(Source: Hall and Scobie, 2005: 20)
This has lead to a stagnation in the ratio of capital to labour (in terms of thier dollar value) within New Zealand's economy.
(Source: Black et al., 2003: 24)
This has obvious implications for New Zeland's labour productivity (output measured in $ per labour hour) growth as greater capital investment leads to greater efficiency and output. Hall and Scobie (2005: 32). estimate that 70 percent of the difference in labour productivity growth between New Zealand and Australia from 1995 to 2002 could be accounted for by New Zealand’s comparatively lower capital intensity (capital value/hours worked) growth rate. So because of this slow wage growth and concomitanat stagnation of capital intensity New Zealand’s labour productivity has fallen from being 85 percent of Australia’s in 1987 to 79 percent in 2003 (Parham and Roberts, 2004: 4). Labour productivity growth is extremely important as any growth in wages that isn't matched by growth in productivity leads to inflation (inflation 'eats up' what is gained in wage increases. Or as Dalziel and Lattimore point out, the most important source of sustained improvement in a country’s standard of living is growth in the productivity of its employed labour force (1996: 61). For these reasons the issue of labour productivity is extremely important.
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Like I said, get into capital, it's clearly a winner.
ReplyDeleteCome on Rog/PJ....your better than this?
ReplyDeleteFred - I've actually written about 10,000 words on this subject – so of course the labour productivity puzzle is much more complex than what I can sum up on a blog. BTW there are many other economists who share my opinion here, so maybe you should do some reading before dismissing these ideas?
ReplyDeleteThis is a good one to start with. You can find it with a simple google search.
Hall, J. and Scobie, G. (2005) Capital Shallowness: A Problem for New Zealand? New Zealand Treasury working paper.
All this is saying is that the relative price of labour is low, so firms consume more labour and less capital.
ReplyDeleteIf we increased the price of labour, output would fall, as the relative price of labour will be higher. This doesn't necessarily imply that there will be more capital, as capital and labour are complements in marginal terms as well as being direct substitutes.
"If we increased the price of labour, output would fall, as the relative price of labour will be higher. This doesn't necessarily imply that there will be more capital, as capital and labour are complements in marginal terms as well as being direct substitutes."
ReplyDeleteMatt: first off, thanks for commenting. You are partially correct here.
There are in fact numerous other explanations for the countries with centralised collective bargaining having higher productivity growth.
In there 1999 study Gorter and Poot found that external flexibility (the ease with which firms can hire or lay off workers) can negatively effect productivity as investments in human capital are easily lost in this way. This is backed up by an international study of high performance manufacturing which found that high performing western and Japanese firms had an average labour turnover of less than half their counterparts who didn’t meet the high performance criteria (Lowe, et, al. 1997). Furthermore Boxall et, al (2003) found that unions possibly have some valuable productivity effect from channelling employee voice into collective bargaining the reasoning being that union members tend to stay longer in jobs.
Indeed a study by the OECD (1999) found that New Zealand was ranked third lowest in the OECD with regard to employment protection and lowest of all in relation to collective dismissals (Glyn 2002: 13). This factor combined with the unilateral control of working conditions that employers are free to pursue under a free contracting environment can lead to job dissatisfaction and a concurrently high rate of job turn over . Indeed, a survey of employee experiences under the ECA carried out in 1998 found that 40.2 per cent of employees were on their first contract with their employer, indicating a high turnover rate (Rasmussen et al., 2000: 56). This situation doesn’t appear to have abated with the introduction of the ERA as a survey of 1602 companies by TMP Worldwide in November 2001 showed that staff turnover in New Zealand companies was above the internationally recognised danger level of 15 per cent in areas including the retail sector (Rasmussen and McIntosh, 2002: 140).
Further to this, a survey carried out by Boxall, et, al. (2003: 205) in 2000 found that 46 percent of respondents left their last job because their employer didn’t listen to their employees and 56 percent left because they felt undervalued by their employer. As mentioned above, Hall and Scobie (2005: 24) estimate that 30 percent of the difference of labour productivity growth rates between New Zealand and Australia is due to New Zealand’s slower multifactor productivity (MFP) growth rates. So, as multifactor productivity is in part derived from the more efficient combination of labour and capital, it may be that these problems have contributed to New Zealand’s comparatively slower MFP growth. Further to this, a study by Gilson and Wager (1997) found that individual contracts were not associated with innovation and flexible work practices but rather cost cutting strategies. Moreover, there was absolutely no statistically significant association between the pursuit of individual contracts and a wide range of measures of firm performance. In fact greater performance was associated with high levels of investment in technology and participative decision making and open communication – the very antithesis to the general post-ECA employment relations environment in New Zealand. They concluded that the rhythms of the work-place are more collectively based than the draughters of the ECA fundamentally understood… [and therefore] the ECA encourages employers to take a wrong turn.
Also, to the OECD (1996) New Zealand’s history of low labour productivity is attributable to its low level of skills and competencies in the work force. Quite clearly then, the high level of labour turnover (and associated lessening of training in the work place) evident under the ECA did not improve this situation.
Interesting. I agree that human capital has not been invested in sufficiently, but that is a result of firm not being able to hold on to labour ex post any investment.
ReplyDeleteIn the case of unions, firms would still no be able to hold onto labour ex-post investment, it is a contractual problem.
As a result, contracts must be being established in NZ in this way as the return from investment in human capital is so low.
An increase in the strength of union activity will simply lead to an increase in the price of labour, which in turn will lead to a fall in output and an ambiguous change in all types of capital (including human capital).
In a sense I think we are disagreeing about the causality for the high turnover rate of 'trained staff'.
"In the case of unions, firms would still no be able to hold onto labour ex-post investment, it is a contractual problem."
ReplyDeleteCountries with centralised collective bargaining, for several reasons, generally have lower labour-turnover rates.
i.e. greater worker satisfaction (more input into decisions regarding working conditions/production process), higher pay levels (encourages employers to focus more on training and retaining).
Hey - this is fantastic work you've been doing here. I just had gold old "Google News Alerts" point it out to me. I'm the Communications guy with the New Unionism network (www.newunionism.net). I'm wondering if I could get a "bumper edition" of this series of articles. Do you have them together in a word document?
ReplyDeleteFurther to that, it'd be interesting to know if you've looked at the productivity/union density correlation internationally.
ReplyDeletehey phj-
ReplyDeleteUnfortunately I haven't collated the entirity of my work on unionism and productivity in one comprehensive article. You do however have my permission to use any material on my blog for any work that you might want to do.
Also, I have written something looking at an international corellation between collective bargaining coverage and productivity growth levels. Though the findings were inconlclusive, there did seem to be some good evidence indicating a correlation between the two variables (in the comments section there's a debate in which the issue is explored more fully).
http://rogernome.blogspot.com/2007/08/responce-to-ip.html
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