New Zealand’s labour market recovery in ‘ONE CHART’

I hate one chart posts.  No that was too weak, I despise single chart posts.  But given that I am under the thumb of greater forces than myself (my thesis, my job) I have decided to do one.

So what is this chart that tells us about the NZ labour market recovery?  It is actually a chart neatly provided by Statistics New Zealand in their release of the labour market data:

Cheers Statistics New Zealand! (Note, initially the wrong graph had shown up, unemployment – it should be employment rates)

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Inward migration: A story of no-one wanting to leave

I endorse this post by Aaron Schiff – go read it.

You will also notice in the above chart that over the past ten years the number of arrivals has been relatively steady with a slight upwards trend, while departures is more volatile. Thus temporary spikes in net migration seem to be caused more often by changes in the number of people leaving rather than arriving, although the recent spike has been caused by both sides of the equation.

Something I would note here is that, until recently, this has been largely a story of New Zealander’s coming home as well.  Finally:

We should celebrate because on the incoming side, skilled immigrants provide New Zealand with a significant free gift. Some other country has paid the cost of their birth, childcare, childhood medical care, education, etc. They turn up in New Zealand effectively bringing all that investment with them and this benefits the country. Sounds good to me.

Something I would note here – it is a strange contradiction complaining about a brain drain while bemoaning skilled migrants moving here.

Deep down we should be a little bit more careful thinking about both issues.  People are moving as they see it as being in the long-run interest of their family and their lives – in that way, why is it so hard for us to accept that NZer’s may want to spend some time overseas, and that non-NZ citizens may want to join our community?

Global corporations, price discrimination, and NZ

I see that there is a new paper out discussing the fact that both tradable and non-tradable prices in New Zealand are “high” relative to what people are paying around the rest of the world.  I am used to the argument about non-tradable prices being high RELATIVE to tradable prices, but the tradable price argument is a bit of a fun twist on it all.

Eric Crampton has summarised the results, and Patrick Nolan from the Productivity Commission has had a chat about it.  Update: Donal has a couple of posts here and here.

My intention was to argue with them, especially Patrick as he is my brother.  But everything they wrote, and what I’ve read of the paper, was entirely reasonable – so I’d suggest reading those yourself ;)

Instead I will “add value” by making an unsubstantiated claim that may ad hocly explain this from the paper:

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Beware the seductive simplicity of the Spirit Level

I see that the Spirit Level authors are in town, and as a result there was a recent Herald article took aim at income inequality in New Zealand, relying strongly on the book ‘The Spirit Level’.  A conversation about the inequalities society believes are fair, or at least justifiable, is a good thing.  However, the Spirit Level’s claims that simply targeting measures like the Gini coefficient will make everyone better off is a misleading, and dangerous, place to start this conversation.

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VSR: Very silly regulation?

When discussing it’s new monetary policy Labour was keen to explain why they felt a change was necessary, and why a variable Kiwisaver contribution rate should be investigated.  However, to investigate such a policy it is important to ask some specific questions – this is what Gareth Kiernan did in this article (Infometrics link).

In announcing its new monetary policy proposals, Labour has shown an admirable ability to think outside the square. …. Unfortunately, there are a lot of problems with Labour’s idea and the assumptions behind it.

His list of 10 questions are:

  1. Should KiwiSaver be compulsory?
  2. Does New Zealand really have a savings problem?
  3. How good is Australia’s compulsory savings scheme for their economy?
  4. Do compulsory savings programmes actually increase savings anyway? 
  5. What effect do compulsory and limited-access savings have on the robustness of financing decisions?
  6. Is New Zealand’s permanent current account deficit really a problem?
  7. Are our ‘high’ interest rates really caused by our rigid monetary policy framework?
  8. How much of our mortgage interest payments go overseas?
  9. Does the export sector really need a lower exchange rate?
  10. What about compliance costs for businesses?

His answers to these questions give a case for why the VSR may not be good policy at all.  What are your thoughts?

 

 

 

Monetary policy 2.0?

Labour wants to upgrade monetary policy, preserving inflation targeting but asking the Reserve Bank to reduce persistent external deficits. To help, the Reserve Bank might get to vary contributions to an enhanced Kiwisaver scheme and go a little further with macro-prudential policy. Getting kiwis to save more is probably a good thing. If successful, interest rates would be lower and ease the exchange rate a little. But the evidence-base is weak and there are many leaks since implementation and accountability frameworks are not clear. Better to leave the Reserve Bank to do what they do best – implementing flexible inflation targeting.

The problem as defined

Many commentators point out that New Zealand has high real interest rates and that the exchange rate is overvalued relative to an economy less reliant on borrowing from abroad (see below). That makes our exports less competitive and promotes consumption of imported goods over domestically manufactured goods.

The problem: high interest rates and an overvalued exchange rate

The problem: high interest rates and an overvalued exchange rate

 

Our persistent negative external balance – that nets our borrowing and imports from overseas against exports – largely reflects our savings choices. Of course, an external balance can also reflect imports of capital equipment for investment in the real economy but most likely reducing the external balance would reflect a useful rebalancing of economic conditions for New Zealand.
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