Is the Coalition Government helping or hindering Productivity Improvement in New Zealand?
Recap of previous article ‘What is the answer to New Zealand’s Productivity Crisis?’:
In my last article I discussed the urgent need to invest more in ICT, especially Software as a Service and what I believe to be the answers to solving New Zealand’s Productivity Crisis.
Is the NZ Government a Friend or Foe to Productivity Improvement?
It’s all well and good implementing ICT into organisations, but unless the benefit of it is exploited to its fullest, the productivity gain will not be maximized. Organisations need to improve their operational processes and organisational structures at the same time as innovating their products. This approach will lead to the greatest productivity improvement. But to achieve this, management must be trained appropriately.
In all my previous articles I have raised mainly issues surrounding our productivity crisis, but have offered not many solutions, so here goes;
Paul Krugman, the distinguished Professor of Economics at the Graduate Centre of the City University of New York, and a regular columnist for The New York Times stated that;
“Productivity is not everything, but in the long run it is almost everything”. He went on to say that;
“A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise output per worker”
As I mentioned in my previous articles, in particular “Why New Zealand has Productivity Wrong”, as a country we are not so much lifting output per worker (Labour Productivity) but throwing more workers at a task to get an increased output (Labour Utilisation).
Because of this, New Zealand’s productivity is wallowing way below our OECD neighbours, a whopping 20% below OECD averages.
I mentioned in my first article – “Is Productivity Growth the Gateway to Prosperity for New Zealand?” that Governments have not made productivity gains a big deal due to the fact that our economy has been growing really well since 2008. However, as we can now see, this has been due to more people working more hours. And given that currently, our labour costs are cheap compared to other first world countries, this strategy was working, despite a burgeoning infrastructure.
How New Employment Law Reforms Affect Productivity.
The Coalition Government is introducing some Employment Law Reforms that will put pressure on making our labour more expensive without a corresponding increase in productivity gains.
In addition, some of these reforms may reduce labour market flexibility that New Zealand has enjoyed over the years. In fact, according to the OECD; “In recent years New Zealand has enjoyed a labour market flexibility that ranks among the world’s best”.
This flexibility has led to,“ high levels of employment, job mobility and different types of employment arrangements while ensuring that workers have the protection of a set of minimum standards”.
However, all this stability and flexibility may be under threat when these government reforms are introduced. The Government did ask for submissions to these proposed reforms and has chosen to ignore more than 2,500 submissions received from the business community, the very sector that drives productivity.
So, what are these reforms?
These reforms in brief are as follows;
1. Minimum Wage Increase – The Government plans to raise the minimum wage by more than 20% to $20 per hour by 2021. The planned increase is in steps and the first raised the minimum wage to $16.50 on April 1st, 2018.
Whilst the increase in the minimum wage is to be applauded, there is no corresponding increase in productivity gains for employers.
The Ministry for Business Innovation and Employment predicts that the increase to $20 by 2021 will price more than 10,000 workers out of the market. (The National Business Review page 21, Sept 14, 2018)
The silver lining in this policy is that it may force business to turn its attention to technological advancement as the cost of once cheap labour disappears. The downside is an increase in unemployment. Hence my comments in my article, “What is the answer to New Zealand’s Productivity Crisis?” regarding re-training.
I believe a sounder employment reform policy would be to provide incentives to businesses to invest in technology, obtain the productivity gains and then grant the wage increases.
2. Labour Reforms – The amendments to the Employment Relations Bill that emerged from the Select Committee 7th September 2018 makes the following proposed changes;
a) Employers are to give union delegates paid time off work. b) Union representatives are to have access to the workplace c) It repeals employers’ rights to deduct pay for low-level industrial action d) It requires employers to conclude collective agreements e) It prevents employers from opting out of multi-employer collective agreements f) It removes the 90-day trial period for employers who employee more than 20 people.
Whilst I totally agree that vulnerable workers need to be protected, the removal of the 90-day trial period is a mistake. One does not need a rocket science degree to work out that this policy will reduce employment flexibility and reduce employment opportunities for the very workers the Government is trying to protect.
But again, this may be the catalyst the business community needs to invest in technological advancements to drive Labour Productivity and close that 20% gap with the rest of the OECD.
Technology can save up to 35% of my costs in my supply chain. Can EDI really achieve this? Stay tuned for my final article in this series, where I discuss the productivity gains of EDI.
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