Employment Policy

Gareth MorganEconomics

Gareth Morgan, Director of Gareth Morgan Investments

While the effective cost of employing labour in the home- to produce outputs like meals, child care, repairs and maintenance- remains beyond the scope of most householders thanks to the tax wedge that non-deductibility represents- we’re denied one avenue to absorb significant numbers of the unemployed.

The real incomes of many Kiwis have fallen over recent years as unemployment, loss of penal rates, and straight wage cuts have impacted. The resourceful amongst the displaced have responded. It is commonly known as the “black economy”. A black economy worker procures income from the sale of services for “cash”. The natural purchaser is a householder, who has no disadvantage from purchasing this type of labour, since they cannot claim the cost of the service as a legitimate input to the production of home outputs. Problems arise when the same worker claims to be “unemployed” from the monetised economy and supplements the dole (or other type of benefit) with black economy income. The amounts may be small per individual but with so many people caught up in the welfarism net, the aggregate is probably significant.

If government were to legitimise the natural outlet for “black economy” labour- sale to households, they’s achieve two things. Firstly, the legitimate cost of employing labour in and around the house would fall, thanks to the tax deductibility to the purchaser. Their demand for that labour would then rise, absorbing more labour into this sector. Secondly, the scope for the employee to double dip- receive non taxed income, and a benefit- would reduce, arresting the exponential growth in welfare transfers, which has hamstrung fiscal policy.

It is little wonder that the fiercest criticism to the idea of incorporating labour in the home within the recognised economy, has come from the unemployed’s spokespeople. Their membership does stand to be re-employed. The main objection to the idea is that the type of jobs available in the home are demeaning and somehow unworthy. In large part this arrogance has been instilled by some in the economics profession who prattle on about a high employment, high wage society, raising many people’s expectations unrealistically.

The sooner we recognise that there are both highly and lowly skilled workers in this economy, with the latter group disproportionately represented within the ranks of the unemployed, the nearer we’ll get to forming employment solutions. Of course education and training are important, but to suggest that this alone is the solution belies the fact there are unemployed skilled people right now. Employment policies need recognise the role for both groups. Japan absorbs its excess labour in the services sector which is notoriously inefficient, but paid for by the international strength of Japanese industry. In Europe agricultural protection provides jobs for millions in rural communities- the international strength of European industry can afford it for now. In NZ we don’t have as robust sources of international income as our debt levels attest. We need to absorb our excess labour in productive endeavour. The household sector offers part of that solution.

Employment Policy was last modified: December 15th, 2015 by Gareth Morgan
About the Author

Gareth Morgan

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Gareth Morgan is a New Zealand economist and commentator on public policy who in previous lives has been in business as an economic consultant, funds manager, and professional company director. He is also a motorcycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment.