Daniel Smith Industries construction workers at smoko break on a building site in Canterbury; the reserve pool of immigrant labour has now dried up. Photo: Immigration NZ

The jobless rate has dropped to a recorded low of 3.2 percent. It’s counter-intuitive, but history teaches us that this shortage of workers has its downsides for our communities – and we’re now rediscovering those.

In March 1952 there were 28 people seeking work, and just two people on the unemployment benefit. The joke was that Minister of Labour Bill Sullivan personally knew the names of every unemployed New Zealander – both of them.

That same joke was applied to long-serving Minister of Labour Tom Shand in the 1960s, then appropriated by Prime Minister Robert Muldoon in the 1970s.

But by the end of that decade, it had become a forlorn historical counterpoint as unemployment began its gruelling climb to the grim heights of the 1990s. In March 1991, 11.2 percent of the workforce was registered unemployed – more than one in every nine workers.

Today, with 93,000 people listed as unemployed, Social Development and Employment Minister Carmel Sepuloni might struggle to remember every name – but nonetheless, unemployment is lower than most working age Kiwi can previously recall.

Statistics NZ announced this week that unemployment had dropped to 3.2 percent, its lowest level since Household Labour Force Survey records began in 1986.

History teaches us that so-called “full employment” has its downsides – and we’re now rediscovering those.

“The protected industrial economy did have some benefits. It created jobs – there was full employment until the 1970s – and it increased the stock of technical and managerial skills. But consumers and farmers were deprived of access to cheaper – and often better quality – imported goods.”
– Dr John Singleton, Economic History Association

Once, “full employment” was official Government and Reserve Bank policy, as it was in many other developed nations. Economist Dr John Singleton wrote that full employment became the main priority of successive governments, enabled by insulating manufacturers and producers from world markets.

“The protected industrial economy did have some benefits. It created jobs – there was full employment until the 1970s – and it increased the stock of technical and managerial skills. But consumers and farmers were deprived of access to cheaper – and often better quality – imported goods. Their interests and welfare were neglected.”

In 1972, the Royal Commission on Social Security consolidated the dole and other benefits, in what would turn out to be the start of 25 years of rapid change. “Even if ‘full employment’ is an imprecise concept, it is unlikely that any New Zealand government will be able to escape the public insistence that it must so manage the economy that there is a market for the services of all who are able and willing to work,” it reported.

That, says economist Brian Easton, was an egregious mistake. Benefit numbers began climbing through the 1970s – not just the unemployment benefit but also the sickness and invalids benefits. “The world after the Royal Commission changed. There was no outbreak of a virulent disease untreatable by the medical profession, nor an epidemic of injuries,” he writes. “The main driver of the subsequent rise in sickness and invalidity benefits seems to have been a labour market which no longer wanted to employ them.”

It is only in the past 15 years that the proportion of the workforce receiving benefits has really dropped – and that is a reflection of a growing economy, the retirement of the baby boomers making space for younger workers and, as we’ll discuss, the flexibility provided by immigrant workers, part-timers, casuals and contractors.

Now, the Government no longer talks about “full employment”, but rather, “maximum employment”. That’s spelled out in the Reserve Bank target as “maximum sustainable employment” (traditionally considered to translate to minimum unemployment of around 4 percent) … all of which means the term “full employment” can be thrown around more casually.

So it is that Kiwibank chief economist Jarrod Kerr wrote yesterday of “a labour market that has moved beyond full employment”.

The Sounds of silence

If Tom Shand knew the names of all those registered unemployed in New Zealand when he was Minister of Labour, then he would be dismayed at how that low unemployment is manifested today in Marlborough, where he was MP for 26 years.

Central and local government need to break ground this year on two critical construction projects, but face real difficulty recruiting the workers. One is Te Tātoru o Wairau, the project to merge Marlborough Girls’ College and Marlborough Boys’ College into one big, modern co-ed high school in suburban Blenheim.

The other is Port Marlborough and KiwiRail’s $400 million project building a new ferry terminal and supporting transport infrastructure in Picton to accommodate the big new Interislander ferries and the longer trains they will carry, arriving in just three years’ time.

Sue Jensen, KiwiRail’s acting group general manager of human resources, acknowledges the state-owned enterprise has experienced the same talent shortages that are affecting all New Zealand employers. These are the result of labour market conditions within New Zealand, she says, combined with the impact of border restrictions.

Recruiting people, the business is in the unique position of having large-scale critical infrastructure projects to attract those who want to work on multidisciplinary programmes, as well as solid training programmes. The $1.45 billion project to bring two new ferries into service is an example, with redevelopment getting underway in Waitohi Picton and Wellington this year. “We’re confident we will be able to recruit the required staff,” she adds.

Marlborough’s economic development manager, Neil Henry, expects that KiwiRail will be able to ship in some of its workers from around New Zealand to help with the new terminal, but even so, the region will be hundreds of workers short.

A new terminal is required to berth the three big new InterIslander ferries arriving in 2025, and accompanying transport infrastructure for the longer trains that will chug through Picton. Photo: Tracy Neale

BCITO, the Building and Construction Industry Training Organisation, has begun tracking and forecasting the industry’s workforce needs with a new forecasting tool. Nationwide, it estimates the sector is short 142,711 workers this year alone. In Marlborough, it’s short 713 workers over nine projects – that’s a big hole in a district with a population of just 50,000.

The Ministry of Social Development reported 1281 people receiving Jobseeker benefit in Marlborough last month, which indicates there would be about 700 people unemployed and the rest of the recipients working part-time with reduced benefits.

Henry says it’s not just construction feeling the pain: the region’s famous vineyards are looking in despair at the harvest beginning next month, not knowing where they will find the workforce to pick the grapes and prune the vines afterwards. The phased reopening of the border, announced Thursday by Prime Minister Jacinda Ardern, will be too little and too late for those winemakers. 

Further north in the Marlborough Sounds, the mussel and salmon aquaculture businesses are struggling to find processing workers for their factories, or workers to go out on the boats.

The council coordinates a regional group that works to ensure the local polytechs and training organisations are delivering the skilled workforces needed by major employers, Henry says. In apparent desperation, they’re now focusing on getting older people back in the workforce, as well as young people who’ve fallen out of school, out of training and out of the workforce. “We’re really trying to make the most of everybody in the region, including people who have fallen by the wayside.”

In Manawatū, Mayor Helen Worboys tells a similar story. The district had 840 people receiving Jobseeker support at last count, a 9.8 percent drop in just one year. 

She supplied Newsroom a report by the district’s economic advisor Stacey Bell. “We are fully aware of the substantial labour constraints businesses in our district are facing. Typically, we have relied on skilled migrant labour to fill skill gaps in our labour force.  This has been constrained since 2020 and central government immigration policy is not delivering on need; rather stating intent without delivering.”

The council argues different regions of New Zealand are competing against each other. “We implore central government to support the economic wellbeing of our communities and the productivity the New Zealand economy, by proactively enabling the immigration of workers into New Zealand to provide for the needs of the New Zealand economy across the board.”

Stats NZ says there are just 3700 listed as unemployed across all of Manawatū-Whanganui region, down 2700 on last year. That’s a regional unemployment rate of a low, low 2.6 percent, and underutilisation rate of 9.3 percent.

Worboys criticises the Government for a continued failure to admit the critical dairy and other agricultural workers it had promised to allow into the country. “Government said 1500 workers would be allowed in to assist with shortages but to date we believe not one person has been approved MIQ status. This is very disappointing and does not acknowledge New Zealand’s economic strength, let alone Manawatu District’s.”

The region’s Central Economic Development Agency has kicked off a big national marketing campaign to attract workers to Manawatū’s infrastructure and construction sector.

But to be fair, New Zealanders know there are labour shortages the length of the country. This is no longer news. Even the usual cries – that the problems would be addressed by employers paying more – have been largely stilled by the acceptance that the labour crisis is bigger than any one cynical industry.

What may be less well recognised is the extent to which full employment may, in certain respects, impact adversely on workers and communities, as much as it does on employers.

Let’s be clear: jobs are good. More jobs are better. For most individuals, it is better that they be employed than sitting at home on the Jobseekers’ Allowance. But economic orthodoxy, and the sometimes bitter experiences of the 1960s and 1970s, suggest there are some very real downsides for workers in a bloated, inefficient workforce.

I’ve been working on the railroad …

The 4000-strong KiwiRail of 2022 is a smaller, more streamlined business than it was previously. Arguably, that’s part of the reason why it can’t easily redeploy sufficient workers to rebuild the port of Picton. It’s presently advertising more than 50 roles up and down the country, including a project manager for The Interislander, and a $200,000-plus role as programme director for the Auckland metro upgrades.

But Richard Prebble (another in New Zealand’s line of Ministers of Works) recounts the story of its predecessor NZ Rail, when he took over as minister in 1984. It was not only losing a million dollars a day, but it was also losing customers, freight and sometimes whole wagons as well.

You may have heard this story – he first told it 25 years ago in his political memoir, I’ve Been Thinking. A farmer wrote to him, complaining that the Railways had lost his tractor. After weeks of fruitless complaints to the state corporation, he had gone to the length of writing to the minister.

Prebble asked Railways to find the farmer’s tractor, but the reply was perfunctory. “Sorry minister, we know it left Hamilton but it failed to arrive in Taumarunui.”

Minister of Railways Richard Prebble sounds a train whistle at the Silverstream rail siding. Photo: Upper Hutt City Library Collection

The minister duly wrote back to the farmer with his apologies. “But that was not the end of the matter. The farmer wrote back saying he had given up asking bureaucrats to help him. He had got into his car and followed the railway line from Hamilton to Taumarunui, searching for the tractor himself. It had taken a week.

“Eventually he had found his tractor in a siding. He also found six other wagons Railways had lost.”

Prebble argued then, and argues now, that NZ Rail’s big workforce did not care enough to find it – the size and lack of commercial imperatives had made them inefficient. “The farmer did care enough to find it. It was his tractor,” Prebble concludes. “One man with the right incentives outperforms 22,000 state employees with the wrong ones.”

So the Labour government made Railways a state-owned enterprise. According to the official history, in six years the workforce was cut to 5000 through voluntary redundancies, while the remaining workforce’s productivity was lifted 300 percent.

“As we have no work for them it is actually cheaper if they do not come to work. After about six months most drift away. This group of die-hards won’t leave even though they know there is no work.”
– NZ rail general manager

Prebble argues that Railways went from losing money to being the only profitable narrow gauge railway in the world.

Today, he expands on that: the remaining 5000 workers handled twice the freight volume, he tells Newsroom, enabling the newly-reformed state owned enterprise to reduce freight charges by around 50 percent. That, in turn, enabled whole new industries to become economically viable, and whole forests economic to harvest. For every job lost on the railway, 10 new jobs were created.

He recalls how he discovered some workers at a provincial Railways branch who approached him and asked: “Can we be made permanent employees?”

“You have to be on the payroll for six months,” Prebble replied.

“We have been working for Railways for seven years,” they told him. 

So Prebble promised to look into it. The general manager knew all about them, he says.

“We have no work for them,” the boss told him. 

Prebble was perplexed. “Why were they hired?”

The manager replied: “Every election the minister produces a list of places and a number of people we must hire. No doubt you will do also.”

So Prebble promised he would never issue such an instruction. 

“As we have no work for them it is actually cheaper if they do not come to work. After about six months most drift away,” the manager explained. “This group of die-hards won’t leave even though they know there is no work.” 

The experience of New Zealand Rail, in the 1980s, raises as many questions as it poses answers. Was the problem poor management, jobsworth workers, perverse incentives, unsustainably high employment, or a combination of all four? Prebble is certain of one thing: “The Railways was run as a huge employment scheme.”

Lies, damn lies, and statistics?

Prebble argues that the real level of unemployment is around 6 percent. Statistics NZ is not counting those on the Jobseekers benefit who aren’t looking for work. “It is really cooking the books.”

The Ministry of Social Development identifies a different cause for discrepancies between the two datasets: there are part-time workers, it says, who are entitled to a reduced Jobseekers allowance but are not defined as unemployed under the narrower Statistics NZ terms.

Moreover, the Jobseekers benefit is, essentially, a combination of the old unemployment and sickness benefits – so some of the recipients are simply too sick to work. The 80,000 who have a medical exemption remain on a Jobseeker Benefit because they are expected to return to the workforce at the end of their illness. 

Last week, there were another 106,050 people people on a Jobseeker Benefit looking for, and available for work. Take away those who already have part-time jobs, and the remaining figure roughly aligns with the 93,000 unemployed, reported by Stats NZ. 

For the purpose of this article, this detail matters only insofar as it shows the data is broadly reliable – enabling us to track the rise and fall of unemployment over the past years and decades.

Prebble’s occasional sparring partner, Brian Easton, says we’ve been measuring unemployment since the 1896 Census. “It is not a very good series,” he tells Newsroom. “But I think a fair interpretation is that, except for the 1930s, New Zealand had low unemployment up to the late 1970s. The [anomalous] Great Depression was a traumatic memory, even for my generation, but a misleading one.”

For Prebble to worry about rising inequality and the real level of unemployment is pretty cheeky, Easton suggests, given his part in the 1980s economic reforms that left thousands jobless.

“At the beginning of the 20th Century New Zealand was seen as a working man’s democracy; it no longer is,” Easton writes in his challenging economic history Not in narrow seas, published in 2020.

“Of course things change; we acknowledge that women are still not treated as well as men; nor are Māori treated as well as Pākehā. But such things could be best dealt with in the framework of an egalitarian society and a fully employed economy.

“The changing external environment – as occurred when the price for cross-bred wool collapsed and when we lost open access to the British market – can be traumatic, but we were overcoming it. Of course globalisation is a challenge; a working man’s and woman’s democracy meets it by taking the interests of all ordinary people into consideration.”

It’s easy to glibly dismiss statistics, but as we’ve learned from the past two years of pandemics, hard evidence sure beats social media anecdote. And it should be noted that Stats NZ’s definition of unemployment is aligned with the OECD’s allowing direct international comparisons.

What those reveal is that, on a global scale, New Zealand has one of the lowest unemployment rates in the developed world. In the OECD, only Czechia, Japan, Korea, the Netherlands and Poland are lower.

But on a very local scale, Statistics NZ data highlights just how diverse our workforce is, and the many different nuances that exist within and between the simple categorisations, "employed" or "unemployed". What about part-timers, contractors, casual workers, illicit workers, volunteers?

For instance, Stats NZ says there are just 1900 listed as unemployed across all of Southland region. That’s down 500 on last year. That’s a regional unemployment rate of a low, low 3.2 percent, and under-utilisation rate of 9.6 percent. Those are workers who could or should or would like to be working more hours, or more effectively, than they do.

As of January 21, there were 2775 people on Jobseeker allowance in wider Southland region – though some of those aren’t actually unemployed because they work part-time. That’s down from 3102 a year ago.

Go north, young worker

In Southland district itself, there were 606 people on Jobseeker support: "I don’t know all of their names, however I am learning some of them."

That's Gary Tong, Mayor of Southland, who warns against disregarding the plight of those who are still left unemployed, even in this jobseeker's market. The globalisation of the neo-liberal 1980s and 1990s may have been a trauma to overcome; so too is its counterpoint, the closeted isolation of the pandemic era.

Tong acknowledges the shortages faced by employers – but says there are still those workers who are struggling. He's talked with some of them, like out-of-work chefs, front-of-house hospitality workers, and crew on the Milford Sound tour boats.

"I have had a long think on this and I have to say that the anecdotes are sad," he says.

Sometimes, he says, they have to move away from their own families, in order to find work to support them.

Southland mayor Gary Tong says hospitality workers in tourist destinations like Milford Sound are being forced to leave their homes and families to find new work. Photo: Supplied

"In the main the stories are around people having to leave communities such as Te Anau for greener pastures in the hospitality industry. Leaving well established jobs, their children's schools, the fire brigade or other community-focused voluntary roles."

The regional development agency, Great South, has been working on projects like Youth Futures, with the primary industry sector and the Southland Institute of Technology, and business innovation through the Chamber of Commerce and Coin South. 

Some employers have experienced "a double whammy" with Covid and border restrictions. "Government funding has been sourced for areas such as Fiordland to get them through this, however there are many struggling with decisions for the future."

When the pools dries up

The discrepancy between worker shortages in some industries and sectors, but job shortages in others, highlights an emerging discussion about reserve pools of labour.

Most economists agree that some unemployment is useful to encourage the flexible labour market necessary for a modern economy. That works for employees, on the condition that when they are laid off from one job, in one sector, they know they can quickly find a decent job in another.

Brian Easton has described a reserve pool of labour to fill shortages in other industries and neighbouring regions. That's a point the Reserve Bank has begun to make over the past year: with different industries experiencing the pandemic and border closures in different ways, there's a need to smoothly move workers from one sector where the jobs are disappearing (like tourism) to another that is crying out for workers (like construction).

These labour reserves have helped smooth the cyclical changes between job shortages and labour shortages. As global demand for New Zealand's exports grows, and the last baby boomers retire, we have been able to progressively retrain into new industries and progressions, or call on skilled and semi-skilled immigrant labour, or women returning to the paid workforce.

And that's what we're only just starting to understand. "I don’t think I have written this up well yet," says Easton, modestly. "Historically we had labour reserves other than the unemployed which added to flexibility – in the 1950s teachers used to work in the freezing works during the peak season which coincided with the school holidays. Over the last decade a major source of that flexibility was migration."

(It was not a good way if doing it, he says, but that's another story).

But, drawing together what Easton and Prebble and the provincial mayors and Stats NZ and the Reserve Bank tell us, it becomes clear that over the past two years, the labour market changes have accelerated – and the market hasn't been sufficiently quick and responsive to address the needs.

It takes too long to retrain. We haven't yet found easy ways to transform Fiordland chefs into Auckland civil engineers. Lockdowns have persuaded parents they can work from home, rather than going out to work at an office or hospital or building site. And of course, political enthusiasm for immigrant workers has been paused by travel bans, giving the Government a chance to reconsider whether it's the right solution.

"In the post-Covid world it is not clear we can rely on migration to the extent that [John] Key and [Bill] English did," says Easton.

In recent years we've welcomed immigrant workers, considering that they bring energy, investment and cultural diversity – without acknowledging the cynical extent to which we have taken advantage of them. In the 1960s New Zealand imported workers from the Pacific, only to viciously turn on them in the Dawn Raids of the 1970s and early 1980s.

More recently, we've imported labour from the Asia-Pacific, but paid them poorly, treated them badly, then turned our collective back on them when Covid hit.

Evidence for that can be found in BERL research published this week by Diversity Works NZ, identifying worrying inequities between migrants from different countries, structural bias and discrimination.

The organisation's chief executive Maretha Smit gives the example of engineering professionals. Those from the UK, South Africa, and Northern America all earned an average wage above $45 an hour in 2018, ahead of the arrival of Covid. In contrast, those from India, China, and Polynesia all had hourly wages below $40.

Those discrepancies remained even when the data was adjusted to compare migrants with similar levels of skills, English language ability, time spent in New Zealand and age.

A return to full employment?

What we are faced with now is a return to the highest levels of employment we've seen since the early Muldoon era – but a loss of the labour market flexibility that invigorates businesses and their employees alike.

With the loss of reserve labour pools, at the same time that major sectors like construction, tourism and hospitality simultaneously explode and implode, employers and workers find themselves thrown together with little choice in the matter.

There are employees, but not always the right-fit employees. There are jobs, but not always satisfying ones, when employers are struggling to give their workers the opportunities and development they would wish for. 

It would be easy to focus on the narrow economic notion of work as generating income, says Easton. But it's much more than that – and that is why full employment is not an unmitigated benefit to workers. He cites the list of latent functions of work, described by 20th Century social psychologists Marie Jahoda and Abraham Maslow.

A job provides social status – typically people who meet for the first time ask each other what do they do. And it links an individual to goals and purposes that transcend her or his own.

Work enforces activity; it imposes a time structure on the working day; it involves regularly shared experiences and contacts with people outside the household.

Easton says poor quality work (perhaps like that at New Zealand Rail in the 1980s) may pay the mortgage – but it fails to provide these latent functions.

Full employment does enable some workers to negotiate better pay, but it does not in itself guarantee them a well-rounded and satisfying professional life. Indeed, as many of us retreat to our suburban silos under the threat of Delta and Omicron, this labour market may be less likely to satisfy those human needs.

This week's statistics shows that a record 2,837,000 New Zealanders get up and go to work most days. They are generally not among the 106,000 receiving the Jobseeker benefit. They are spared the ignominy of the Minister of Social Development knowing their names.

But for many, a Covid-era job no longer involves the regular shared experiences and contacts with people outside the household that Jahoda and Maslow discovered is essential to professional fulfilment.

Newsroom Pro managing editor Jonathan Milne covers business, politics and the economy.

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