Labour shortage is the single biggest obstacle to expansion for business right now. And tangled up in this shortage is a bigger question: can we grow a big enough working population for the future?
This is a population question — and not as simple as it looks.
The focus has been on population ageing when the baby boomers retire and in the context of superannuation and health care affordability. Demographer Ian Pool of Waikato University argues this ignores the looming changes in population structure and policy issues wrapped up in that — particularly for Maori.
There is an assumption behind most discussion of the current labour shortage that a more aggressive immigration sales pitch abroad will keep up workforce numbers. The government is starting to do a bit more pushing, companies are gradually taking up the devolved permit scheme under which they can fast-track migrants into jobs and others have been actively recruiting, notably in South Africa.
That has not been enough in the present squeeze and worse may be in the pipeline. Net immigration of foreigners, strong over the past two years, is falling rapidly. Net emigration of New Zealanders, which was checked by the September 11 terrorist attack on the United States, is climbing again.
Stephen Toplis, Bank of New Zealand head of market economics calculates there is a real possibility net migration will add nothing to the population over the next year.
With demand for labour still strong, unemployment is likely to fall still further from its already low 4 per cent, Toplis says. And there is little room left to convert part-timers into full-time workers: only a very low 18 per cent of part-time workers in the most recent survey said they wanted to work longer hours.
And, note, this is not skilled labour he is talking about. It is any labour.
The desperate shortage of skilled labour is the result of several factors, including lower wages than in Australia where any New Zealander can work, the fact that work that gets your hands dirty became unfashionable in the 1990s and hit-and-miss training during that decade.
In the chase after EFTS funding institutions laid on courses with dubious economic prospects — and dubious political prospects, as National’s Bill English has been demonstrating in his hunt for wacky projects. Ministers are edgy. The Tertiary Education Commission’s task this year is to start redirecting spending to reflect better national workforce priorities. The reintroduced apprenticeship schemes are bearing some fruit.
Also businesses have increasingly realised that they must get into training if they want a supply of skilled labour.
OK, so you skill the unskilled. But where do you find people to do the basic work?
The slick answer is off the welfare rolls: intensify the work push on domestic purposes, invalid and sickness beneficiaries and support them more to get into work and stay there. The ideal time to do this is when the economy is up. That the much-touted (and expensive) Wisconsin reforms succeeded in reducing welfare rolls is in good part due to the fact that they were done in boomtime.
But getting such people out to work and staying in work is hard work. Pool says considerable numbers of low-skilled and unskilled were seared in the 1980s/90s restructuring reforms, which dumped them out of jobs and left them stranded or condemned to pointless retraining.
This created “discouraged male workers”, he wrote in a paper last year, “a situation we have still not overcome” in the sense of getting them back into work. They are now reaching middle age or older. They are disproportionately Maori.
Even if you do get them operative now, they will be among the retired in 20 years or less. What then?
The Treasury cast a glance at the demographics in a paper last year and concluded that New Zealand, in common with Australia and the United States, has — by the standards of the western world — a relatively high birthrate which would give us “a slight economic advantage over other OECD countries”.
The ratio of dependent old people to those of workforce age is projected to be lower than in much of Europe and Japan. While the ratio of dependent young people to those of workforce age will be higher than in much of Europe and Japan, they make smaller demands on the health system and relatively larger numbers of younger workers make for a more innovative and efficient economy.
There are two complications with this sanguine view.
One is that New Zealand is now a recruiting ground from which Europe can build its workforce numbers. Over the past 25 years far more New Zealanders have left than have returned. This was reversed temporarily after September 11 and during the recent boom but is now back to trend.
And logically that trend will grow as age-heavy countries intensify their recruitment — at least until (and unless) their birthrates pick up and feed through.
Moreover, they will take our brightest and best.
The second complication with the sanguine view is that the strong birthrates are among the ethnic groups — Maori and Pacific islanders — who on average perform below the general average at school and subsequently in the economy and in society. Dismaying numbers fail at school and end up in prison.
The lesson from that is simple: “race-based funding”. Well, not exactly that, but certainly a concerted effort to ensure a much higher proportion of Maori and Pacific islanders are workforce-capable when they leave school.
The government has since 1999 (initially under National) been piloting a project in decile 1-3 (low socioeconomic) South Auckland schools which have high proportions of Maori and Pacific island children, many of whom have non-learning home backgrounds and start school handicapped. The project appears to be having some success in lifting these children’s learning and is being extended.
The point is that while New Zealand children score well on average by OECD standards at age 15, there is a longer “tail” than elsewhere in the OECD of underachievers and non-achievers. A disproportionate chunk of this “tail” is Maori or Polynesian.
And because these ethnic groups are producing disproportionate numbers of children, the tail is likely to grow unless learning is improved. That darkens prospects for maximising the workforce from our home-grown population.
Which pitches us into a bigger question: do we want to manage population growth?
This was the subject of a session titled “Is demography destiny?” at the Australian Centre for Independent Studies’ “consilium” three weeks back at which CEOs rubbed shoulders and intellects with academics and policymakers on topics that seldom surface in the executive suite but have a longterm bearing on the economic environment.
This session canvassed a developing academic and policy debate on the policy, tax and intergenerational equity effects of population ageing and related health needs (not as bad as painted if productivity growth is taken into account), the shaping of the age distribution in the population over the next 50 years to maintain as large a ratio of workforce-to-dependents as practicable and the role of migration in helping shape that distribution and in building up or holding down the population to a range of desired sizes.
It emerged from the background papers and discussion that arguments for a greatly increased population (common in business circles) and a heavily reduced population (popular among some greens) are both highly impractical. One paper concluded that 120,000 net migration is “at the high end of what Australia seems able to manage”. That translates to 24,000 here.
Much of the discussion centred on increasing the birthrate to grow the workforce age group relative to the aged. The Howard government has in fact encouraged births with a cash bonus. One speaker urged marriage on the ground that women are more likely to breed in the security of marriage.
But there is a cost: for around 30 years a higher birthrate increases costs until a fair proportion of the children are in the workforce.
These are important questions. Pool is one of a rather small number of people pondering them here — he urges a better work-life balance as likely to increase the birthrate. But population policy, if it can be called that, is essentially short-term: about who should come as immigrants, the labour shortage and how to fund the 50-somethings when they are 70-somethings.
Business might want to start asking for better and deeper thinking.