Can’t win in “managing the economy” it seems!

Via Kiwiblog I spotted this:

The Government has no qualms about Australian companies shifting jobs to New Zealand because of lower wages.

Labour is concerned that New Zealand is becoming a desirable destination for Australian businesses taking advantage of the wage gap.

Several big Australian banks and food producers have shifted jobs to New Zealand in the last two years.

Now call centres are also making the move, mostly because it is cheaper.

Darien Fenton MP said the trend is deeply worrying.

Economic development Minister Steven Joyce said the wage gap with Australia is an opportunity to create more jobs.

But the Council of Trade Unions said an economy created on low paid jobs lowers productivity, which could actually widen the pay gap even further.

So it is a good idea for Labour to try to intervene in the exchange rate to cut labour costs to “create jobs”.  But then if the exchange rate falls and people move over in of itself it is a worrying trend.

Look this whole “creating jobs”, “managing the economy“, “messing around with prices” business is a load of tripe – but if you are going to roll it as a political parties at least try to be internally consistent.  This is the third time in the last couple of days Labour has been knocked for internal inconsistency (first and second) – and I feel a bit bad.  I don’t want to be picking on them specifically, other parties do it as well.  I just have to call it when I see it 🙂

If we care about wages etc, we need to try to figure out why the opportunities aren’t here to “make more” (although note we are still a wealthy, wealthy, country).  The Productivity Commision and Treasury used that as a driver for their Productivity Symposium!  Rising demand for labour from overseas will see “wages rise” sure – but to understand people’s livelihood we need to think about the specific structure of the New Zealand economy, the opportunities people have, the legal system, the incentive to build up the capital stock (which in turn leads to more productive, and higher paid workers) … and we need to think about the counterveiling costs associated with policies that do these things!

I suspect people will want to disagree with me on this one, we can flesh it out in the comments – and then once I’ve got some questions from you guys, I can do some fuller posts next week 🙂

  • Shamubeel Eaqub

    When did comparative advantage become a bad thing? I know globalisation is a dirty word to many, but not to most economists…it seems as though this is exactly what we should expect

    • I can’t actually think of sarcastic comments here – I’m genuinely that confused with that is going on!