Matt Nolan

Why freeze public sector wages?

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I am not a fan of policies that freeze wages. However, the idea that the government will freeze the wages of public sector doesn’t seem to really be being debated – outside of the seemingly biased view of the public sector union.

Now, this is one of those rare cases where I think the public sector union is right – and everyone else supporting the policy is wrong. Freezing public sector wages is a bad policy. (Disclaimer – I work in the private sector, so this really doesn’t impact on me directly).

Currently we are experiencing a sharp re-adjustment in both the size and composition of our economy. Now, in the medium term we expect to return to some level of economic activity – but there are fundamental adjustments between roles that have to occur. This implies that we need some stuff to change in the labour market.

In the medium term there will be some roles that are more highly valued than they are now and some roles that are less highly valued. As a result, we need wages to adjust such that people will train and move into the more highly valued roles. If we freeze wages we aren’t letting this happen. Inside government there are areas where we need more training and where we need more employees – in other parts of government we have staff we don’t need. If the government could recognise this and change wages accordingly (it would be nice to have some market mechanism to do this) then we ensure that our public sector becomes “more productive”.

Now, the government is always complaining about the productivity of the public sector – but freezing wages will not help to improve this. In fact, it is a step in the wrong direction!

Matt Nolan

March NZIER QSBO: Wowsers

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Ok, all I can say here is that this is a really bad result.

Everyone knew March was bad, the RBNZ said they expected a bad result, but the net 45% of firms expecting a fall in their own activity is an unconscionably bad result.  I must admit that I was a little surprised.

Now, all economists expect March to be the quarter with the sharpest decline – even before this result.  However, WOW.

One positive for me is that firms expect profitability and productivity to remain low.  This may sound weird – but with cost pressures expected to virtually disappear, firms that are willing to put up with falling productivity and falling profits are firms that aren’t going to lay off as many staff.  When we are only looking one quarter ahead, this is actually sorta good news.

Rates Blog discusses the result more here.

jamesz

Auckland council merger

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Paul Walker and Eric Crampton are both concerned about the proposal to merge Auckland’s city councils to create a ‘supercity’. They fear that the loss of competition for residents among councils will decrease the quality of service and increase the rates. My initial thoughts were:

  1. How much of a problem is this? In any given city over 90% of residents report having the nation’s best quality of life. Given that, is there really much that a council can do to entice people away from where they are?
  2. What’s the marginal impact of rates on people’s decision about where to live? I imagine that it is one of the least important factors in deciding what area of a city to live in.
  3. Can the difference in rates be large enough to overcome the transaction cost of moving house?

Upon reading some of the links they provided I’m more persuaded that there could be an issue. Read more

jamesz

The cost of sickness

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The Dom Post reports that, while the cost of sick days to employers is $700 per year per employee, the loss from employees turning up and being semi-productive when sick is $900! They then recommend that employers press workers to stay at home until they’re better.

There are two problems I have with that: their assumptions and their method of dealing with opportunity cost. Read more

jamesz

Does money buy power?

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Dani Rodrik has interesting stuff to say about the way policy is formed. He discusses whether government policy is driven more by the prevailing ideology or by the interests of powerful lobby groups. There are two key ponts he makes:

  1. There are a lot of ways to make the lobbyists happy and many of them also help others, or fit in with the government’s ideology. Therefore it’s often hard to infer the motive from the action. I would add that the inference is often made on the basis of the observer’s personal political views.
  2. So far as he can tell, ideology is usually more important than lobbyists:

    isn’t it the case that the reason trade unions, say, have lost power in recent decades is the ideology of deregulation which swept Washington, D.C.? Or that U.S. auto makers have been unable to get large-scale import protection because this was a no-no in the prevailing ideological climate?… The fact that the U.S. wants fiscal stimulus and Germany doesn’t cannot be explained by the relative power of different groups within those countries. It has much more to do with the way in which their respective governments have defined the problem and the “lessons” of history they have drawn. Similarly, France wants more global regulation in large part because, well, France believes in regulation. Sure, Britain and the U.S. prefer a lighter touch in part because their financial sectors are more powerful–which in turn is due in part to the Reagan-Thatcher ideological revolution.

If we accept Rodrik’s argument then we must ask where these ideologies come from. In a democratic system there is no avoiding the fact that the prevailing views of the government are usually the ones voted for by a plurality of the citizenry. I’d like to think that this is the case because it would disturb me to believe that money can buy power that a democratic majority cannot achieve.

Matt Nolan

Easter and retail sales

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Paymark has reported some interesting results for electronic card sales over March.

In their news story they say the food and liquor are doing well relative to March last year, travel looks soft, and if we adjust for the funky timing of Easter (last year it was in March, this year it is back to its normal April) sales are down a bit.

Now, I remember last March – and I remember Stats NZ said that it wasn’t going to adjust for Easter because, when it comes to retail sales, it isn’t clear what the impact is.

Using my poor memory and a touch of logic, I recall the timing of Easter boosting the sales of specialty foods and tourist related activities – as people were coming around to hang out with family and celebrate Easter in a different month then usual.  In net terms this lead to a movement of these types of sales from April to March.  The place where retail sales did struggle was motor vehicles and the such – however, these aren’t the sort of purchases that turn up in the electronic card numbers.

As a result, today’s figures maybe don’t show such a weak story – maybe tourist spending isn’t quite as bad as they are saying, and maybe food spending is very robust.  I wouldn’t be surprised if liquor spending is strong – as it can be relatively counter-cyclical.  However, it isn’t clear that they should be revising the figures down on the basis of Easter …