From Trickle Down to being Trickled On

One of the often heard regrets from employers is how they can’t get labour from the local market. They resort as much as possible to getting the Immigration Department to approve the importation of labour from abroad. We’re not talking highly skilled labour here; we’re talking about those with middle-of-the-road or lower skill sets primarily.

In other words many of our local labour markets are experiencing full employment, at least on a regional basis. Now how a market economy normally works is that when the supply of labour runs out, wage rates rise and the labour is contested for by various employers. This is how households get higher incomes and share via “trickle down” in the spoils of growth.

However the Neoliberal fad is to avoid that by just opening the immigration spigot as soon as labour markets tighten to ensure that wage rates cannot rise. Is this what it’s come to in New Zealand now – we can’t possibly allow the market to work in favour of our own workers? We have to manipulate the market via migration to ensure profits are maintained, even in those industries that a free market would have shrunk as they find trickle down pay rises unaffordable?

“But unemployment is 5%” I hear you say, hardly full employment. For sure it used to be that the unemployment rate had to get down to near 3% to be regarded as full employment because around that number of the workforce are technologically displaced or suffer from a mismatch of skills. But the shortages New Zealand is suffering from are for workers in retail, construction, cafes and farms. These are hardly technologically challenged areas.

So is there is a legitimate question around why our labour market isn’t clearing as it once would have? It’s easy to blame the raft of targeted benefits for getting in the way and leading to more people not wanting to work. That is certainly one explanation, particularly in regions where work is seasonal. But in booming areas the immobility of labour has risen because the atrocious costs of living (rent) in many of the areas where the labour shortages are (Queenstown), makes moving uneconomic. Yes the accommodation supplement tries to address that but it is way behind; data on the incomes of lower earning  families after housing costs tells us that they are being crushed. This is the main driver behind the ‘natural’ rate of unemployment lifting from 3% to 5%.

“But wage rate rises are inflationary”, I hear you say. Wrong – so long as productivity rises exceed the rate of growth of labour costs or profitability, neither is inflationary. If productivity growth and wage rate rises are low, but growth in profit rates isn’t – then it’s actually profits that are inflationary. That’s not something many economists ever contemplate – for the reason that such a phenomenon can only occur in non-competitive markets.

Well hello – the trend towards big businesses has done exactly that – reduced competition between businesses. If I run a business that is not subject to competition, of course I can raise my profitability by just raising prices – irrespective of what wage rates might be doing.

There is nothing peculiar to wage rate rises that makes them any more inflationary than profit rate rises. Either can be inflationary if the rises are not the result of competition. And if we’re at full employment we have simply run out of labour that is prepared to offer itself for the jobs out there at these wage rates. We should expect, and welcome, a rise in wage rates as a result. That is “trickle down”.

But the Neoliberal approach is altogether different. It is to avoid the natural competitive forces in domestic markets, to let businesses dominate their markets and to weaken labour’s ability to compete by simply raising the labour supply through immigration of lower skilled people. The supply of such people is, of course, infinite. We can keep doing this until wage rates get as close to zero as we like. And when you include housing costs (which have been driven by speculation and immigration), that is effectively what we have done.

Which brings me back to the point of economic growth. Isn’t it so all boats can rise, that “trickle-down” can occur, so all New Zealanders share in the spoils? Oh dear, that’s right, that is not the agenda of the Neoliberal elite – it’s all about changing the share of national income from employees to business owners. We have a whole section on the extent of this in our forthcoming economic policy description.

What needs to happen? The market needs to be allowed to play out – the wage rates in those areas where supply is exhausted need to rise. The demand for those products needs to feel the effects of those wage rises on the prices they pay. At the same time the increased wages provide a signal for more people to make themselves available for employment in those sectors. Very simple forces of demand and supply need to be allowed to play their role. Using immigration to remove supply constraints is nothing more than an agenda by businesses and their proxies in government to grow their income at the expense of others.

What sort of government of the people condones that?