Friday 20 December 2019

Beneath the calm surface

The Productivity Commission's been working on 'Technological change and the future of work'. Last month it came out with the second report, 'Employment, labour markets and income', in what will be a five-part series (press release here, whole thing here). The big headline takeaway was that it might be well worth looking at systems like Denmark's 'flexicurity', where people's incomes are supported through employment volatility. The idea is that the labour market needs to be able to be flexible, and jobs will come and go, but people's incomes will be cushioned against the volatility through, for example, an employment insurance scheme. All very sensible.

Along the way Chapter 4 looks at the case for 'active' labour market policies, things like retraining to help people find new jobs. The Commission is somewhere between agnostic and outright sceptical about their value: "There is a large gap between good intent and robust evaluation of the effectiveness of labour-market programmes. Few programmes are subject to robust evaluation.  Of labour-market programmes, ALMPs ['active' ones] have received more evaluation effort. The results of those evaluations are not encouraging (p78) ... Overall, the Commission cannot say whether New Zealand’s labour-market programmes are effective or not" (p80).

The Commission may have missed the latest bit of evidence, which I wrote about in 'Let's get more active', and which was more upbeat about their potential. It found that two kinds of programme appeared to be effective (wage subsidies and helping people to go out on their own as self-employed), vocational training wasn't too bad an option, but brokering services (helping match job seekers and recruiters) were a waste of space. So if I were the Commission I think I'd be taking a modestly more constructive view of the potential to make the labour market work better, particularly as it's a vital economic issue.

For one thing, governments in many countries (though not Denmark, obvs) have been failing to live up to the social compact underpinning an open, flexible, market-based economy. The core bargain is that the national gains from openness will create enough income for the winners to be able to compensate the inevitable losers and still come out ahead. But the redistribution to the losers hasn't been happening, and the resulting resentment in the world's Rust Belts is feeding tear-up-the-old-rules populists everywhere.

For another, virtually nobody outside the economics trade (and not always inside it, either) realises just how vast the flows in and out of the labour market actually are. We learn from Stats, for example, that total employment went up by 16,000 in the June quarter, and by 6,000 in the September quarter. That doesn't look like a lot of movement.

But what is actually happening is that huge numbers of people change jobs, get fired, and get hired each quarter. The 6,000 in the September quarter is the small net effect of enormous gross flows in, out, and between.

In recent years, roughly 155,000 new jobs are created each quarter, which has happily been ahead of the 145,000 or so jobs that have gone bung in the quarter. The 10,000 or so increase in employment in each quarter is the outcome of very large gross flows indeed. The data, by the way, come from Stats' Linked Employer-Employee Dataset ('LEED'), which you can play with yourself for free on NZ.Stat. I've done rolling four-quarter averages to take out the pronounced seasonality.

And the big levels of job creation and job destruction are only part of the wider ferment in the labour market. People are moving around from one job to the next in very large numbers. A bit over 350,000 people each quarter change seats.

Are we out on a market-turmoil limb here? Not at all. In the States, for example, the increase in jobs in any given month is around 200,000: in December it was 266,000, which was thought of as quite a large increase at this late stage of the long U.S. expansion. But that is absolutely tiny compared to the gross flows. According to the U.S. JOLTS data, which show us the underlying gross flows, in the month of October alone (the latest to hand), 3.5 million people voluntarily quit their job in the month. Another 1.75 million were laid off or fired. Employers hired 5.75 million people. In one - one - month.

Bottom line. There are two reasons we ought to be helping people a lot more to cope. One is that moral compact: for both efficiency and equity reasons, we need to have a dynamic but not painful labour market. And the other - acknowledging that a fair amount of it is entirely voluntary, with people quitting (especially in good times) to do better for themselves in a new job - there's far more turnover in the labour market than you likely thought. Flexicurity, and 'active' labour market programmes, aren't just for the unlucky few in the meat processing factories: they're for all of us.


  1. A year or so ago I google-searched for some current-comment from some micro-economic opinions on NZ performances - but to no avail - at least I couldn't find any. The SERPs Search page results produced a proliferation of macro sites. Thus I discovered your site here. Have followed for the last few months. Other sites tend to hide behind graphs that have been averaged and smoothed and deal in totals

    I have a long-ago newspaper background wherein columnists and reporters were required to provide both sides of the topic, thus encouraging the reader to make up their own mind based on the quality of the treatise. That is not so these days. Its all opinion.

    In the interests of balance - Do you know of any quality micro-economics sites that deal with componentry of which you write.

    1. Thanks for following! As you'll have found it's mostly competition and regulation, but also economics more generally (fiscal policy, monetary policy, labour market, productivity), from what I like to think of as a socially liberal and market-friendly perspective.

      Other micro-focussed NZ sites? Tough one. If you're on Twitter you could try having a look at the Twitter feeds I follow (I'm on Twitter as @donal_curtin). You'll have to wade through a variety of other stuff (Latin, WW1 etc) but there may be people there who you might be interested in.

      Yes, there a certainly some very opinionated and partisan people out there. For balance I follow some people eg on Twitter who are not my cup of tea but are nonetheless making a respectable go at engaging (politely!) in the debate.

  2. With regard to NZ Stats and employment ... and the Productivity commission ... and IRD

    In May 2018 the IRD started a pilot program for Payday Filing ... then went live in April 2019 ... which means somewhere in the IRD system the information is there to determine on a week-by-week basis the total number of people being paid if not necessarily employed, the hourly rates, the number of people who have commenced with a new employer and the number who have not worked or not been paid. (in other words have discontinued employment)

    All this is available at the press of a button - big-data is here now - and need no longer rely on NZ Stats surveys and extrapolations

    I don't believe half of what comes out of NZ Stats

    1. Thanks for the comment and apologies for slow reply, NZ over Christmas etc...

      Hear what you say about using big data, it's the way to go. To be fair Stats have been doing quite a bit of this - the CPI for example is now based on prices that were being collected already by a market research firm - and I have a vague memory (from when I was on a Stats advisory committee) that Stats may actually be doing more than other national statistical agencies. It certainly has the potential to be quicker, cheaper and (as you say) more complete than surveys with their sampling errors. Not always a walk in the park using data originally collected for other purposes, but it's got a lot of promise.

      I wouldn't go as far myself as not believing what comes out of Stats. What comes out is good and reliable. But it's not as complete or as timely as some of us would prefer (or need), esp when it comes to analysis of the business cycle when eg GDP arrives four months later (a problem with other stats agencies, too). The LEED data is also well behind the state of play (and maybe your IRD data would indeed be a lot more timely). You can see why there's a high demand for eg private sector surveys of business activity.

  3. Thanks for the link to NZ Stats LEED data. Fascinating. I have spent some time trawling through the tables. Can I make a few comments?

    The quarterly data tables were last updated in September 2018. Nothing yet for 2019
    The total population of NZ is 4,900,000. The quarterly filled jobs are 2,100,000 for each quarter so I guess the filled jobs number is a continuing figure that flexes and is absolute.

    The quarterly lob creation number of 350,000 each quarter sums up to 1,468,000 over the last 4 quarters. Which means, on one view, on a flow basis, 70% of all jobs are turned over annually. Not possible. Of course it could also mean that it is the same 350,000 each quarter.

    I suspect it is a rolling number that flexes. The NZ Stats presentation is doubtful without any explanation of how it is compiled, where it comes from, and what it means. Otherwise it is simply another macro number.

    Based on Immigration NZ data which is collated by MBIE, there were 466,113 people on migrant, residency and work visas in this country at the end of August 2019

    Most of the creation and destruction of jobs are in the following 3 sectors with a turnover of 30%. All the other industrial sectors are at or around 10% thus the averaging process including these 3 sectors bring the job loss up to 14%
    Agriculture, Accommodation+Food Services, Admin+Support Services

    Started to go through the Productivity Report. I Gave up after a while when I ran into the jargon and buzz-words that I had to pause and look up. Never heard of before. ie Mediated Platforms. Really.

    The topic I was looking for was "mobility of labour" particularly in Auckland. I suspect that 400,000 work visas coupled with the effect of extremely high rental prices (in Auckland) and the impact of work visas in the hospitality industry crowding into the Auckland market.

    Talking about Auckland ... there is a direct relationship between where you live and where you can find a job that pays enough to make it economically worthwhile making the journey each day. Someone living in Laingholm Southwest of Titirangi would have to think long and hard about taking a job in East Tamaki

    NZ Herald - Rangitoto announces it is forced to build teacher housing on campus canibalising school sports fields
    Rangitoto College build subsidised housing for teachers

    And now
    NZ Herald reveals Rangitoto College to provide subsidised accommodation to migrant teachers to get them here and then get them to stay here
    Rangitoto College - Subsidising rents for new teachers from overseas

    1. Thanks for the further comment. I'm away on holidays at the moment but I'll look into that apparently very high turnover rate when I get back. While it is the case that labour market turnover is higher than people usually think, you're right to ask about the apparent 70% level. I'll kick the tyres at the end of the month.


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