and beverage), some may wonder what the concern is. But the proposed free trade agreement with China gives added urgency to the need for a general manufacturing industry strategy that can deliver decent jobs on a sustainable basis.

The key problem is that while there is a broad-based economic development strategy, when it comes to trade policy the focus is much narrower and relies too much on agricultural commodities. The manufacturing sector employs 292,600 compared with agriculture and forestry with 143,700 workers. In developed economies most of the profits in trade come from intra-industry trade in manufactured products. This means that, instead of a model where one country is the 'farm' (even if it is value-added) and another is the 'factory' which is a crude version of the comparative advantage model, both countries specialise in a range of differentiated products within the same industries. For instance, under a comparative advantage model, New Zealand would not be seen as a good place to make dishwashers. Under a differentiated intra-industry trade model, there is no reason why New Zealand could not both export and import elaborately transformed manufactured goods - which we do. And this dimension can be added to the strength of our agricultural base and also make us less dependent on commodity prices which are more elastic than for manufactured goods.

Many other developed economies are looking at what can be done to support new manufacturing initiatives. The Canadian manufacturers have just launched a seven-point action plan including workforce development, innovation, and infrastructural investment. What is required in this country is a comprehensive strategy that includes tax treatment of research and development, depreciation, active support for new manufacturing such as the Whispertech company in Christchurch. They have developed the WhisperGen micro combined heat and power unit which is designed to replace a central heating boiler and supplement domestic electricity supply. There is enormous potential for this product. We are pleased that Jim Anderton has announced a manufacturing Summit later this year. Our March meeting aims to gear unions up to develop a clear and convincing plan to support the manufacturing sector.

Another final comment for this month. Many of the key economic issues of this period are about the labour market. The slow response of wages to labour shortages..... the right policy mix to encourage even higher workforce participation.....the interface of social welfare benefits and paid work.....apprenticeships and industry training...workplace superannuation....workplace productivity....how to have a growth and innovation framework that workers can relate to, be involved in, and benefit from... and so on. There are now many different avenues for union engagement on all these issues - now is the time to get involved.

Economic Snapshot

This is a snapshot of key indicators for unions. Consumer prices rose by 0.9% in the December 2004 quarter and were up by 2.7% annually. Food prices increased by 1.8% in the January 2005 year. The next CPI update is on 15th April. Unemployment is at 3.6%. The minimum wage is $9.00 for those aged 18 years and over and $7.20 for 16/17 year olds and trainees. It will rise from 21 March 2005 to $9.50 and $7.60. Ordinary time wages as measured by the Quarterly Employment Survey for December 2004 were up annually by 2.1% (1.9% in the private sector and 2.8% in the public sector). The average ordinary-time-hourly wage as measured by the QES is $20.19. For the private sector it is $18.85 and for the public sector it is $25.30 For females it is $18.55, for males $21.56. The Labour Cost Index (for December 2004) showed private sector wages up 2.4% for the year, with public sector wages up by 2.5%. 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 3.8% and the median increase was 3%. Economic activity (GDP) increased by 0.6% in the September 2004 quarter and 4.6% for the September 2004 year. The official cash rate set by the Reserve Bank is 6.50%.

Wages

The latest statistics show that wages as measured by the Labour Cost Index rose by 2.4% in the private sector and 2.5% in the public sector in 2004. In the December quarter, 18% of wage earners got an increase. The average was 3.8%. The median was 3%. The Quarterly Employment Survey for the December 2004 quarter recorded a slight fall in the average ordinary time hourly wage to $20.19. The fall is partly due to the compositional problems in the QES and means that there was a lot of employment in the December quarter at rates below the average wage. But on an annual basis the QES shows that wages rose by 2.1%, only 1.9% in the private sector and 2.8% in the public sector. The average wage for women was $18.55, which is 86% of the male average.

Trade

Imports for the year ended January 2005 were $34,881 million, up $2,879 million or 9.0% compared with the year ended January 2004. The main contributors to the higher value of imports for this period were petroleum and crude oil; mechanical machinery and equipment; electrical machinery and equipment; and vehicles. Australia, China, Singapore, Japan and the Republic of Korea were the main countries recording higher values of imports for the year ended January 2005 compared with the year ended January 2004. Exports for the year ended January 2005 were $30,951 million, resulting in a trade deficit of $3,930 million, or 12.7% of exports. This trend can only add to the concern about our current account deficit (presently 5.8% of GDP and rising). The BNZ are picking it will end up hitting 8% of GDP.

Unemployment

Unemployment has fallen to 3.6% (the lowest in the OECD). In 2004, part-time employment growth was 6.9% and full-time employment growth was 3.8%, leading to total annual employment growth of 4.4%. Hours worked went up by 4.3%. Underemployment has gone up slightly. Of the 465,600 people employed part-time in the survey series for the December 2004 quarter, 92,600 (20%) indicated that they would prefer to have worked more hours. The total number of unemployed was 76,000. The total number jobless (which includes those discouraged from seeking work, or not currently available for employment for various reasons) was 149,500. Maori unemployment is 8.9%, Pacific peoples 6.5% and Pakeha 2.3%. Unemployment for 15-19 year olds stood at 11.6% whereas for 45-49 year olds it was 1.2%.

Government Finances

The forecast operating surplus for June 2005 is $6.5 billion. The forecast for the 6 months to end of December 2004 was $3.59 billion but the actual surplus was $4.53 billion. Michael Cullen is pointing out that the projected cash surplus for the year is a much smaller $1.4 billion. Gross debt is 25.3% of GDP. Net debt is 10% of GDP.

Migration

Over the past 10 years, permanent and long-term migration dropped between 1996 and 2000, then rose in 2001 and 2002, before falling again in 2003 and 2004. There was a net gain of 132,200 migrants in the past decade.
In the December 2004 year, there were 12,200 fewer permanent and long-term arrivals than in the previous year. The main reason for this decrease was the drop in non-New Zealand citizen arrivals, 9,600 fewer than in 2003. Almost 70% of New Zealand nationals returning home in 2004 after a long-term absence came from either Australia or the United Kingdom (8,700 and 8,500, respectively). These two countries were also the most popular destinations for New Zealand citizens departing for a permanent or long-term absence (25,400 and 8,600, respectively). As a result, there were net outflows of New Zealand citizens to Australia (16,700) and the United Kingdom (100). The net outflow of New Zealand citizens to Australia was up by 4,600 (39%) from 12,000 in 2003. Countries contributing to the net inflow of 33,200 non-New Zealand citizens included the United Kingdom (9,100), China (2,900), India (2,500), Japan (2,100), Australia (1,900) and Fiji (1,800).

Housing

The median house price is $265,000 which is up by 16.5% in the last year. The Auckland median is $340,000, 28% higher than the national figure. Consents for 30,544 new dwelling units were issued in the year ended January 2005, down just 47 units from the January 2004 year. But non-residential consents continue to grow. For the year ended January 2005, the total value of consents issued for all buildings was $10,713 million, up 16% from the year ended January 2004. Meanwhile, eligibility criteria for a mortgage insurance scheme aimed at low-income first homebuyers have been relaxed. The Government expected the pilot to help with 1800 loans in the two-year trial. But after 16 months only 730 loans had been used under the scheme.

NZ Super Fund

The NZ Superannuation Fund was valued at end of January as worth $5.5 billion.

Family Support

From 1st April, family support payments will go up by $25 for the first child and by $15 for each additional child. The accommodation supplement will also rise for a number of families, particularly those in the central and North Auckland areas. The Government says that the 1st April changes will benefit almost all families earning less than $45,000 and a substantial number of those earning up to $70,000.

Population in rural areas

Although the population in remote rural areas declined by 5.9% between 1991 and 2001, there was a 33.3% increase in the population of rural areas close to cities making them the fastest growing locations.

Median age goes up

The median age (36.2 for women and 34.5 for men) has gone up by 3.1 years for women and 2.8 years for men since 1994.

Choose your poison

In 1994, 83% of alcohol consumed was beer. Now it is down to 70%. Wine consumption has gone up from 14% to 19% over that period.

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