And the winners are

February 23rd, 2010 at 12:27 pm by David Farrar
  1. Employment Relations (Workers’ Secret Ballot for Strikes) Amendment Bill – Tau Henare
  2. Smart Meters (Consumer Choice) Bill – David Clendon
  3. Minimum Wage (Mitigation of Youth Unemployment) Amendment Bill – Sir Roger Douglas

Tau’s bill requires all votes on strike action to be secret ballots. In theory almost all unions do this anyway, but there has been some dispute on the West Coast recently about whether this does always happen, so it will be good to have it a legal, not a voluntary, requirement to prevent intimidation.

David Clendon’s bill is inherited from Jeanette and regulates the use of smart meters. Not sure of all the details, but it looks to be worth supporting at first reading anyway so a select committee can look into pros and cons.

Sir Roger’s bill will allow the Government to set a different level of minimum wage for younger workers. I welcome it as there is pretty clear evidence that the huge increase in youth unemployment is bext explained by the scrapping of the youth rate for the minimum wage. National will be nervous about being seen to be “cutting wages” but I hope they will support it to select committee, so arguments can be heard about the linkage.

Rather than cut the minimum wage for any current workers, what I would do if I was the Government is just use it to increase the youth minimum wage more slowly than the adult minimum wage.

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Youth Rates and Youth Unemployment

February 9th, 2010 at 10:00 am by David Farrar

I’ve previously blogged on my belief that the massive rise in youth unemployment is due to Labour’s decision in 2008 to abolish youth rates for the minimum wage.

Eric Crampton has gone better than mere belief, and analysed the relationship between overall unemployment and youth unemployment.

The graph has (thanks Stephen Hickson!) the unemployment rate for those aged 15-19 and the unemployment rate for everyone else (aged 19 and up). It looks to me like the proper relationship is a combination of a level shift and a multiplicative effect. When the adult rate is very low – below four percent or so – the youth rate bounces around at a point about 10 to 12 points higher than the adult rate. When the adult rate is high, the youth rate exceeds that constant by a multiple of the adult rate. …

Both the constant and the adult rate come up highly significant. So, over the period 1986 to present, we can expect the youth rate to be 1.44 times the adult rate (the multiplicative effect – about 44% above the adult rate) plus a constant of 9 percentage points. So if the adult rate is 5, the youth rate should be 16.2. We’ve ruled out the “it’s just ratios” argument – there is a constant term in there; we’ve also ruled out that it’s just a level shift because the coefficient is significantly greater than 1.

So Eric has calculated the best fit of the data is that the youth unemployment rate will 9% higher than 1.44 times the adult unemployment rate.

He then plots the “residuals”, which is how much greater or smaller the youth unemployment rate has been, compared to what the formula predicts.

So that formula looks pretty good up until, umm well 2008. Eric continues:

If we look at the top graph, we see youth unemployment rates went up a lot during the recession of the early 1990s. But over that period, youth unemployment rates were never more than a couple of points above what the very simple model predicted (residuals graph, above). In recessions, it does look like the youth rate gets hit harder than the adult rate. But look at what happens starting around fourth quarter 2008. We now have residuals that blow up the model. Something really weird starts happening to the youth unemployment rate at the end of 2008. Youth unemployment is now about 10 points higher than we’d expect using the simple model.

And if one goes for different formulas:

I tried a few different variations allowing the constant and the slope to shift for high and for low levels of adult unemployment.  But none of that made any substantial difference.

So the conclusion:

The econometrics here are very simplistic and do nothing to account for differences in labour force participation rates or the obvious problem of serial correlation in the time series data.  But the simple model is still pretty telling.  If we allow youth unemployment rates to vary both as a level shift above the adult rate and as a multiple of the adult rate, which is what we’re doing when we run the simple regression with a constant term, we still have a jump in the current youth unemployment rate that is well above that seen in prior recessions.

My first cut explanation remains the abolition of the youth minimum wage.

Now this does not prove beyond doubt it was the abolition of youth rates that pushed youth unemployment up an extra 10%. But it is the most likely explanation.

The challenge for those who think abolishing youth rates did not contribute to the increase in youth unemployment, is to put up their own data and credible explanations to explain the massive gap between youth and adult unemployment.

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A 10 year high in unemployment

February 5th, 2010 at 9:17 am by David Farrar

The recession may technically be over, but it sure as hell has a nasty sting in the tail with the December quarter unemployment rate hitting 7.3%.

The worse case scenario is that we are barely out of recession at 0.2% quarterly growth, and unemployment may rise more in further quarters. That will add to the pressure on the Government to “create jobs”, even though in reality it is the private sector that creates job. The role of the Government is to have the economic environment optimised for job growth.

One can advocate the Government “creates” jobs by increasing spending. However when we are already borrowing $240 million a week just to keep current spending going, I don’t think greater borrowing is the answer. The answer is higher levels of economic growth.

Let’s look at the numbers for the quarter:

  • Total employed dropped by 2,000
  • Total unemployed increased by 18,000
  • Hence labour force increased by 16,000
  • Those not in labour force also increased by 4,000, so total working age population up 20,000
  • Unemployment rate up 0.8%
  • Under 20 unemployment rate up from 25.1% to 26.5%
  • Maori unemployment rate up from 14.2% to 15.4%
  • Job growth in primary production, mining, construction, wholesale trade, retail trade and IT/comms.
  • Job losses in manufacturing, utilities, and transport
  • Total jobless increases from 254,000 to 276,000 – this includes 86,000 not seeking work and 31,000 not available for work.
  • Underemployment (those seeking more hours) drops slightly from 122,000 to 115,000.

Now I want to look specifically at youth unemployment:

This graph shows unemployment rates for the two youngest age groups. Those aged 15 to 19 and those aged 20 to 24. Traditionally the 15 to 19 year old group does have higher unemployment, reflecting their lacks of skills and experience. But the brown line shows that the gap between the two age groups averaged 6% from 1985 to when youth rates were abolished in 2008.

But currently, the gap is a whopping 14%. And I do not think it is a coincidence. Young New Zealanders have been priced off the workforce. The impact of this recession on 20 to 24 year olds is much less severe than in 1991, but the impact on under 20s is more severe.

It is also common sense. A 15 year old or even 17 year old is often not worth $12.75 an hour (let alone $15 an hour). At that age what they most value is being to have a job at all, so they gain skills and experience. This is what will help lead them (along with education) into higher paying jobs.

Abolishing the youth rates for the minimum wage is not responsible for the overall level of unemployment – that is the lack of economic growth due to the recession from Jan 2008 to Mar 2009, and the weak growth since.

But I think there is a strong case for the abolition of youth rates is responsible for why under 20s have been hit so much harder by the recession than any other age group.

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Goff complains about unemployment

January 16th, 2010 at 4:16 pm by David Farrar

NZPA reports:

Closing the gap with Australia and stemming the trans-Tasman brain drain is one of the Government’s main long-term aims but Labour leader Phil Goff said the reverse was happening.

“Australian employment figures have soared for the fourth straight month and the jobless rate has fallen to 5.5 percent, a full percentage below New Zealand’s unemployment,” he said.

“For the first time in more than a decade, Australian unemployment levels over the past six months are lower than New Zealand, with Treasury forecasts that New Zealand’s unemployment will continue to grow.”

Now it is true that unemployment is now higher in New Zealand than Australia, and this is not good. Unemployment is a lose-lose. Having able bodied people not working means we don’t achieve as high economic growth as we could, and it is bad fiscally as it means less tax paid, and higher welfare payments.

But unemployment tends to rise when economic growth falls away. Not straight away but normally with a lag of six to 12 months or so. So let us look at economic growth between NZ and Australia.

So why does Australia now have lower unemployment? Because New Zealand went into recession, and Australia did not. And no this was not a post credit crisis recession. New Zealand’s economy started shrinking in the first quarter of 2008, and kept shrinking until the second quarter of 2009.

Now people may be wondering who was responsible for the economy in the first quarter of 2008. Well a Phil Goff was an Associate Minister of Finance. So when Phil wonders why Australia now has lower unemployment than NZ, he doesn’t have to go far to ask how come.

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Youth Unemployment

November 8th, 2009 at 2:34 pm by David Farrar

Labour MP Jacinda Ardern blogs her concern that the unemployment rate for under 20s has reached 25%. I share her concern.

I wonder if anyone else thinks that in hindsight maybe abolishing youth rates wasn’t the smartest move?

I know I only got some of my teenage employment because of youth rates. I started at $1.99 an hour.

The combination of ending youth rates and increasing the minimum wage to $12.50, has meant for some employers the cost of hiring teenagers has doubled.

Now when the economy was growing strongly, one could do these things without a big impact on youth employment. But this is the problem with so much of what Labour did – it was assumed businesses would always have money to burn.

The motivation behind increasing the minimum wage and abolishing youth rates was good. But as with most economic moves, there are almost always downsides to any initiative, and we are now seeing part of that.

The more expensive you force up the cost of labour, the less people in employment. Now that is not saying there should be no minimum wage, but a recognition that the more you increase it, the bigger the impact on jobs.


This is a graph of employment of both teenagers and 20 to 24 year olds. It is not seasonally adjusted so every December you see an increase due to holidays.

There has been a dramatic decrease in the number of jobs for under 20s, but relatively little for 20 to 24 year olds. From Sep 07 to Sep 09 the number of teenagers in employment fell 32,800 while for those aged 20 – 24, the fall was just 4,100.

Hence I think the abolishment of youth wages is a major factor. Otherwise you would expect the two age groups to be somewhat more aligned.

Incidentally the teenage unemployment rate has always been traditionally high. Only once in the HLFS history, has it been under 10% – in September 1987.

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October 12th, 2009 at 12:00 pm by David Farrar

A nice headline in the Herald about how the dole queue has dropped for the first time in around a year. However I would not read too much into it:

  • Firstly the HLFS is the better (and internationally) comparable figure of unemployment as it measures everyone available and looking for work regardless of if they are on the dole.
  • Some of the drop is because of the Government’s subsidies for young people. Now it is great this has got them into work, and off the dole, the effect may not be permanent.
  • There are seasonal issues, and over summer you gets tens of thousands of tertiary students seeking work

So I still expect unemployment to increase in the HLFS in Sep 2009 and Dec 2009 quarters. But maybe things will get better before late 2010.

But Business NZ chief executive Phil O’Reilly said the figure tallied with other evidence that employment might be picking up much sooner than the September quarter of next year, when current economic forecasts predict unemployment will peak at 7.5 to 8 per cent.

“There’s a good possibility of a permanent trend downwards from early next year,” he said.

That would be good.

Council of Trade Unions secretary Peter Conway agreed that the signs were that unemployment would peak sooner than next September and at less than 8 per cent.

He and Mr O’Reilly noted there had been no large-scale closures in the last few months, although there was a risk that some businesses might be forced under by the strength of the dollar.

Let’s just hope the US economy doesn’t implode, causing a W shaped recession.

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Stimulus Plan

October 8th, 2009 at 3:22 pm by David Farrar

Grant Robertson blogs:

Barack Obama is facing all kinds of issues in the US at the moment- healthcare reform, whether to put more troops into Afghanistan, climate change, you name it. All the while, he faces huge expectations on the left and visceral anger on the right.

But one thing he can point to is a stimulus package that  has made some big investments in covers green jobs, extensive social assistance and research. The stimulus package included $21.5 billion in funding for research and development, particularly in leading edge genetic research. The money has been spread around the US, and is having a great effect in encouraging research where private sector funding has dried up.

This is the kind of long term thinking that has been missing from NZ’s response to the recession. Of course we don’t have $21 billion to do this, but our government has set on the sidelines, and worse still pulled back from research funding. If we want to improve productivity and develop a new economy, we need large scale investment. On this issue, the Obama administration is showing the way

While I am all for genetic research (then we can clone Hayley Holt), I think Grant’s drooling over Obama’s fiscal stimulus is rather regrettable. Even if one puts aside the huge fiscal deficit Obama is running (which makes you wonder about how large a deficit NZ Labour is planning), have a look at this graph from Harvard Economics Professor Greg Mankiw that someone linked to in the comments.


So the light blue line is what Obama said would happen without his fiscal stimulus, and the dark blue line is what he said would happen with his fiscal stimulus. And the red line is what has actually happened.

And this is Labour’s solution to rising unemployment!

Incidentally in NZ, where we had a more modest fiscal stimulus, consisting of tax cuts and advancing necessary infrastructure investment, the unemployment rate is just 6.0%. It was projected to peak at 8% (or even 9.8% on the downside scenario), but the latest Reserve Bank forecast is now for it to peak at 7.0%.

Now this doesn’t mean a massive fiscal stimulus spendup makes unemployment go even higher. I am not saying Obama caused unemployment to go higher than projected.

The lesson is that the Government impact on unemployment is limited. The private sector is what creates job, not the Government. Government created jobs are funded from private sector taxes and you need private sector jobs to pay those taxes.

Obama has saddled future generations with an out of control deficit, and debt which will soak up money which could be spent on health or education.

This is what Labour wanted for New Zealand. They have proposed mounds of extra spending that would have stuff all impact on unemployment, but leave a massive debt burden for the future.

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June HLFS Stats

August 7th, 2009 at 1:19 pm by David Farrar

I was too busy yesterday to blog on the rather dismal unemployment stats. Before I do big kudos to Stats NZ for their new website look. Much easier to get to the data tables now for new releases.

Employment went up by 2,000 this quarter for men, but dropped 12,000 for women, meaning a total of 10,000 less people in employment.But that is a loss of 18,000 FT jobs and a gain of 6,000 or so PT jobs.

The number of unemployed though jumped 24,000 to 138,000. That is a huge increase for one quarter. It indicates more people entering the labour force looking for work who were not looking or available previously.

The unemployment rate goes from 5.0% to 6.0%. However the European rate only goes from3.9% to 4.0%.

Still not too bad off compared to other OECD countries. We remain 9th best. The US is in 25th place with a 9.5% unemployment rate. I hope our rate will not get that high. It is likely there will be two more quarters of negative growth.


Goff’s record on jobs

June 3rd, 2009 at 9:00 am by David Farrar

Fran O’Sullivan reminded me on Saturday that Phil Goff was Minister of Employment from 1984 to 1990. I had forgotten this. I just remembered Phil as the man who introduced higher tertiary fees.

So everytime Phil Goff goes on about how the Government is not doing enough to reduce unemployment, we should look at how Phil did as Minister of Employment. And of course Phil did not have a global recession as a factor to deal with.

The Household Labour Force Survey only started in 1986, so we’ll compare 1986 to the end of 1990.

Well Phil managed to preside over the destruction of 97,000 jobs – falling from 1,623,000 to 1,526,000. Unemployment doubled from 71,000 to 150,000 – in percentage terms going from 4.2% to 8.9%.

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Unemployment hits 5.0%

May 7th, 2009 at 11:26 am by David Farrar

Could be worse, but I think the worst is yet to come. The March 2009 HLFS reveals:

  • Employment drops by 24,000 jobs
  • Unemployment increases by 7.000 – or from 4.7% to 5.0%
  • Total Labour force drops 17,000

The revised figures for 2008 have unemployment increasing from 3.5% to 4.7% in that calendar year.

20 – 24 year olds especially hard hit with their unemployment rate going from 7.3% to 12.0% – some of that may be seasonal though. 25 – 29 year old unemployment only went from 4.6% to 4.8%.

Employment changes by sector is interesting:

  • Ag/Forest/Fish up 800
  • Manufacturing down 6,700
  • Construction up 2,700
  • Wholesale/Retail down 31,400
  • Health/Comm up 8,200

One bright spot is number of hours worked did not fall – rose from 73,261 to 73,424. This may be reflected by the fact only 11,000 FT jobs were lost while 16,000 PT jobs went.

Another rare bright spot is our OECD ranking moves from 10= to 9. We are now better off (less worse really) than Australia and Luxembourg. It is worth reflecting that 5.0% is a lot better than OECD average of 7.3% or the US at 8.5%.

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Quotes from Hansard

February 10th, 2009 at 8:04 pm by David Farrar

From Hansard today:

Hon Phil Goff: Can the Prime Minister—or the country—have any confidence in the transparency and honesty of the Minister of Finance, who, while ramming through legislation before Christmas without subjecting it to the scrutiny of a select committee, deliberately suppressed and withheld from the public and parliamentarians the advice he received from his own ministry that the fundamental parts of that legislation were deeply flawed?

Hon JOHN KEY: Yes. I have complete confidence in the Minister of Finance. If we want to have concerns about Ministers of Finance, maybe we should have concern for a former Minister of Finance, who may well find himself in breach of the Public Finance Act.

Ouch. Does JK know something or was it just a general reminder? Remember you can be prosecuted for breaching the Public Finance Act.

Hon Phil Goff: Can the Prime Minister categorically assure the House that National is not concealing Treasury advice or other departmental advice against any of the legislation now being introduced in the House today under urgency?

Hon JOHN KEY: Yes, I can confirm that the Government is not concealing any briefings or hiding anything from the House. If the member wants to talk about concealing things, maybe he should go and ask people in his own research unit about that, because the last time I saw them they were concealing the booze from the parliamentary Christmas party.

There were gasps to that one. Talking of which what has happened to the thieves?

David Garrett: Can the Minister confirm that the prefab prison—when it is built—will not have underfloor heating, plasma televisions in every cell, and expensive gymnasium facilities, and that criminals in those facilities will be required to work?

Hon SIMON POWER: I can advise that there will be no underfloor heating or plasma televisions in a new prison. Inmates will have appropriate exercise facilities, rather than the type of gymnasium I saw at one of the new prisons built by the previous Government. It seemed flash enough to charge a joining fee and for yearly membership.

Heh annual gym membership fee indeed.

Sandra Goudie: Has the Minister received any other feedback on the cost savings from building prefabricated modular units?

Hon SIMON POWER: Yes. The Leader of the Opposition has criticised the Government’s plan to save taxpayer dollars, stating that “If you are short-sighted enough to build something cheap and nasty you will be rebuilding before very long.”, and “When you are building a public institution, you build it to make it last.” That is a surprising claim, when the four prisons built under Labour, where costs blew out by half a billion dollars, have already racked up $9 million in repair bills.

Amazing what you learn once you are n Government.

Hon Annette King: Can she confirm that rather than sitting on its hands, as she claimed, Labour in Government reduced the unemployment rate from 7.5 percent to 3.8 percent through active labour market policies that saw 140,000 fewer people on the unemployment benefit, and if the previous Government’s policies did nothing, which programmes has she cancelled since she became Minister?

Here Annette tells a big porkie. Labour did not reduce the unemployment rate from 7.5%. It was 6.2% at the end of 1999 and at the end of 2008 it was 4.6% – a 1.6% reduction that averaged 0.18% a year reduction. Incidentially the unemployment rate under National declined by 2.5%, which was an average 0.28% a year reduction. And if you discount the nine months of 1991 before National’s policies such as the ECA kicked in, then the reduction was 4.7%, or an annual 0.57%.

Bottom line is Annette lied, and that the unemployment rate declined far more under National in the 1990s, than Labour during their nine years.

Hon Darren Hughes: Why did the Minister reopen the debate on Transmission Gully when it was the preferred route of the previous Government, and continues to be the preferred route of the Wellington region; and is it not a little hollow to claim, as he tried to yesterday, that the Crown contribution was unfunded, when it has been earmarked in the Crown accounts since 2005 when the Wellington regional transport package was first announced?

Hon STEVEN JOYCE: I raised it because the previous Labour Government, which was in office for some 9 years, raised expectations regarding this route that were unfunded at the time that it left office. It suggested that $400 million would be allocated to complete the $1 billion project, but left the remaining $600 million to be funded by local bodies in the region. A regional fuel tax was talked of as a means by which that might happen; I am informed by the ministry that a Wellington regional fuel tax in the order of 13.5c per litre would be needed to fund the $600 million that the Government of the time left unfunded, so it could be described as more of a wish than a plan.

Nice line – more of a wish than a plan.

Hon Lianne Dalziel: Does the Minister agree in principle with the proposal for the Government to provide alternative funding for community law centres to ensure they do not need to drastically cut services at a time when demand for those services will inevitably increase; if not, why not?

Hon SIMON POWER: I can assure the member that I am taking this matter extremely seriously. This Government is committed to access to justice for all, not just for those privileged few who can afford to access such redress as that offered by, for example, the Supreme Court. Coincidentally, the drop in community law centres’ funding is roughly equivalent to the $4.3 million that was committed by the previous Government to the bronze plating of the new Supreme Court.

And that’s a home run!!

What I found most interesting is that Lockie is taking a strong line with Ministers about answering the question, if it is the primary question. He basically said that if the primary question is asking for some fact or figure, the Minister must provide that as they have hours to prepare for it.  I think it is excellent that he is raising the bar in this way.

I repeat what I said earlier: where primary questions are laid down clearly, members of the public expect an answer. When Ministers are answering questions, they can expect that the answers they give may be further questioned by members of the Opposition.

I was worried about how Lockwood may go as Speaker as he was not a lawyer or a standing orders expert. But he seems to have turned a potential weakness into a strength, noting today:

Mr SPEAKER: I do not need any further assistance on this matter. I do not want to take up further time of the House. Had the Prime Minister not wished to answer the question, he could have made it very clear that he believed the question was out of order. The Prime Minister seemed to answer it with some enthusiasm. That entitled the Leader of the Opposition to ask a further supplementary question, and I believe that is the way the House should flow, in good order. We do not need to get too precious and pedantic about these things.

This is like a good rugby referee – making sure the “game” keeps flowing. Of course one has to follow the rules, but a but of latitude is a good thing.

Of course not having Winston there does make it a lot easier!

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The employment stats

February 6th, 2009 at 1:42 pm by David Farrar

There were some curious aspects to yesterday’s Household Labour Force Survey statistics. Key findings were:

  • Total employment up 20,000 being 12,000 men and 8,000 women
  • Total unemployment up 11,000 being 3,000 men and 6,000 women (is rounded)
  • Total labour force up 31,000 being 16,000 more men and 15,000 more women.
  • So around equal numbers of men and women have entered the labour force, but more men have found jobs, hence male unemployment rises only 0.2% and female unemployment 0.6%
  • Number of weekly hours worked dropped 1,390,000 – equal to 35,000 FTEs
  • Underemployment (those employed but wanting more hours) rose from 81,000 to 97,000
  • NZ’s unemployment rate of 4.6% is 10th= in OECD of 27. In 2005 we were 1st.

The trend towards more people working less hours is good, in terms of spreading the pain around. And also good more people seeking work. But the drop off in hours worked is scary – equal to 35,000 less people in work – in just one quarter.

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Voting Labour to keep 5 years of dole

September 26th, 2008 at 11:36 am by David Farrar

A reader helpfully left a message on my cellphone telling me to read the story on Page A8 of the Herald carefully, about someone voting Labour because they have allowed him to be on welfare for five years.

I thought he had it wrong, but sure enough we go to this article on how some immigrants are voting and get:

Indian immigrant B. Mohan said his support for Labour stemmed from the party’s “number-one welfare policies” which had helped him to “survive five years of unemployment”.

“The National Party and its millionaire leader, John Key, will never be able to understand the poor, and we cannot trust the rich politicians who listen to consultants rather than their hearts,” said Mr Mohan, who has been without a job since moving to New Zealand in 2003.

I skim read the article early this morning and missed the significance of this. He has been without a job for five years, since he moved here in 2003. What an indictment on our welfare system.

With the lowest unemployment in the world almost, Mr Mohan has not managed to find any work at all in 250 weeks. How preposterous. And no wonder he is supporting Labour – he knows he won’t have five years on the dole under National.

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Espiner on Happy Ruth

August 8th, 2008 at 12:00 pm by David Farrar

Colin Espiner blogs on how Ruth Dyson is always seeing the bright side:

Everyone loves an optimist, so Labour’s Ruth Dyson must be amongst the most-loved MPs.

Her press statements on rising unemployment are always full of good cheer, and Dyson somehow seems blithely unaware of the gloomy economic conditions.

Back in May she caused something of a stir by putting out a press release headed “Labour Force Survey Reflects Stability In The Face Of Economic Challenges”. You’d have thought the unemployment rate had defied the economic downturn and things remained sunny. In fact, the survey reported the biggest jump in jobless in nearly 20 years.

Likewise, today’s next quarterly report on the unemployment rate, which finds an additional 7000 people have lost their jobs in the past three months and the unemployment rate now up another 0.2% to 3.9%, is welcomed by Dyson in a release entitled “New Zealand Economy in Good Hands”.

Ruth should have been a Minister when we had the Erebus crash. She may have done a press release highlighting the decline in carbon emissions due to no return trip!

I think Dyson’s skills are being wasted as Minister of Social Development – she could do wonders in the Treasury or the Reserve Bank. Under this minister, Treasury’s report this week warning of recession could have been headed up: “More good news likely on economy” and the bank’s gloomy predictions of 5%-plus unemployment could have been rewritten as “It’s all good here, too”.

Colin does go a bit fuzzy later on with petrol prices though:

Labour will be extremely grateful to whoever bugged the National Party conference for taking bad economic news off the front page. It’s even possible that today’s whitewash from Dyson’s Christchurch colleague Lianne Dalziel on petrol prices will equally disappear with nary a trace, given the media’s perchant for a decent whodunit.

It’s hard to swallow the minister’s recommendation that nothing needs to be done about regulating an industry making $11 billion profits a quarter because it is “fundamentally competitive” and that, essentially, the idea that petrol prices are fast to rise and slow to fall is simply a myth perpetrated by the media.

A more cynical journalist than myself might suggest that the government has several interests in not forcing down the price of petrol; for one thing, the GST take is much higher when prices are high, and for another, the high petrol prices are forcing some vehicles from the road, which is helping with emissions targets.

I think Colin is being a bit hard on Dalziel here. First of all the NZ oil companies do not make $11 billion profit a quarter. The NZ Govt has no power to regulate the global oil companies, which I presume that $11 billion refers to. It is a red herring figure. And a profit figure is meaningless anyway unless one knows what the turnover or capital was. An $11 billion profit on a $1 billion equity company is a universe different to an $11 billion profit on a $100 billion equity company.

Secondly it is a “myth perpetrated by the media” that higher petrol prices leads to much higher GST. Because the money spent on petrol is not spent on other goods and services, reducing GST collected there. Hence overall GST does not rise greatly, if at all, with higher petrol prices.

Colin is right though that the higher petrol prices may help with reducing carbon emissions.

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Unemployment Up

August 7th, 2008 at 1:56 pm by David Farrar

The number of people unemployed rose by 7.000 in the latest Household Labour Force Survey. This saw the unemployment rate go up to 3.9% (a two year high). It is forecast to make 6% by the Reserve Bank.

The number of people in the labour force and employed also increased. I am not surprised as I thought the fall in the last quarter of 28,000 was too extreme, and that rebounded this quarter.So the economy may not be as weak as some have thought.

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Reserve Bank Forecasts

June 6th, 2008 at 9:50 am by David Farrar

I’ve been going through the data on which the Reserve Bank based their announcement today that they intend to lower the OCR later this year. It is not pretty:

  • Inflation projected to hit 4.7% by September 2008 – this will be the highest inflation has been since December 1990.
  • Economic Growth to slow to under 1% in 2009
  • The lowest level of house sales in 18 years
  • A drop in the TWI from over 70 to around 60
  • A rise in unemployment from 3.6% to 6%
  • A drop in house prices of 13%

I almost pity Bill English who is likely to inherit this. Not as bad as 1990 but nothing like the booming economy Dr Cullen inherited in 1999.

The summary is NZers will have almost big price rises, low economic growth, around $70,000 knocked off the value of their family home, and around 50,000 more unemployed

The MPS noted:

Faced with lower nominal income growth and higher consumer prices, households must decide whether to take on extra debt or lower their standard of living.

What a lovely choice. However the Reserve Bank hints at an answer:

Many households will need to devote a high proportion of their income to debt servicing costs, limiting their discretionary spending. High global food and energy prices will have a large impact on the spending power of households. The domestic prices of these goods will be pushed up further by a weaker New Zealand dollar. The tax cuts and increased transfers announced in Budget 2008 will provide some offset to these rising costs over late 2008 and early 2009.

So further tax cuts would provide further assistance to households facing a choice between extra debt or lower living standards. Labour is crying that further tax cuts will mean cutting of public expenditure. So they seem to be saying that households should cut their standard of living, rather than have the Government cut its expenditure!

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Jobs, jobs, jobs

May 12th, 2008 at 9:30 am by David Farrar

All three metro editorials today are on the employment figures. We start with the NZ Herald:

More worrying, the latest quarterly employment survey suggests the number of people in jobs has declined on a scale unseen since 1989. The drop in employment can be greater than the rise in unemployment because the latter excludes people who are not actively looking for another job.

Then the Dom Post:

Social Development Minister Ruth Dyson may want people to think it’s “a very small change, actually” but the biggest fall in employment since the 1980s should not be brushed off by politicians or by Reserve Bank Governor Alan Bollard, writes The Dominion Post. …

There is little room for the blithe optimism of Ms Dyson, who told Radio New Zealand after Statistics New Zealand data showed a fall of 29,000 or 1.3 per cent in seasonally adjusted employment during the March quarter, that people should not over-react. Those who have lost jobs or who are finding it harder to get one will be more inclined to accept the view that the figures are, as Westpac economist Brendon O’Donovan said, “an absolute shocker”. …

Dr Cullen has continually preached that he knew how to spend money better than those who earned it, and refused to deliver tax cuts. He argued that if he left more in workers’ pockets they would only spend more and fuel inflation. At the same time he indulged his ministers, and allowed a rapid growth in government spending that contributed to the Reserve Bank keeping interest rates high. That spending has too often been of low quality, or designed to serve a political purpose rather than deliver a real benefit to taxpayers. The absurdity of maintaining the district health board bureaucracy when the real decisions are still made in the Beehive is just one illustration of that.

The hope must be that as Dr Cullen has drawn up his Budget he has taken a rigorous look at spending to ensure that it is delivering maximum efficiency, and not incidentally to reduce the pressure from government spending on inflation.

And finally The Press:

The statistics appeared to suggest that this was not the case. In the first three months of the year, the economy lost 29,000 jobs. More than 24,000 dropped out of the labour force — they were no longer counted as being in work or looking for it — and unemployment went up by 4000, or 5.5 per cent. It was all the more surprising because it came after an uninterrupted spell of rosy employment news and was the largest decline in employment in 19 years. …

Funnily enough, none of the newspapers are agreeing with Ruth Dyson that the loss of 29,000 jobs is not bad news at all actually, or that it is insignificant.

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Dyson claims 29,000 fewer jobs is not bad news

May 10th, 2008 at 9:13 am by David Farrar

As economists are describing the fall in employment of 29,000 as “very grim” and “an absolute shocker”, Ruth Dyson plays Chicken Little and says there is nothing to worry about.

The Herald quotes her as saying:

“Compared to 12 months ago, the employment levels are 0.2 percent below that level. So this is not a dramatic change if you look at the overall picture ,” she said.

“I don’t think that this is bad news at all actually, the fact we’ve got 350,000 more jobs than we had when we were elected (1999) to lead the Government should be very good news for New Zealand.”

This is why Governments get thrown out as they stay in office too long. No Minister should ever say that losing 29,000 jobs is not bad news. It is arrogant, uncaring and out of touch.

The comparison to a year ago is somewhat misleading. The fact is the drop of 29,000 in a quarter is the biggest drop since 1989. It has wiped out all the growth from the previous three quarters, and more. It is a 1.3% drop in just one quarter.

Normally over a year one has employment growth of close to 2%, so a 0.2% decline over the year is significant.

Dyson should have talked about the challenges of global turbulence etc, rather than pretended there was no problem at all and that 29,000 less jobs is “not bad news at all actually”.

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Employment declines

May 8th, 2008 at 2:08 pm by David Farrar

Today’s release of the March 2008 Household Labour Force Survey confirms that there is a downturn, with the first significant decrease in jobs since the Asian Crisis of 1997/98.

Now Labour in the 1990s tried to blame all of that downturn on the then National Government. I prefer a more rational analysis, and both National in 1997 and Labour in 2008 can’t be primarily blamed for what is essentially a global problem. However both Governments do have responsibility to have the economy as free and resilient as possible to mitigate the effects of global events.

So what has happened in the last quarter:

  • Those in employment have dropped on a seasonally adjusted basis by 29,000, wiping out the gains since December 2006
  • The number of people unemployed rose by 4,000 – a 5.2% increase from 77,000 to 81,000
  • The number of people not in the labour force increased by 35,000 – so these are people no longer looking or available for jobs. The labour force participation rate has dropped to 67.7% – at least a two year low.
  • Most of the fall in employment has been amongst under 25s
  • Unemployment rates (non seasonally adjusted) by ethnicity are Europeans up from 2.2% to 3.0%, Maori from 7.2% to 8.6%, and Pacific from 4.8% to 8.2%
  • Wellington appears to have the largest rise in unemployment – from 2.5% to 5.0%
  • The total number of jobless people (this includes those not available or looking for work) rose from 145,900 to 181,800
  • The number of actual hours worked in the quarter is the lowest since March 2005

Now I think the HLFS has exaggerated the decline somewhat. The HLFS is basically just a big opinion poll. It has a large sample (17,000 off memory) but that still leaves a sampling margin of error. I don’t think there has actually been 29,000 jobs go in the last quarter. But certainly there has been some decline.

The above graph, at The Visible Hand in Economics, shows the market reaction. The concern is not over the decline, as much as the size of the decline.

The only good news is that the chance of a lowering of interest rates this year is now higher. But food and fuel inflation will still make this a risky call to make too early.

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