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No.172 13 September 2002 Essential Information on an Essential Issue

OUR DIARY
of key events over the last few weeks.

STEVE MAHAREY THE NEXT THREE YEARS

BRIEFING PAPERS FOR THE GOVERNMENT

OVERHAULING THE WELFARE SYSTEM

SKILLS SHORTAGES RESTRAINING THE ECONOMY



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Key

22 August 2002

Over the past 27 months, the US stock markets have lost about $US5.5 trillion, nearly three times the annual expense budget of the US government, according to The Christian Science Monitor.

Treasury Secretary Alan Bollard is appointed as the new Governor of the Reserve Bank of NZ. The government says it will negotiate a new inflation policy agreement with the bank that will probably be more in line with the Australian central bank, which has a 2% - 3% inflation rate target.

Retiring director-general of the World Trade Organisation Mike Moore says that trade restrictions by rich countries, especially on agricultural products, are holding poor countries in poverty. Moore says that having exploited developing countries for generations, rich countries now keep the products of developing countries out of their markets, betraying the principles of free trade.

23 August 2002

NZ Dairy Foods says job losses are inevitable as it merges its food and beverage divisions.

25 August 2002

Community Trusts next year will be reducing the amount of money they allocate to sports groups, charitable trusts, the arts, and schools. The Trusts have seen their foreign invested asset bases erode over the past year due to falls in international stock markets.

Minister of Finance Michael Cullen is dismissive of lowering the corporate tax rate as a driver of domestic growth. While he agrees that the measure would increase company profits, he points out that most NZ companies withdraw their profits rather than reinvesting them in their businesses.

26 August 2002

The UN organised World Summit on Sustainable Development, also known as the East Summit, begins in Johannesburg. It is attended by over 70 heads of state and representatives of 182 nations as well as corporations and non-governmental organisations. South African president Thabo Mbeki calls for an end to "global apartheid" which he characterised as islands of wealth surrounded by a sea of poverty.

28 August 2002

Treasury Briefing Papers say the government should focus on increasing business productivity by investing in research infrastructure and improving connections to overseas markets. The papers say there is little scope for change in monetary or fiscal policy, nor is there room for significant new spending or tax cuts in the next three years. The papers say that for NZ to achieve 4% growth, worker productivity would have to increase 2%. However, over the last seven-year cycle, worker productivity averaged just 0.8% annual growth.

Developing nations at the Earth Summit call on rich nations to scrap farm subsidies and eliminate tariffs that exacerbate hunger and hamper trade from Africa and Asia. A World Bank official notes that the average cow in the US and Europe is supported by three times the level of money as a poor person in Africa.

29 August 2002

An initial sample of the 15,600 cases in which Winz used the wrong criteria to determine eligibility for a benefit found that 7% of them need further investigation. The Dominion Post estimates that at this rate the government may have to reimburse up to $25.2 million to people who were wrongly denied a benefit between November 1996 and December 2000.

A National Bank survey finds that business confidence has fallen for the fifth consecutive month. 31% of business managers expect the general business climate to deteriorate next year.

30 August 2002

Advocacy groups criticise Winz for asking the 15,600 people who had their benefits cut to make a claim by the 15th of December. Tina McIvor of the Wellington People's Centre says it took the government six years to acknowledge their failure but is only giving people four months to respond. tv

The sacking of 381 Carter Holt Harvey maintenance workers at the Kinleith pulp and paper mill is on hold after an Employment Court judge tells the company it had to seriously consider alternative proposals by employees and their unions. The judge ruled the company had not consulted in good faith as it put into action plans to restructure the maintenance aspect of the mill.

In Hong Kong, where the unemployment rate is 7.8%, a new TV game show "Win A Job" is being screened. Contestants compete with on another to "win" a job. A similar programme is screening in Argentina called "Human Resources".

1 September 2002

At the Earth Summit a peaceful demonstration of about 10,000 people march toward the venue singing anti-apartheid songs and carrying banner criticising capitalism, farm subsidies and GM foods. NZ PM Helen Clark arrives and will attend the conference for three days.

2 September 2002

35 jobs are to be created at a new sawmill in the Coromandel at the partly Malaysian-owned Blue Mountain Timber company.

3 September 2002

The new Associate Minister of Energy Harry Duynhoven says the $37 million investment in the GRD Macraes' gold mine on the West Coast, creating 80 direct jobs and 120 indirect jobs, was "good news in anybody's language". The mine has a seven to nine year life span.

The NZ Minerals Industry Association calls for improved mining access to private land and to low-value conservation land. An NZ Institute of Economic Research report says that increasing the amount of land in NZ used for mining by seven-fold could create 22,000 jobs and contribute as much as 2% to GDP, primarily to the mining industry.

The Earth Summit has reached agreements and set targets on all issues except boosting renewable energy sources. Oil exporting countries and the US and Japan insist on including the promotion of fossil fuels and nuclear power in the final document. The World Wildlife Federation, Oxfam and Greenpeace are appalled and issue a joint statement: "The Johannesburg World Summit will go down in history as a missed opportunity to deliver energy to the 2 billion people with no access to energy, and as a failure to kick-start the renewable energy revolution that is require to protect the climate."

4 September 2002

The US unemployment rate drops to 5.7%.

US Secretary of State Colin Powell is jeered at the Earth Summit as he claims the Kyoto emission restrictions were too costly for the US to implement. Powell also criticises Zambia for not accepting GM grain to ease its famine.

5 September 2002

The Social Security (Working Towards Employment) Amendment Bill is the first piece of legislation presented by the new government. The Bill eliminates work-testing of people on the Domestic Purposes Benefit in favour of a case-management system. United Future says it will support the bill although leader Peter Dunne opposed it when it was introduced last year.

ACT Social Welfare spokesperson Muriel Newman says the Working Towards Employment Bill is a flawed piece of anti-family legislation that will see further disintegration of the family unit. National deputy leader Roger Sowry says legislating against work-testing deprives young parents of the aspiration and opportunity to work and educate themselves so that they and their children can have a better shot at success.

The Earth Summit ends.

7 September 2002

Fonterra, NZ's largest company is accused of draining South Taranaki of its trades people. Communities are facing shortages of trades people and locals put it down to Fonterra offering starting pay packages of $45,000-$50,000 luring people away from their trades to become plant operators. Local businessman Andrew Lloyd says the company seemed to be looking for trades people not to utilise their trade skills but because they had a good work ethic.

8 September 2002

The Fabia shoe factory in Te Kuiti is to close with the loss of 50 jobs.

There are now 2,045 people on the artists-on-the-dole scheme.

The Inland Revenue Department is doing a feasibility study on allowing students and non-custodial parents to pay their debts through their credit card. Spokesperson Colin MacDonald says this would make it easier for people with student loans who are overseas to make repayments.


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MINISTRY CALLS FOR AN OVERHAUL OF BENEFIT SYSTEM

  • The Ministry of Social Policy is calling for an overhaul of the Benefit System. In its post-election Briefing Papers to the Minister of Social Services and Employment, the Ministry says that New Zealand's social assistance system is to "complex, confusing and difficult to administer and it needs to be simplified". The Ministry advocates a more "active" social service system that should be as much about social investment as about social protection. The system should not only provide people with enough money to live on, but also helping them "towards a better life by supporting them into well paid and stable work."

    In the Briefing Papers, the Ministry also says:

    — Too many New Zealand low-income families do not have enough money to meet everyday basic needs and rely heavily on discretionary hardship assistance on top of their benefits or wages.

    — Many working people on low incomes are not getting the financial help they are entitled to from the social assistance and tax systems. Some who do receive help find that the amount is not enough. Many New Zealanders who are eligible for tax credits, the Community Services Card, Accommodation Supplement or Disability Allowance are not receiving this assistance.

    — We need to remove or reduce the disincentives and barriers that people face when they go off benefit and into work. Too many people are not better off from working once they have covered childcare and transport costs. We need to make work pay.

    — Encouraging people on benefits into education and training is vital if people's wellbeing is to be improved and New Zealand is to meet the demands of the labour market in the future. We need to do more to help young people with the transition from school into work or other opportunities.

    — Work and Income case managers spend too much time on income support administration. They need to be freed up to focus on clients' employment outcomes and to take a wider view of their wellbeing.

  • The Briefing Papers provide a snapshot of New Zealand's social status: one in four (26%) New Zealand children and one in six (16.5%) working age New Zealanders are dependent on a benefit. This is a level that has remained about the same for the past 10 years.

    The Ministry proposes a list of ten priorities for "social investment" activities (see below). Top of this list is the need to address child poverty — acknowledging that more children in New Zealand live in poverty now than in the 1980s. Depending on the measure used (which is an issue of ongoing debate), between 6%— 29% of New Zealand children (63,000 to 285,000) are living in poverty.

    Also high on the Ministry of Social Development's priorities is "ensuring that young people are active in employment and post-compulsory education". Latest figures: about 14% of young people aged 16 — 21 yrs are reported to have spent between two and five years neither in employment nor education.

  • The Briefing Papers show that older New Zealanders are faring better than the rest of the population. "A minority, 7 per cent, of older people face some hardship but this proportion is considerably lower than that for other age groups."

    With the cost of New Zealand Superannuation now consuming 40% of welfare spending and 14% of total government expenditure, the Ministry cautions the government against spending more on older people. It says that young people are the more urgent need, but concedes that they traditionally lack political clout. "We have a window of opportunity to make progress before the full effect of an aging population starts to bite from 2010 onwards..."

  • The Ministry also reports that more people are relying on discretionary hardship assistance. The number of Special Needs Grants has increased 16% in the two years to December 2001, while main benefit numbers were falling. "Administration of this assistance takes up a lot of staff time that could be better used in helping people to find work." The Ministry estimates that Work and Income staff spend 70% of their time on income support administration, and only 30% of their time focussing on employment case management.

    "Improving Wellbeing for all New Zealanders" Briefing to the Incoming Minister from Ministry of Social Development, September 2002, available from the Beehive website at www.beehive.govt.nz/Documents/Files/ACF56.pdf

    Sources — "Improving wellbeing for all New Zealanders" — Briefing to the Incoming Minister from Ministry of Social Development 8 September 2002; Sunday Star-Times 8 September 2002 "Children most at risk of poverty" by Nicholas Mailing; The Dominion 9 September 2002 "Ministry calls for benefit overhaul" by Tracy Watkins; New Zealand Herald 8 September 2002 "Child Poverty top of Maharey's list" and "The Ministry of Social Development's priority card (edited)" by Audrey Young.

    SOCIAL INVESTMENT
    — THE MINISTRY OF SOCIAL DEVELOPMENT'S TOP TEN PRIORITIES

  • Reduce early childhood poverty.
    Child poverty has increased. About 150,000 children under five are affected by low income. A proportion of these will be in persistent poverty.

  • Improve child health.
    ... especially for Maori and Pacific people.

  • Improve the performance of low achievers in compulsory education.
    About 10,000 secondary school students leave every year with no qualifications. This has not improved much in the last decade.

  • Improve outcomes for children and young people with multiple problems, particularly youth offenders.
    Between 25,000 and 50,000 under-18-year-olds fall into a high-risk multiple-problem category, including poor mental health, poor education, substance abuse and crime. These young people create high costs for themselves and others throughout their lives.

  • Ensure young people are active in employment and post-compulsory education.
    About 14% of those aged between 16 and 21 are reported to have spent between two and five years neither in employment nor education. Our youth labour market has deteriorated relative to others.

  • Reduce geographic concentrations of disadvantage.
    The most disadvantaged regions are Northland, Eastern Bay of Plenty, Gisborne and the East Cape. The majority of disadvantaged people, however, live in Auckland.

  • Improve bad housing for families with children.
    In 2001, there were approximately 2,500 severely substandard dwellings in Northland, East Cape and the Eastern Bay of Plenty. There may be more than twice this many in Auckland. Bad housing contributes to health problems for children, which then affects school readiness and education.

  • Improve transitions from long-term benefit receipt to sustainable work.
    Significant numbers of people have been on benefits more or less continuously for long periods (4.3% of the working-age population have been on benefits for longer than six years).

  • Reduce obesity and improve nutrition and exercise.
    More than half a million New Zealanders are obese, a major cause of heart problems and diabetes, and a major cost to the public health system.

  • Improve settlement of migrants and refugees.
    About 45,000 migrants and refugees arrive each year, with 60% settling in the Auckland region. New migrants and refugees have lower earnings and higher rates of unemployment. Poor settlement compromises the economic and social benefits from immigration and can put social cohesion at risk.

    From Briefing Papers to the Incoming Government, September 2002
  • SKILLS SHORTAGES ARE LIMITING THE CAPACITY OF ONE-IN-EIGHT BUSINESSES

  • Employers are continuing to find it difficult to find staff , according to figures released by the Labour Market Policy Group (LMPG). In their quarterly review of the labour market, LMPG reports that 39% of firms are finding it difficult to find the staff with the skills they need and 12% of businesses (the highest level since 1975) say that their lack of staff is the main factor limiting in their ability to expand.

    Geographically, the shortages are most acute in the South Island and the upper North Island. And by sectors, the shortages are being most felt by manufacturers, wholesale and retail merchants, builders, forestry, mining and healthcare.

    The LMPG says there are many reasons why the labour market is not adjusting to these shortages. These include:

    — employers and employees do not know exactly what skills are available or required by the labour market;

    — employers and employees have expectations that most jobs are based on a long-term view and so it takes a long time for adjustment when there has been a change in the demand for skills;

    — peoples' choice of occupation are based on a long-term view and when there are changes in demand for different skills, it takes a long time for the labour market to adjust;

    — both employers and employees adjust their expectations slowly about wage in response to labour market conditions;

    — skill shortages are only one of many relevant factors in determining wage and employment decisions;

    — on-going shocks, such as technological change or in the demographic of the population, may continually create or exacerbate skill imbalances.

    While there have been large increases in the labour force recently (due to a high participation rate and increased immigration) LMPG warns that the current labour shortage may be with us for some time to come. The demand for labour is expected to remain high and training programmes are unlikely to provide relief in the short term.

  • Minister of Social Services and Employment Steve Maharey says the level of labour shortage "is a consequence of a dynamic, healthy economy". He says that while shortages are a concern, they are symptomatic of a country transforming into a highly skilled economy. Maharey agrees that the government, business, unions, education and training providers all need to act in a co-ordinated fashion to ensure that skills shortages do not reduce NZ's productive capacity. He says the government is committed to working in partnership with the key players to improve the overall skill level in the workforce and to giving all NZ'ers the opportunity to train and retrain to meet changing skill needs.

  • Simon Carlaw, chief executive of Business NZ, is concerned that economic growth and standard of living targets will not be met if businesses cannot get the labour they need. He suspects the cause of the current labour shortage is a reflection of a couple of years of increased commodity activity, not a sign of any economic transformation.

    Carlaw suggests two short-term strategies:

    — allowing people who are in training to be exempted from being paid the minimum wage, thereby encouraging employers to hire them while they are training;

    — and opening the doors to more skilled immigrants.

    In the longer term, Carlaw says the government should reconsider where it places the emphasis in its education and training budgets. $90 million goes into industry training, but this is just 5% of the $1.7 billion that goes into institutional tertiary education. He recommends diverting some of those tertiary education funds into Industry Training Organisations and Private Training Establishments, and into secondary schools in order to lift literacy and numeracy and reduce the number of those leaving school without qualifications.

  • Paul Goulter, Secretary of the Council of Trade Unions, warns that we should not overlook the obvious: that 80% of the people who will be in the workforce in 2010 are the same ones who are in the workforce right now. A major task facing the country is reskilling our present workers and this needs to happen while they are working. He says this will mean a change in workplace culture that focuses on workplace learning. Goulter advises that now that job security has all but disappeared, we need to replace it with "employment security" — based on the valuing of an employee's skills and knowledge. He calls for a new social contract between employers and employees that sees employees able to obtain workplace education and training. And employers must learn to skilfully manage their employees to both truly utilise their knowledge and retain their services.

    Goulter's view is that NZ'ers are simply not paid enough to motivate them to be more productive. Goulter: "Much of the skills discussion in NZ misses this obvious point. We focus on all sorts of other issues around skills, but maybe pay levels are so low that there is little reason for people to want to acquire and use new skills."

  • The Employers and Manufacturers Association director George Gerard is also looking for ways through the skills shortage bottleneck. He believes that training on-the-job provides a faster turnaround than many institutional programmes and is ideal for the specific needs of many firms. The EMA is hosting a conference in October which hopes to bring a concerted focus onto accelerating skills development in the workplace. Developing the Skills for Growth: the EMA Workplace Learning Conference.
    Source — Labour Market Policy Group 22 August 2002 "Skills shortages — June 2002 quarter"; Press release Business NZ 30 August 2002 "Fixing skill shortages requires workplace training and immigration"; The Dominion Post 31 August 2002 "Skills shortages constrains growth" by James Weir; New Zealand Herald 2 September 2002 "Labour drought starves growth, alarms employers" by Kevin Taylor; Press release from the Employers and Manufacturers Association 2 September 2002 "Lack of skills inhibits growth; New Zealand Herald 3 September 2002 "Government working with industry" by Steve Maharey; New Zealand Herald 3 September 2002 "Central planning not the only remedy" by Simon Carlaw; New Zealand Herald 6 September 2002 "Time for workplace training, better pay" by Paul Goulter; the EMA office and website.

    MORE JOBS THAN WORKERS

  • Massey University professor Ray Winger says there are four jobs for every food technology student who graduates. He says that virtually every graduate the course has ever had had been offered a job before they graduated. Winger says that in recent months 15 recruitment companies had contacted him with vacancies both here and in Australia offering salaries of as much as $60,000.

  • Out on the farm, WestpacTrust economist Richard Sullivan says that the difficulty of attracting and keeping skilled rural workers is dragging the economy down. Sullivan says that the long-term drift of workers away from rural centres has been due to three things: the rural-urban wage gap, social opportunities in the urban centres, and the fact that most of the rewards of farming go to the owners of the land and stock.

    Sullivan worries that the average age of farmers is rising and they are failing to attract new people in. He says the high cost of getting into farming and the increased level of skills needed to farm appear to be going unnoticed and that farming will suffer if these issues are not addressed. Sullivan's view is that farmers need to boost farm wages and find innovative ways of sharing their wealth.

    Source — New Zealand Herald 02 September 2002 "Hunger for fresh graduates" by Phillippa Stevenson; The Dominion Post 6 September 2002 "Rural skills shortage `critical'" NZPA

    BRIEFING PAPERS TO THE INCOMING GOVERNMENT

    Treasury :
    www.beehive.govt.nz/Documents/Files/big02-grow.pdf

    Department of Labour:
    www.beehive.govt.nz/briefings/print/briefing_labour.pdf

    Ministry of Social Development:
    www.beehive.govt.nz/Documents/Files/ACF56.pdf

    Skill New Zealand:
    www.beehive.govt.nz/Documents/Files/Skill%20New%20Zealand%20post-election%20briefing.pdf

    Ministry of Economic Development and Industry NZ:
    www.med.govt.nz/about/bim2002/advancing-econ-dev/
    www.med.govt.nz/about/bim2002/eir-dev/
    www.industrynz.govt.nz/about-us/publications/_reports/Briefing-to-Incoming-Minister-2002.pdf

    Other Ministry Briefing papers ...
    www.beehive.govt.nz/briefings/index.cfm


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