The Unemployables

Gareth MorganEconomics

Gareth Morgan, Director of Gareth Morgan Investments

While the NZ economy will continue to recover over the following two years, there’s little prospect for employment gains translating into a marked reduction in unemployment. At the heart of the labour market’s weakness lie global pressures which will continue to dictate job loss, irrespective of government economic policy.

The pressures arise from the confluence of 4 factors: Firstly, the deregulation of global capital markets, which began in the early 1980’s, continues to facilitate the movement of capital from the high cost economies of the OECD toward the cheaper cost ones of Asia and Latin America. With the rapid upgrading of labour skills in these destination countries it’s wrong to assume this trend will be restricted to low wage, manual jobs. Secondly, the utilisation of computer technology to automate service industries, such as telecommunications, banking, and retailing implies significant job loss from these industries. Thirdly there is considerable downsizing of firms arising from automation of office and administration functions. And fourthly there is a move towards the employment of a contingent workforce, comprising of part timers, temporary, and contract labour as employers move to reduce the costs of employing labour directly.

All these factors suggest that for an economy to remain competitive there needs to be substantial rationalisation of the workplace. NZ has seen the above influences in part, but the process is by no means complete. Government attempts to thwart the changes by raising protection of industries can only exacerbate the situation, prolonging misallocation of resources and eventually leading to even more dramatic shocks once the cost of that misallocation is finally faced. In this context it’s dismaying to see poor quality analysis persisting in the Labour Party’s Economic Document which argues for example, that there should be more processing of forests done in NZ. That thinking seems to confuse additional processing with additional value added, or income. Sawmilling as~ government employment promotion is an expensive policy.

At present NZ’s unemployment has a youth, unskilled, and a long term bias. The emergence of a group with these characteristics – the unemployables – clearly can have exciting social connotations as their exclusion from economic participation persists. As we’ve recently seen in the UK, there comes a time when the numbers involved are so great the whole tenor of the economic debate changes and issues such as accelerated urban decay take precedence. The current preoccupation with generating economic recovery in the UK, no matter what the effect on the Pound, demonstrates how financial discipline can be sacrificed when unemployment tests electoral patience.

Ongoing displacement of white collar workers by the four structural changes cited above, and the shift to occupations which interface strongly with computing technologies and away from manual clerical functions, has implications for the future structure of our unemployment. Increasingly we’ll see older workers, uncomfortable with the computing interface, unable to re- enter employment, or at least unable to get a job with anything like the same pay as they once had. The composition of our “unemployables” will change.

The Unemployables 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.