Playing the World’s Smallest Violin: A Rant About New Zealand’s Supposed Labour Shortage

Inflation is Back, in New Zealand as much as in anywhere else. Fuel costs and supply-chain issues and all that – and, yes, the loose monetary policy in 2020 has had an impact too, though it was the right thing to do at the time. 7% inflation in 2022 is the lesser evil compared to what might have been a Covid-induced Depression.

But there is another factor at work here, specifically the impact of a supposed labour shortage. And that is what I am ranting about today. Specifically, about how damned entitled so much of New Zealand’s employer class really is.

Now, it is true that the wage-price spiral is a well-known phenomenon in economics. As prices go up, workers demand higher wages, which increases production costs, and hence prices. Rinse and repeat. But in the present circumstances, New Zealand’s inflation is being driven by higher fuel costs and higher rent costs, not by exorbitant wage demands… and honestly, expecting New Zealand employees to bear the brunt of imported inflation strikes me as profoundly unfair. Especially in a society as profoundly unequal as New Zealand in the early 2020s.

Of course, if New Zealand were operating genuinely competitive markets, this would be less of an issue – firms raising their prices over their competitors would be punished by everyone flocking to the competition. Passing wage rises directly onto consumers would carry one hell of a downside for businesses. But whole swathes of the New Zealand economy – especially in petrol and supermarket foods – are profoundly non-competitive. So they can (and do) hike prices without fear of retribution, and the fact that it is taking the Government so long to do something about it is practically criminal.

But back to the labour shortage. Where we find employers whinging about not being able to find staff:

Now, the cornerstone of economics is Demand and Supply. A shortage arises when Quantity Demanded exceeds Quantity Supplied… and is solved by increasing the price (decreasing Quantity Demanded and increasing Quantity Supplied until they are equal). In short, the labour shortage could be resolved at a stroke if New Zealand employers were actually willing to accept a higher price of labour (i.e. higher wages).

But they are not willing to accept this. Rather than offering higher wages or training up some of New Zealand’s remaining unemployed to do the job (and by the standards of the pre-1984 era, New Zealand still actually has a sizeable pool of unemployed), they are screaming for increased immigration. Let’s not bother with useless locals – let’s artificially increase labour-market Supply by bringing in extras from overseas. Inflation is thus dealt with by using immigration to keep wages down, and it’s only the peasants who are screwed. It reminds me nothing so much as the English landowners who got Parliament to push through the Statute of Labourers in 1351, in the aftermath of the Black Death. Let’s use any workaround at our disposal to avoid having to improve the lot of workers.

And this is why this really is a “world’s smallest violin” situation. The business model of a surprising number of New Zealand firms clearly revolves around wanting to hire pre-trained people to work for a pittance. Training or capital investment are clearly out of the question. New Zealand’s employer class are frankly getting what they deserve here – having spent thirty years (ever since the passage of Employment Contracts Act in 1991) relying on a system of low wages and long work-hours for employees, they are unable to adjust to a changing environment. So much for flexibility and shrewd entrepreneurship – these people come across as entitled dingbats who wouldn’t know their Adam Smith if you dropped a hardback Wealth of Nations on their heads.

This isn’t to excuse the Government either. If they weren’t lumbering the next generation of doctors and nurses with student loan debt, and were offering better conditions… more New Zealanders might be inclined to train as doctors and nurses. Admittedly, training a doctor is more time-consuming than training a hairdresser, but what we are really seeing here are the downstream consequences of 1990s user-pays tertiary education policies. Chickens coming home to roost. This fucked-up situation has been decades in the making, and seeing the Government (a Labour Government at that) hunting around for an overseas-sourced band-aid is downright embarrassing. Hell, the previous Government restricting access to Student Loans will probably screw this country for a generation – seven years of access to loans (in one’s lifetime!) is blatantly inadequate, and, as ever, the current bunch have done nothing to fix the mess.

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