That is an excellent question. As I mentioned above, I believe that skills shortages are a more constraining factor than capital constraints at the moment – however, lets have a look around the issue.

If we did have investment in broadband the first question is – will this increase or decrease demand for labour. It could reduce demand for labour as jobs that were previously done in person can now be done online (eg buying from the supermarket, banking). However, it could increase demand for labour in specific sectors (eg IT pro’s) where we currently have a shortage, furthermore, by making each worker more valuable it may increase demand for workers.

All in all, the impact on labour market constraints is ambigious. However, we do know one thing.

This capital investment has increased the marginal product of labour – for each person you can make more stuff. As a result, it will increase the “aggregate level of supply” in the economy.

The increase will be limited by the responsiveness of labour – and the increasing scarcity of labour may well worsen inflationary pressures!

However, if the RBNZ is able to contain inflation expectations (which involves lifting interest rates to counter any increase in “aggregate demand”) then our interest lies with the level of aggregate supply – which this policy would increase.

I think the fundamental issue is that whatever party wins the election – they need to focus investment in the areas which will add the most value to the economy. This seems obvious – but I’m not sure that parts of the public (and private economic) service are actually providing the impartial and unbiased information required to properly evaluate the potential choices.

So Matt, if the investment was in additional international internet bandwidth via a new submarine cable and fibre to the home; would this increase supply or just put pressure on the labour resources required to implement ?