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?

Showing 11 reactions

  • Ian Orchard
    commented 2017-04-22 18:57:28 +1200
    Bringing in overseas workers is no different from bringing in overseas goods & services. Why should I pay $200-$400 for a pair of glasses when I can chose from a huge range for US$39 or so?
    Or pay $500,000 for a NZ built house when I could* import a Californian (earthquake-proof) flatpack home for less than $150,000?
    I’ve also wondered if we could get better politicians than whatever is on offer here from overseas…. well, maybe not looking at America, Europe, whatever….

    (*except for some mysteriously inflated shipping costs…???)
  • John Hurley
    commented 2017-04-21 19:52:24 +1200
    Distinguished professor, Paul Spoonley, pro vice-chancellor of college humanities and social sciences at Massey University, used his address at the conference to identify a variety of concurrent global and domestic concerns for the [International Education] industry, including declining birth rates in source countries, increased competition for international students, and government initiatives within source countries to retain talent as the main likely causes of negative growth.
    “The willingness of countries like China and India to let their citizens live, work and study [overseas] will come to an end,” he told delegates."
    He’s the medias expert
  • Kate Tyson
    followed this page 2017-04-21 17:14:07 +1200
  • Campbell Downie
    commented 2017-04-21 16:24:34 +1200
    My Son is 18 , at University and looking for a part time job 20 – 25 hours per week, he has now applied for over 250, in the retail , cafe, low wage end of the market and has not got one interview. All the replies have said ‘oh no experience, no can do’ This is BS. The reason they will not employ him is simple. They know he will eventually leave, They know he will have a voice as he is a kiwi, and a hell of a lot of the hiring organisations in these sectors are owned or operated by foreign people. It is also becoming very clear, that when hiring foreign workers in low paid sectors, they do not argue on the salary, the conditions, the hours or the tasks. How can an intelligent, clean cut, average kiwi guy, with a brain in his head not get one interview out of over 250 applications in Auckland ? ? and yet we are told there is a shortage. There is NOT a shortage, there is a need for foreign slave labour, this is what our country is turning into. we are not trickled on, this is a full power hose and its hitting our young people and it must be stopped. We have all become to PC in this country but i will say it, stop foreign workers, stop foreign ownership, enforce english language so that owners of business do not hire only those that can speak their own language, start to look after our citizens and stop pandering to countries Like China and others and letting our citizens end up homeless and on the piss pot.
  • Peter Morris
    commented 2017-04-21 15:45:37 +1200
    “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?”-
    So Gareth what you are saying is let the workers get pay rises then lose their jobs when the market shrinks in the face of overseas competition- reminds me of the US auto industry, steel etc etc. Beware unintended consequences…
  • Oliver Krollmann
    followed this page 2017-04-21 15:44:07 +1200
  • Alistair Newbould
    commented 2017-04-19 20:25:03 +1200
    Hmmm, do you think they read “The Grapes of Wrath” and thought, “ah, that’s a good idea”?
  • Donald McMillan
    commented 2017-04-19 12:11:42 +1200
    Furthermore, at Ruakura there were never more than 30 unemployed.
  • Donald McMillan
    commented 2017-04-19 12:06:12 +1200
    Not only a National issue; Labour is equally culpable. At Ruakura in the 1960s an annual feature was the employment of all of the local registered unemployed folk on drain and track clearing.
    The rot really set in with Rogernomics, which if the truth is known is an anti-New Zealand set of policies, and has been continued by all subsequent governments.
  • Steve Cox
    commented 2017-04-19 11:54:23 +1200
    But how to fix it all?
    Require employers who wish to import workers to pay a levy of say $25,000 per employee. But might that only lead to wage slavery where the imported worker is locked into working for the importer who paid the levy? Target these importers for audit of their wage records maybe. Ban any lock-in of employment or transfer of the levy to the employee as a repayable loan.
    Replace GST with a Transaction Tax. That would switch taxes from the poorer to the richer. This would also get rid of the currency traders and sharemarket traders who do not contribute anything to society.
    Look at the parasite industries. Insurance for example. Why should our premiums be 20% higher than necessary just so shareholders can have a dividend. When the big one hits will these shareholders “invest” more money into the company to honour policies or just walk away? (socialising the losses and privatising the profits).
    Nick reminded me of the young Kiwi workers who are unable to pass a drugs test. When was the last time MP’s were drug tested? Or should that be when might they be tested for the first time? We shouldn’t have drug addled MP’s passing laws that affect everyone’s lives.
  • Nick Taylor
    commented 2017-04-18 20:07:21 +1200
    This is a National scandal and has been played out over the last 5 years or so and good on TOP for addressing this issue that has been largely ignored but the mainstream media and the major parties.

    The Christchurch earthquake was the catalyst for allowing large numbers of relatively low skilled and low paid workers into the country. Many these workers have now moved throughout the regions and about half of them have gained residency. This was done by the major players (Fletchers and Lieghs among others) successfully lobbying the government with various arguments put forward: The rebuild will take too long, the rebuild will cost too much and Bill English’s most recent excuse that young Kiwi workers are unable to pass a drugs test. It is all Neoliberal propaganda. The only indicator that these workers have affected, as this article puts most succinctly, is the bottom line of these corporations.