Lockdowns have closed businesses, but employees' incomes have been resilient. Photo / Michael Craig
OPINION:
Spare a thought, in these times of peril and pestilence, for the self-employed.
The last time the whole country was locked down, in the June quarter last year, it was the self-employed whose incomes dropped, by an average 11.5 per cent compared with a year earlier. By contrast, wage and salary earners and the recipients of government transfer payments like New Zealand Superannuation and welfare benefits experienced some modest income growth, on average.
So it is a bit of a worry that by the June quarter this year, the only reason the employment rate — the proportion of people of working age who are employed — was back to pre-Covid levels is because of a surge in the number of self-employed people and, more recently, working employers.
The employment rate of paid employees, although it has been improving, is still 0.7 percentage points lower than it was pre-Covid, the Reserve Bank reckons.
Just as well, then, that Finance Minister Grant Robertson is able to report a decent uptake among sole traders and small business owners of fiscal support measures like the wage subsidy and resurgence support payments.
On the same day we went into lockdown last week, Statistics NZ released the annual crop of data on incomes derived either from paid employment, including self-employment, or government transfer payments.
The numbers come from the quarterly household labour force survey. It is a large survey, covering around 30,000 people, and is the source of the official figures for employment and unemployment. Every June quarter they add questions about incomes.
Last year's numbers reflected a quarter for half of which the country was locked down.
Unsurprisingly, median and average incomes fell, compared with a year earlier.
But it was income from self-employment that took the hit. By contrast, average wages and salaries (albeit supported by the wage subsidy) and government transfers were higher than in June 2019.
The June 2021 survey recorded a sharp rebound, with median and average weekly incomes 8.8 per cent and 8 per cent higher respectively than they were in the June 2019 quarter. Even among the self-employed, the average income was 7.2 per cent up on 2019 and the median back to where it was then.
Incomes are back to where they would have been if the trend increase evident over the 10 years pre-Covid had continued uninterrupted.
The Government would no doubt cite that as evidence supporting its conviction that a strong public health response to Covid-19 has also been the best economic response.
That principle is even more valid with the arrival of the more sinister Delta variant. Given its greater transmissibility, responsibility for the strong public health response now rests squarely with the public.
Meanwhile, in its monetary policy statement last week, the Reserve Bank elaborated on how Covid has affected its view of "maximum sustainable employment" (MSE). Supporting MSE is one half of its dual mandate when doing monetary policy.
The monetary policy committee judged that employment is (or was before the economy was sideswiped by Delta) at its maximum sustainable level. It considers that box ticked.
This is despite the fact that nearly 300,000 people either don't have a job but want one (whether they are actively seeking or discouraged), or are part-timers who want longer hours.
Covid's negative impact on paid employment had been partially offset by an increase in self-employment, particularly for women, the bank said.
"Since its initial increase in the June 2020 quarter self-employment has remained elevated. This has been the case even as paid employment opportunities have recovered across many regions and industries. This suggests that switching to self-employment has not just been a short-term response, but a more deliberate choice by workers."
The problem with this sanguine view is that we know that at the best of times what we might call the infant mortality rate for new enterprises is high. Of the enterprises "born" in 2015, for example, only half were still in business when Covid struck last year. The attrition rate has probably worsened since then.
And some of the surge in self-employment may be Uber drivers or others joining the gig economy, who are likely to be feeling a bit precarious right now.
The Reserve Bank lists 17 labour market indicators it monitors in judging proximity to MSE. All but four are back pretty close to where they were pre-Covid, when the bank last considered its MSE objective was met.
The other four are markedly tighter than they were then and explain why it thinks the level of MSE has fallen.
Three are measures from the Institute of Economic Research's long-running quarterly survey of business opinion. They are what firms report when asked whether it has become harder or easier to find skilled labour, the difficulty of finding unskilled labour, and how many cite labour as the factor most limiting their ability to increase turnover.
The fourth is a measure called the Beveridge curve, which plots job vacancies against the unemployment rate. It is an indicator of structural unemployment.
"Over recent quarters the vacancy rate has increased significantly but declines in the unemployment rate have not kept pace, despite the sharp fall [to 4 per cent] in the June 2021 quarter," the bank said.
"This steepening of the Beveridge curve indicates that those who are currently not employed are not well matched to what employers are looking for in terms of skills and locations. This indicates higher structural unemployment and a lower level of maximum sustainable employment."
Skills mismatch and barriers to mobility, in short, have resulted in a lower threshold for sustainable — that is, non-inflationary — employment, in the Reserve Bank's view.
"Since the unemployment and underutilisation rates have fallen, the pool of available labour is even more limited and businesses will have to bid up wages to attract workers. The latest labour market data provide early evidence that this is beginning to occur," the bank said.
Which is why it is so bound and determined to start raising interest rates.
It brings to mind the sardonic introduction to a routine daily market report years ago, which began: "Wholesale interest rates rose today on the news that too many people who aren't bond traders have jobs ..." But it begs the question of whether the skilled labour shortage can be entirely laid at the door of a closed border.
The Beveridge curve was already steepening over the decade before the arrival of Covid, albeit less so than in the past year.
That suggests that much of the shortage of skilled labour arises from New Zealand businesses having become habituated to the idea that skill is something to import, rather than something to impart.
Better that other employers incur the cost of training people. And if those other employers are in another country, what is the problem — other than a housing crisis?
It has been called the mentality of the hunter rather than the farmer. And it needs to change.
'I regret these documents were not simply sourced and provided at the time' - Cooper