Son, you can’t have it both ways

Posted on by

I see that the news of Australian firms relocating in New Zealand has finally hopped over from Australian news (where it was during Christmas) to New Zealand news.

There are complaints that firms are moving over here because we have lower wages than in Australia, and that is causing anger and concern for people that enjoy complaining.

However, these same people are also complaining that the strong NZ dollar against a number of countries (primarily China and the US) is leading us to loss jobs by making labour less competitive – in other words, by making New Zealand labour relatively more expensive, in other words by pushing up peoples real wages.

If we think there is a market or government failure somewhere, go ahead, complain about it.  But don’t simultaneously complain that wages/labour costs in New Zealand are too high and too low.

This is why I hate politics – always looking for a reason to attack each other, instead of accurately describing the trade-offs that exist and giving the electorate a real choice.

Posted in New Zealand Economics

About Matt Nolan

Matt Nolan is an economist at Infometrics (although the opinions expressed are independent of the organisation) . Email: matt@tvhe.co.nz; nolan.matt@gmail.com; matt@infometrics.co.nz. Work phone: 04-496-5290

  • http://www.tvhe.co.nz jamesz

    Labour have a problem with FDI ‘creating jobs’? WTF?! I guess it’s consistent with their general xenophobia, but I didn’t expect that to be directed at Australians. Perhaps NZers just have a chip on their shoulder about Australia’s relative wealth and see this as socially demeaning???

    • http://www.tvhe.co.nz Matt Nolan

      I guess in politics it doesn’t matter if your message is consistent – just how passionately you sell it

  • http://offsettingbehaviour.blogspot.com Eric Crampton

    I, for one, would like you to be blunter here. Is CTU the worst offender?

    • http://www.tvhe.co.nz Matt Nolan

      I am criticising everyone who has simultaneously complained that wages are too low, the exchange rate is too high, employment is too low, and we work too much while gazing lovingly at Australia for no particular reason.

      In other words I’m criticising the majority of journalists and business analysts, along with practically every politician.  Picking one group or person would almost be unfair.

      If people would actually describe the market/government failures they are concerned about in a descriptive economic framework they would have logical consistency, instead all of these people are rewarded for finding the negative in everything – implying that they will happily contradict themselves as long as they get attention.

  • steve

    there are externalities in R&D due to knowledge spillovers – this is the reason why governments offer R&D tax credits and research grants.  The cost of these externalities is greater in NZ due to density, distance and agglomeration factors, leading to lower growth in the short run and relatively lower wages in the longer run.  We are perpahs now seeing that short run coming to an end and the wage gap with Australia will become a constant % difference with equal growth. – The solution is more R&D funding (perhaps targeted to industries which are more likely to be sustainable in NZ)

    but what is the failure that has caused the exchange rates to be too high? these are failures in europe and the states i guess which we can’t fix. printing money might be a temporary solution, but comes with longer term failures.  I’m sure there are other solutions from people more clued up on monetary economics.

    while i agree they should complain about the failures (not the symptoms), my point is that there can be failures that cause both too low wages (due to economic geography) and too high wages (due to the gfc & euro debt) at the same time.

    • http://www.tvhe.co.nz Matt Nolan

      “while i agree they should complain about the failures (not the symptoms), my point is that there can be failures that cause both too low wages (due to economic geography) and too high wages (due to the gfc & euro debt) at the same time.”

      Indeed – we could have a relative price issue and a straight out inefficiency for example, and then we would have that case.

      But these arguments don’t go “this is a failure”, they go “this thing happened and here is a negative interpretation”.  Given the model of the world they are implying when they make these complaints, the two negative factors they’ve mentioned contradict, and that’s unpalatable.

      BTW, the exchange rate issue is an interesting one – but people throw around terms such as the “exchange rate being too high” far too easily.  40% of our trade is with Australia and our exchange rate against them is at a historically low level.

      When it comes to any policy, there is a bias to “do something”.  It is hard for analysts, journalists, and politicians to admit that maybe policy settings and the allocation of resources given our endowment are pretty good – and so there is a huge burden of proof on any change.

    • http://www.tvhe.co.nz Matt Nolan

      On the specific note of R&D funding, I’d be a lot more careful applying knowledge spillovers to New Zealand – given our relatively open borders, the non-specificity of a lot of R&D work in NZ, and the fact that in many of NZ’s industries you can make the case that a lot of the surplus does accrue within the market.  Of course, you are the specialist on this so you’d have a clearer idea – just wanted to raise to point out my concerns ;)

      • steve

        Thanks,

        So your post in summary is complaining about people who are always complaining?

        on whether the exchange rate is too high i agree we should look at what the TWI is historically, rather than specific country’s rates.

        On R&D I am referring to the fact that there is sharing of knowledge with other firms which can be used in future R&D.  thus a firm cannot reap all the rewards of the knowledge they create.  You may be right that surplus does accrue within the market, but more that our isolation protects any knowledge that develops here from its spillover and a lack of competition means innovators can monopolise the products created – though this also leads to other obvious issues.  So thanks, that is an interesting point to consider.

        The main point I am making is that our isolation prevents knowledge coming to NZ, making the innovation in the first place more expensive than overseas.  On balance, this second force is probably greater than the one above, meaning less than the socially optimal level of innovation is occurring in NZ AND less than other countries (who might also have a less than socially optimal level of innovation).  

  • http://kumararepublic.blogspot.co.nz/ DeepRed

    Paradoxically, strong unions as in France and Australia have led to higher productivity, by way of mechanisation.

    A far stronger R&D base in NZ would reduce its dependence on exchange rate fluctuations. But prevailing orthodoxy writes it off as an expense rather than as an investment. We have no issues producing the know-how, it’s just that a lot of it goes overseas for the long haul. We can never hope to match Silicon Valley or Oxbridge, but anything’s better than being over-reliant on cows and high-rolling tourists.

    Efficient broadband is one potential avenue for NZ to circumvent the tyranny of distance – just read Rod Drury’s “Securing Our Digital Trade Routes” for a few ideas – so long as the anti-competitive practices in the broadband industry can be dealt to. “Economies of scale” is simply no excuse for cartel-ism.

  • http://kumararepublic.blogspot.co.nz/ DeepRed

    Paradoxically, strong unions as in France and Australia have led to higher productivity, by way of mechanisation.

    A far stronger R&D base in NZ would reduce its dependence on exchange rate fluctuations. But prevailing orthodoxy writes it off as an expense rather than as an investment. We have no issues producing the know-how, it’s just that a lot of it goes overseas for the long haul. We can never hope to match Silicon Valley or Oxbridge, but anything’s better than being over-reliant on cows and high-rolling tourists.

    Efficient broadband is one potential avenue for NZ to circumvent the tyranny of distance – just read Rod Drury’s “Securing Our Digital Trade Routes” for a few ideas – so long as the anti-competitive practices in the broadband industry can be dealt to. “Economies of scale” is simply no excuse for cartel-ism.