Kate MacNamara: Immigration and the puzzle of New Zealand’s tight labour market


This time last year, New Zealand was on the brink of a double-digit unemployment rate, held off by dint of a massive, state-funded wage subsidy.

This year a strange thing is happening. Stories of chronic shortages are emerging, not of jobs but of workers. In recent months, new job ads have surged above pre-pandemic levels, and industry groups from hospitality to trades describe a dearth of workers.

There are stories of restaurateurs washing their own dishes and understaffed cafes closing early. And, of course, there have been the sorry tales of orchardists and market gardeners up and down the country crying out for more hands to pick and plant and prune for close to a year.

Is it possible, so hard on the heels of a massive economic shock, that New Zealand finds itself in the grip of a labour shortage? It is all the more surprising considering the border remains closed to foreign visitors (with the exception of Australians), worth more than $20 billion in lost annual revenue.

The Government is keen to feed the narrative that our largely Covid-free status has driven surprisingly strong economic growth and, in turn, job creation. And to a degree that’s true, though additionally fuelled by extraordinarily loose monetary policy and deficit spending, growth has been far better than expected.

But it’s also true that New Zealand’s closed borders have reshaped not only the available jobs in the country but also the workforce that’s ready and willing to take up that work.

On the face of it, New Zealand has more spare capacity in its workforce now than at the start of the pandemic. Between March 2020 and March 2021, according to Stats NZ, underemployment (workers seeking more hours) rose by a net 31,000 people. And the ranks of the unemployed (the jobless who are actively seeking work) rose by a net 19,000. In total, that’s 52,000 more spare workers now than early last year, when labour was short in some particular pockets, but there didn’t appear to be an overall chronic shortfall.

So the puzzle is this: we have more spare workers now, or slack, as economists call it, in the labour market. But business is complaining more loudly than ever about a dearth of staff.

The answer, or at least part of it, runs through New Zealand’s closed border policy. Before the pandemic, short-term migrants, typically in the country for less than two years, formed a significant cohort of relatively low-wage, low-skill workers. In 2019 there were nearly 40,000 young people in the country on working holiday visas, a further 45,000 international students for tertiary study on visas with working rights (typically for up to 20 hours per week), and some 14,500 Recognised Seasonal Employer scheme workers who come specifically for horticultural work.

One hundred thousand workers is a significant cohort and it represents about 5 per cent of the roughly two million filled jobs in the labour market (this figure excludes the self-employed).

It’s also a cohort that’s been decimated, almost literally. At the end of April, only 6000 working holiday visa holders remained in the country. The Government suspended all arrivals last year, in line with the general border closure, and visa extensions for the rump who’ve remained have come in six-month increments, with eleventh-hour extensions, tending to flush home as many of these travellers as possible.

Similarly there were just 7000 RSE scheme workers in the country through the peak of this year’s harvest season. And international students for tertiary study have dropped by more than half to just 20,000. In total, just a third of the pre-pandemic complement of short-term migrants remain in the country.

The loss is perhaps all the more acute because of the very high mobility of both RSEs and the backpackers who hold working holiday visas.

RSEs are hired directly by accredited employers and so move efficiently to jobs. Those on working holiday visas move through South Island ski hills in winter and Hawke’s Bay and Marlborough orchards in summer and autumn. They work in bars and restaurants and on construction sites across the country when demand is high, and take jobs that are often hard to staff with locals for several possible reasons.

Backpackers typically live in vans, campgrounds, hostels and other shared accommodation. Unlike residents, their movement tends not to be hampered by scarce, expensive housing. And perhaps critically, none are entitled to the state benefit (with the exception of some emergency Covid-related measures that have now expired).

Temporary migrants, of course, don’t tell the whole story of employers’ current labour woes. The closed border has also limited the flow of more skilled, longer-term migrants, the number of which has dropped over the past 15 months, though not so dramatically. A stubbornly high number of Kiwis remain on the jobseeker benefit even as the official number of unemployed has fallen in recent quarters. And other countries which have loosened Covid restrictions, from the United States to Israel, are also struggling with a similar phenomenon: job vacancy rates at record highs, even as unemployment remains elevated.

The Government here hopes to use the pandemic to “reset” immigration policy and wean employers off lower skill, migrant labour. It wants businesses to stump up better wages and training for Kiwis, and otherwise invest in automation.

But there is considerable risk in this evolving plan. Many businesses, especially small ones, may not be strong enough to absorb much change. If profits are slim, for example, or their ability to pass on price hikes to customers is constrained, as is the case for many suppliers of the country’s two main supermarket chains.

Broad wage inflation can also be a double-edged sword. While it has been modest so far, strong increases could drive up the cost of living, already soaring in many real respects on the back of house prices, and, in turn, drive further wage hikes. Such an inflationary spiral would require the Reserve Bank to plump up record low interest rates sooner than planned to choke back the very growth that is helping to fuel labour demand.

A reset sounds deceptively easy: a matter of pushing a button perhaps or pulling a few levers. The tough part is achieving control.

OUT OF WORKERS: A Business Herald Series

MONDAY: The tech sector’s new pain point

• Worse than Covid: Hospitality’s battle for staff
• Primary challenge: Horticulture and fishing on the front line
• Construction: Capacity constrained, costs spiking
• Tourism: 90,000 jobs lost last year- 80,000 vacancies now
• Economic fallout and the human toll
• Solutions: What should the Govt be doing, how firms are adapting

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