With the shuttering of many businesses, a lot of people are suddenly not simply unemployed, they are unemployable. In other words, with new waves of artificial intelligence and automation expected and a rearranged economy, their old jobs may soon no longer exist to go back to.
From a business perspective, companies are incentivised to keep pushing for more automation to avoid future shocks to their processes. So, the problem of large numbers of people unable to fit into an increasingly complex workforce is likely to get much, much worse as the economy improves.
How has the government been thinking about this? The Productivity Commission's final report on technological change released in March cautions that worries about mass job loss have endured for the last 100 years and never really happened.
Its report showed at the start of 2020, New Zealand's labour market participation rate was the highest it had been in three decades; people were staying in jobs for longer; older people were participating in the workforce in higher quantities; and technological change could be slowing.
The Commission says the jury is out on whether this new artificial intelligence (AI) will mean "this time is different," but found little historical evidence that technology leads to fewer jobs in the long run anyway. Yet Covid-19 unexpectedly led to thousands of minimum wage workers being laid over a few months and presumably exacerbating the incentives for companies to include more automation.
Those workers could return for $18.90 an hour if the economy picks up, but how many had a job because the health of the wider economy allowed their employer to take a punt on them and may look to machines instead? More crucially, how long will it take for them to find another job?
One answer to this question might be found in Australia. During a recession in the early 1980s, its Department of Treasury shows the proportion of employed males fell by 7 per cent. By the 2008 GFC, despite a 16-year economic expansion, the proportion of males with a job had risen to only a little above that point back in the 1980s. Employment for females was slightly better over this same period, but only slightly.
New Zealand's real unemployment figures for the second quarter of 2020 will not arrive until mid-September. It will not be pretty. Maybe they can find new jobs, but what if they can't? The economy can absorb perhaps 10 per cent employment, at a stretch, but how much more? Are there other ways to cope?
One way the government could soak up the newly unemployed might be to relabel some as university students, into "shovel ready" work or encourage them to go overseas. Also, being "underemployed" helps to dampen the worst figures, although the absolute number of this cohort has remained between 3-5 per cent of the total workforce for a decade.
But relabelling the unemployed into different boxes won't be enough. Instead, some notable Kiwi economists and politicians are suggesting something like a universal basic income (UBI) as a response.
A UBI has been around for a while and it has advantages and disadvantages, both of which have been canvassed by economists like Kevin Milligan and Eric Crampton over the years. But ultimately, the government can't really hand out money directly to unemployed people. That would infuriate the working public and risk New Zealand's credit worthiness dropping from AA to perhaps C.
Yet the question is not whether the unemployed should be paid, the question is: what is the minimum monthly income any person needs to stop them from rioting? Social stability is when those who cannot work have food and stay out of trouble so that the employed can get on with their lives. It appears Kiwis have decided maintaining this equilibrium should include printing more money and extending the safety net for the unemployed for a bit further.
Fine, but since automation technology will keep getting better, Kiwis seem to be betting on a vague hope about automation that the Productivity Commission is correct when it says this time is not different. Yet a lot of people have suddenly become unemployed in the tourism sector, for instance, who may not easily transition to more complex jobs.
New Zealand's tourism industry a few months ago supported 7.5 per cent of the country's workforce, or about 188,000 people. Skills like pouring coffee or changing beds will always be needed – until the robots come for them too – but how many ex-tourism workers can be soaked up elsewhere? And how long might it take to do this? That's surely keeping the government up at night.
The Productivity Commission says new technology always brings with it fresh jobs, but also notes a lag as people retrain for new jobs. Before Covid, that lag was spread out and mostly manageable. The enormous loss of the tourism sector is just one example of how tough it will now be to walk the tightrope of managing the economy.
The Australian experience suggests it may take years for the worst-hit group of Kiwis to return to anything like full employment – and for some it might take decades. Australia's strict labour laws contributed to its delay, so part of New Zealand's solution must be to increase workplace flexibility so companies can pivot their employees to new roles as and where needed.
But this is now a balancing act. The elected Government must ensure an expanding number of unemployed people stay connected to society through some type of income while not hurting their incentive to plug back into the economy should they wish.
And it must do this without infuriating the employed folk who see their taxpayer money flowing to unproductive people and avoid them sparking the thought: "hey, why am I working so hard when I can just claim for … scheme?"
Studies show they may not think like this at all, but those studies measured whether people would quit their job for UBI if the money came from somewhere else, not from the local population. The fact remains it is simply not clear how much work will get done if people suspect they can get enough money for a basic life by borrowing from their kids' future. Contagious thoughts like these are a real threat to a recovery.
Running a government even in normal times is a bit like riding a unicycle on a tightrope. A crisis like Covid-19 makes it much more challenging because the soft juggling balls have been swapped for chainsaws.
- Nathan Smith is the chief editor of The New Zealand Initiative.
