The job summit ideas: An opinion

Kiwiblog appears to be pro the Job Summit – the complete opposite of the position we have taken.

However, so far David Farrar has given more detail as to why he feels like he does. As a result, we really need to discuss things a little bit more.

Now David mentions the main “potential policies” to come out of the summit were:

  • A nine day working fortnight, with the Government paying (but at leass than full wages) for training on the 10th day.
  • A $50 million cycleway from Cape Reinga to Bluff, employing 4,000 people (not sure for how long).
  • A multi-million or billion equity investment fund, with the Government and banks, designed to let companies access capital to grow.
  • A $60 million private-public fund to boost Tourism

Ok, so let me talk about them a little.

Nine day working fortnight with training.
Now that I have more detail about it I can see why the government has to legislate the nine days – it is because they will be paying for a tenth day.

Ignore the training for now – the reason the government may want to do this is because they know the marginal product of employees has fallen. By cutting them back for a day they reduce the cost to employers – thereby reducing the number of people that will get fired.

Now, what I don’t understand is why the “tenth day” is being used as “training” instead of as actual work. The fact is, if we cut down the amount people work for a day we are reducing output – plain and simple. Value doesn’t magically get created from the air.

The view may be that training is more valuable – but who the hell is going to make courses that only go for one day a fortnight? If they do create these course will they actually add any value (one-day a fortnight is not much).

If part of “training” could be “doing your job” then we end up in the initial situation I suggested. So if we think the whole of society paying a tenth of the firms wage bill temporary is a good idea then this could work.

My conclusion

Given that the fear is a “surplus” in the labour market, reducing the cost of labour could make sense. However, it should be focused on industries where we think the market failure is happening.

Furthermore, it is important to remember that this makes sense only if the shock is “temporary”. If Bill English is right that this is all a permanent shock, then keeping wages artifically inflated through government subsidies (which is what this is) is a terrible policy.

As a result, give me more detail. I can see a small range of circumstances where this might make sense – just not in the current NZ context.

The cycle way

Ok, so the $50m is for the construction of the cycleway – immediately notice that it will need maintence and it will need to be upgraded for any change in saftey laws. As a result, the cost will be much greater.

Now on the benefit side. Assume for simplicity that it doesn’t change the spending of current tourists – we lose some revenue as they spend time on the free cycle way instead of Rotorua, however we might gain some from happier European tourists ;)

In this case the key is its impact to attract tourists. Do we believe that this is going to attract enough tourists to exceeds the rate of return on the same investment elsewhere?

Conclusion

No way in hell is it going to make that sort of return by increasing tourist numbers. I just do not believe it. I would love to be proved wrong here – but hell we would need to attract a large stream of tourists to make this one work …

Equity fund

If we believe that firms in NZ are liquidity constrained then this makes sense.

If we believe that firms in NZ are moaning about liquidity to get easier, cheaper, credit then this doesn’t make sense.

I would note that firms always want less red tape and cheaper credit – the fact is that government isn’t supposed to be doing what firms want, but maximising social happiness. There is a difference – and where this difference is expected to be is really the driver of the left-right divide :)

Conclusion

Most firms in NZ aren’t liquidity constrained. As long as this is the case, this policy is nonsensical.

However, given the credit constraints experienced overseas, I can understand why government would want to set up the framework now – just in case.

A private-public fund for tourism

Why? Why is the government going to provdie $60m to tourism. Why?

Conclusion

I don’t know what the hang this is supposed to do – especially during a time when global demand for tourists has collapsed.

Overall conclusion

I don’t want the government to do any of the things suggested here – I think they will, in the current environment, make matters worse.

Should we start facing binding credit constraints (where there are firms that want to borrow, and lenders that would be willing to take on the risk in normal circumstances, but it can’t happen) then the third option is a possibility.

Otherwise, I’m intensely underwhelmed. I don’t expect policy to save the day – I’m just disappointed the the quality of policy here. I would like to be convinced otherwise :(

Note: The goal isn’t to “save jobs” it is to make sure that “economic activity” does not collapse as strongly. If activity fell by half and everyone kept their jobs, then we are facing a situation where everyone has lost half their income.

Government should definitely help those who suffer most from a recession (namely the unemployed, and people stranded with obsolete skills) – but focusing on jobs, instead of looking at the overall economic activity picture, illustrates a misinterpretation of the situation we are facing …

  • Richard

    Yeah, I don’t know about the training idea. Courses in my field cost between $1k and $2.5k per day, which is a little more than I’m actually paid. I can’t see it working…

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  • Sinner

    global demand for tourists has collapsed.

    precisely. which is why the cycleway is particuarly stupid. plays well with the greens though.

    The fact is, if we cut down the amount people work for a day we are reducing output – plain and simple.

    Not quite – and that’s what’s really really clever about this scheme. It will be rolled out throughout the public service – basically allowing people to slack of for half a day a week (they do that anyway, but make it official, closing offices at 1pm on Friday) – but enforcing a 10% pay cut on all civil servants, teachers, etc.

    That’s got to be worth something!

    Government should definitely help those who suffer most from a recession (namely the unemployed, and people stranded with obsolete skills)

    No way. That’s the problem – that’s the biggest single distortion of the labour market. Face it: anyone over 35 who is laid off is unlikely to get any kind of skilled job in NZ – yeah perhaps ditch digging or mowing the cycle way – but we’d be better off without them for sure. Remove the dole, remove the minimum wage, and let the market take its course is by far the best solution for NZ as a whole.

    Basically most of the NZ’s “Labour force” are good for only one thing – voting Labour. Their only internationally relevant asset is the market value of their internal organs (and quite often not even then).
    If the new environment, if you can’t pay your way internationally, we can’t afford to subsidize you here.

  • http://www.tvhe.co.nz Matt Nolan

    “Yeah, I don’t know about the training idea. Courses in my field cost between $1k and $2.5k per day, which is a little more than I’m actually paid. I can’t see it working…”

    Good point

  • http://www.tvhe.co.nz Matt Nolan

    “Remove the dole, remove the minimum wage, and let the market take its course is by far the best solution for NZ as a whole.”

    No no no. As a society we are willing to sacrifice some output in order to ensure that the distribution of income etc is fair. That is one of the primary reasons for government.

    The fact is that the market solution ensures the most efficient allocation of resources – but it doesn’t necessarily ensure the maximum happiness for society, which is the goal.

    The concept of “saving jobs” completely misses the point – but once we move past that there is a role for redistribution. I am pretty sure that most of New Zealand is willing to have a minimum income for everyone – in order to ensure that those who are unlucky can still live. If it turns out that we are a society that is unwilling to do that, then I would move to a country where they are. However, it is a social contract – there is no strict argument for any level of the dole, either very high or very low. It depends on the values of society.

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