Thursday, 7 November 2013

What a terrific outcome

Yesterday's employment and unemployment numbers were awesome, and defied even the most determined begrudgers to undermine them, though Radio New Zealand did its best by simply ignoring them in its 7.00am news bulletin this morning, preferring more important national items like the cost of insurance for maraes and Winston Peters' sniping at our chance of a Security Council seat at the UN.

The ever dependable Brian Fallow covered the data well at the Herald. His piece, 'Economic upswing flows into jobs', in particular pointed out that the unemployment rate fell, even as the participation rate rose. In other words, despite more people opting to join the labour force, there were more than enough new jobs to go round and still see the numbers unemployed going down.

Some critics like to say, "Aha! But this doesn't count the underemployed!", such as people working fewer hours than they ideally would have liked. That's right. But even on that score the latest numbers show things turning for the better: the underemployment rate, as opposed to the unemployment rate, dropped from 4.4% last September to 4.2% this September (you've got to use annual comparisons because the quarterly underemployment data aren't seasonally adjusted).

Another good outcome was what happened to the 'NEET' rate. This is mainly relevant to younger people, as it's the 'Not in Employment, Education or Training' rate (unemployment rates make less sense as a measure, as many young people tend not to be in the labour force in the first place). On that measure, which I rate as one of the more important social indicators, it's again all good. The NEET rate for all 15-24 year olds dropped to 11.4% in September, from 12.1% in June (it's seasonally adjusted, so the quarterly comparison is kosher), and is markedly down on the 13.4% of a year ago.

Despite all this good news, there's still been some attempt to have a beat-up on what looks like a lowish rise in pay. It's true that the 1.6% rise in what's called 'the labour cost index' over the past year isn't a huge rise. But that understates what's actually happened to folks' actual earnings.

The labour cost index is essentially what's happened to the rate of pay for a particular job. It doesn't include increases people might have got for working longer hours, or merit or performance bonuses, or the impact of promotions, or of people moving from one job to a better paying one. For that, you need to know what's happened to 'average ordinary time hourly earnings'. That's up by a more respectable 2.6% over the past year - not dancing in the streets material, I know, but still handily ahead of inflation over the past year (1.4%).

It doesn't usually get a lot of coverage, but there's also a table included in the labour market data that shows how we're faring by international comparison (using a standardised definition of unemployment). Here it is.

We're doing pretty reasonably, though not outstandingly, by OECD standards. There are 34 OECD members in this graph, and we rank 13th. I suspect we'll improve our ranking: I've highlighted Australia in green (5.8% on this basis), and it's pretty clear that we're going to overtake them, as consensus forecasts have the Aussie unemployment rate rising and ours falling.

Germany shows up to advantage, 7th in this group, with 5.2% unemployment. You might think this reflects well on how Germany's conducted its affairs (both at a business and policy level). You might be surprised, then, to discover that in recent weeks some of the blogosphere's heavyweights have climbed into Germany, essentially saying that they're exported their problems to the rest of the Eurozone. If you're interested, you could start with 'The real problem with German macroeconomic policy', or with Martin Wolf's critical piece in the FT, 'Germany is a weight on the world'.
Form your own views, but if the question is, should Germany be more like (say) France, or should France be more like Germany, I know which camp I'm in. Germany's got an efficient labour market, and France doesn't, and the social consequences of France's poor policy are enormous. 

Last month I read in the French business paper Les Echos about the latest annual survey put out by a French organisation that promotes the employment of younger people - '47 % des jeunes diplômés en 2012 sont sans emploi un an après', it said, '47% of young graduates in 2012 are without a job a year later'. And of the 53% that were employed, 30% were on short-term contracts, because of the employment 'protection' legislation that makes employers reluctant to take on full-time permanent staff. 

'Structural reform of the labour market' isn't exactly a snappy electioneering phrase, but in France's case it would go a long way to tackling appalling levels of youth unemployment and making proper use of the talents of its qualified young people.


  1. Re: Germany, I loved this tweet by @Pawelmorski a few days ago:
    "Problem with Germany is not mercantilism but that they get to play bailiff when their lending goes sour."

  2. Thanks for the comment. I tend to agree - Germany's got a fair few things right on its own patch, but it could certainly do a bit more to help others on theirs. There is the odd debtor that needs firmer handling (no funds except against agreed reform milestones probably makes sense for Greece), but Germany was even holding out for penal market rates for Ireland, which makes no sense at all (i should declare an interest here, I'm Irish by background...)

  3. Yes, it normally makes everything a lot worse if you hesitate, charge a risk premium, And take Preferred Creditor status. Way to give private creditors the torschlusspanik!

    I worry about the number of Irish households who are going to be on effectively 100% marginal tax rates from now till forever---no wonder recessions following financial crises are often followed by lost decades. Reforming bankruptcy law in favour of the creditor during a recession is pretty much the worst thing you can do under any theory of contracts with aggregate risk. As Acemoglu might say, Irish institutions have just become a bit more 'extractive'.


Hi - sorry about the Captcha step for real people like yourself commenting, it's to baffle the bots