Julian Wood

By Julian Wood - 21/07/2016

Julian Wood

By Julian Wood -

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Productive thinking

Everybody wants New Zealand to be a great place to work and live. High wages, high growth, high productivity, low unemployment, affordable smartphones and great weekends. The question is how to get there. Wage rises for most are low and in the order of inflation. Higher productivity is a key driver of the kind of lifestyle we want, but New Zealand’s productivity numbers are poor.

For years now in New Zealand, we have used immigration to solve a range of issues, including skill shortages in a number of industries. As a skill shortage occurs, and wages rise, firms have argued that we need to let more people in so they can find someone to hire at the wage they want to pay. Rather than letting wages rise and firms face higher wage costs, we import the people we cannot find domestically.

Whole industries are now reporting that they are heavily dependent on migrant labour to fill certain jobs. The plus side of this is that it enables the Christchurch rebuild to occur in a timely manner, and helps parts of New Zealand to find radiologists. On the minus side, bringing in more people means wages don’t rise.

If wages don’t rise firms are unlikely to invest in innovation and new technology to make their processes more efficient. Rising wages are the incentive for firms to research and invest in more productive technology. A firm will not explore better ways to produce a good if the easier answer is to simply hire labour from overseas. This leads to a low wage – low productivity workforce. So the simple answer is to turn off the immigration tap. Or is it?

Unfortunately, migration is so multifaceted that simple answers may lead to votes, but not much else. For example, immigrants have been a key link for New Zealand to access new productive ways of doing things, new money, new networks and sometimes even just providing a language interface that makes adopting overseas ideas far easier. We see the same thing happening when our Kiwi mates take great ideas and ways of doing things with them overseas.

So turning people away from New Zealand in order to raise wages of local workers can slow down the adoption of new ideas and knowledge from overseas. In the long term this may hurt productivity, competitiveness and eventually wages. Similarly, if wages rise too high too quickly, it may prove too tempting for firms to move to full automation or move their operation overseas, hastening either Skynet and or the end of working life as we know it.

To create the New Zealand we want to be in the future we should be more focused on understanding long term drivers of productivity and growth and wellbeing for all. This focus on productivity should be the lens through which we view current, hot button issues like immigration and housing. This kind of long term focus should ensure we don’t settle for short term solutions that end up limiting our future.

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Julian Wood

By Julian Wood -

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