Liam Dann: Record Maori unemployment rate something to celebrate
The social benefit of maintaining low-unemployment jobs is too great to ignore. Photo/Getty Images
Labor market data last week showed the Maori unemployment rate was at its lowest since modern records began in 1986.
It must be a good thing.
Economic commentators – myself included
– may sound a bit clinical when talking about the risk that a tight labor market poses to the economy.
This represents a risk. We need to find workers to enable businesses to grow.
But do we have to kill off the strong labor market? Should the rise in unemployment be welcomed in the fight against inflation?
It is definitely the nuclear option. We should only press this button if it is clear that everything else has failed.
Who do we expect to pay the price when we talk about “slack” in the labor market?
In 1992, a combination of austere monetary and fiscal policy pushed the overall unemployment rate to 12 percent.
For Maori, the unemployment rate peaked at 25.6% that year – it is now 5.4%.
Last week, I previewed labor market data with the title: Why We Won’t Encourage Record Unemployment.
The story reflected a view among economists that lower unemployment at this point would cause more problems for the Reserve Bank in its fight against inflation.
In the end, unemployment actually rose, but strong wage growth prompted most economists to adopt a similar theme.
An avid reader (Gavin) called me about this.
Do we really face this so much in the fight against inflation that we cannot allow workers to catch up on wage growth?
Here is what Gavin estimated:
“A brief period in which the labor market sways in favor of labor presents inflationary challenges, but also opportunities to lift household incomes out of low wages and provide a fair share to the disadvantaged of the GINI coefficient… and not before New Zealand time.”
Hmm… The Gini coefficient, for the record, is a measure of economic inequality in society – developed by a guy called Corrado Gini.
It’s a controversial measure because, of course, absolute equality is no fun if we’re all poor.
The poorest Americans are likely better off than most citizens of the Ivory Coast – which has a similar Gini coefficient.
But the rapid widening of the gaps in economic equality is not good news for social cohesion.
And they are not fair.
Unsurprisingly (according to MSD research), New Zealand’s Gini coefficient skyrocketed in the late 1980s and into the 1990s.
Consider again this Maori unemployment rate of 25.6% in 1992.
In fact, look at it over the three decades from 1986 to 2016 – almost consistently in the double digits (aside from a short pre-GFC dip).
We have paid – and are still paying – an immeasurable social and economic cost for allowing unemployment to take root so deeply in one sector of our population.
You’d think we’d be shouting that record 5.4% from the rooftops.
I feel like even Stats NZ is nervous about doing too much right now. It’s only a beginning.
Cynics will be quick to point out all sorts of current social ills, student absence, gangs and crime that plague Maori statistics.
Yes, the benefit figures suggest some shift of some long-term unemployed into the sickness and disability category.
But concerns about a post-Covid discrepancy between the numbers of job seekers (ready to work) and the official unemployment figures seem less and less relevant now that the gap has closed – the figures respectively stand at 100,080 and 96,000.
You can make all sorts of exceptions, but the trend is clear.
People at the bottom of the economic ladder are not laid off and there is work available for those of them who have the ability and the desire to do so.
These difficult social problems that we still face are the result of all this unemployment and social dislocation for all these years.
The record unemployment rate is where the healing begins.
So forgive me if I’m not particularly supportive of the idea that we need to engineer a recession to curb job growth and encourage unemployment so that we can keep wage increases to a minimum.
The good news is that the major global supply forces driving inflation are beginning to subside.
Costs of shipping oil, foodstuffs (like dairy and wheat) – all of these things have come down steadily over the past few weeks.
One of the biggest cost drivers in New Zealand has been building materials.
Prices for new home construction rose 18% in the June quarter of 2022, compared to the same period last year.
They will soon begin to calm down, if they haven’t already.
They will not subside because the government and the Commerce Commission have solved the competition problems.
It’s a great company, but it’s too late for this economic cycle.
They will subside because raw material and shipping costs go down, because
local businesses have adapted – recruiting new suppliers and building up inventory to deal with shortages – and because the rate of new construction is down from an all-time high.
If inflationary pressure is unlikely to ease quickly, it is labor costs. It is always the lagging indicator in an economic cycle.
I think we need more specific government policy to ensure that skilled workers come into the country.
But we do have some discretion in how aggressively we manage domestic inflation.
We can afford to deal with it at a measured pace and with some compassion.
In fact, I don’t think we can afford not to.