Statistics show act was the real deal

By SIMON CARLAW

Several political parties signalled last year that they would repeal the Employment Contracts Act if elected.

The issue became significant in the lead-up to the election since it demonstrated a clear difference between the policies of the Government of the time and those of other parties.

Since then, each side to the debate has rallied its supporters. "Facts and figures" have been produced and on occasions wholly emotive arguments have been presented. Much of the resulting heat has centred on such issues as employment, wage growth and productivity.

The Manufacturers Federation is not neutral on the issue. We support retaining the act, primarily because of the competitiveness it has delivered, which has in turn enabled producers of goods and services to survive in a small and fragile open economy on the edge of a global marketplace.

It is not, however, my intention to present the case for improving, not changing, an effective framework. Rather, it is important to establish facts on which an informed and reasoned debate can proceed.

The figures I draw on here are from Statistics New Zealand data.

A considerable amount of the argument has focused on whether the act has grown job numbers or whether it has led to greater unemployment. I would defy anyone to justify a simplistic yes or no answer to that question. Employment growth is a product of several interrelated factors such as monetary and fiscal policy settings and broader economic reforms, rather than any one particular factor, such as the act.

Facts show that between the end of 1991 (after the act became law as opposed to when the National Government took office towards the end of 1990) and the end of 1999, total employment grew by 21.8 per cent. Full-time employment grew by 19.4 per cent and part-time employment grew by 30.7 per cent.

Between 1985 (when the Labour Force Survey was first introduced) and December 1991 (just after the act became law) total employment declined by 6.8 per cent. Over the same period full-time employment declined by 12 per cent and part-time employment increased 19.6 per cent.

The economic climate helped job growth after 1991. Equally, before 1991 full-time employment was on the decline, while part-time employment increased significantly.

The reverse side of the coin cannot show that the act contributed to a rise in unemployment or a shrinking of the workforce.

Between 1985 and 1991, unemployment rose by a staggering 186.3 per cent. Between 1991 and 1999 it declined by 42.4 per cent. This was achieved along with an increase in the participation rate (the percentage of the working-age population in employment) and despite a growth in the working-age population.

It has been suggested the act has led to a decline in the quality of employment.

The same statistics suggest otherwise. The greatest growth in part-time work occurred over the period from 1985 to 1991, not after the introduction of the act.

The growth in this area since 1991 can be attributed at least in part to the higher number of students staying at school or beginning tertiary studies. Surely this is desirable?

Some say the act has enabled a fall in real wages - it has not. Overall nominal wage growth has matched the growth in consumer price inflation over the period the act has been in force. The statistics used to measure wage growth record the pre-tax rate and therefore neither reflect the positive impact on take-home pay of changes in effective tax rates over this period, nor the impact of the 1995 and 1998 tax cuts.

What we have seen is wage differentiation between the skilled and unskilled. This is not due to the act. It reflects a greater demand for those with specific skills, and the real issue perhaps is how to increase skill levels in the work force.

Has New Zealand's productivity declined compared to that of Australia as a result of the act? Again, it is simplistic to attribute a lack of productivity to one piece of legislation. Monetary policy, the broader economic reforms and improved competitiveness also have an impact.

Also, productivity data quoted in the media is flawed for a number of reasons. The data is unable to reflect the major restructuring which has taken place in the manufacturing sector as import protection has been stripped away.

A further factor that has distorted productivity figures for the 1990s is growth in activity such as marketing. Such activity is labour-intensive, and reduces productivity statistics, but it also creates employment and increases our global competitiveness. These factors have served to under-represent the true level of productivity by at least 1 per cent a year.

Using the measures of employment and competitiveness, Australia fares much worse, with its higher unemployment rate and a comparatively poorer performing manufacturing sector.

The figures speak for themselves. The act is not the bogyman some would have us believe.

Nor, for that matter, is it possible to lay the economic successes of the 1990s at the door of the act alone.

On balance, it needs to be seen as a critical element of a broad package of economic measures which have led to increased employment and greater competitiveness.

It follows that the legislation intended to replace the act must be judged on its ability to make a similar, if not significantly greater contribution in these areas.

* Simon Carlaw is the chief executive of the Manufacturers Federation.