For the convenience of subscribers, here's my weekend column in which I say this week's jobs figures may look fantastic, but they disguise flat real GDP per hour worked and an essentially stagnant economy where renters, the young and the unemployed have missed out.
So what was the point of economic and jobs growth again?
It's worth asking this obvious question after this week's apparently stonkingly strong set of jobs figures. They showed an extra 35,000 jobs were created over the September quarter and that employment has grown 179,000 or 7.7% over the last two years. The unemployment rate also fell to 4.9% in the September quarter, which is its lowest rate since the Global Financial Crisis in December 2008 and down from 5.2% two years ago.
Those numbers looks terrific at first blush and are certainly much better than jobs falling by 179,000 and the unemployment rate rising. But a closer look shows the number of unemployed actually rose by 1,000 to 128,000 over that two year period and the number of 15-24 year olds who were Not in Employment, Education or Training (NEET) rose by 3,000 to 74,000. The NEET rate is actually unchanged at 11.1% over the last two years. The under-utilisation rate, which includes those people in part time jobs who want more work, fell in the September quarter to 12.2% from 12.7% in the June quarter, but is unchanged from two years ago.
The picture is no better for wages. Average ordinary time hourly earnings growth fell to an annual rate of 1.7% in the September quarter from 2.1% the previous quarter and is down from 2.3% two years ago. The Government's comment that real wage growth is strong because inflation is 0.2% ring hollow too, because inflation is set to jump back to 1% in the December quarter.
New Zealand's economy has thrown up an apparently bizarre mix of very strong jobs growth with virtually no fall in the various unemployment rates and a fall in wage inflation. It seems to make no sense. How can an economy be growing strongly at 3.5%-plus and not be heating up wage inflation or lowering unemployment?
The simple answer is that almost all that jobs growth over the last two years was soaked up by net migration of 131,188 and an increase of 28,200 in the number of people over the age of 65 who are working. That also helped soak up some of the heat from a strongly growing economy to avoid any break out in wage inflation. The last time the economy was growing employment this strongly was in the 2005-07 period when unemployment got down to 3.3% and wage growth was well over 5%. Astonishingly, even construction industry annual wage inflation was barely over 2% in the September quarter.
All these numbers should drag everyone back to the ultimate conclusion: it's always, always about productivity. Before anyone goes to sleep at the mention of the word productivity, it's worth knowing that productivity is all about output per person per hour, and that's what drives real wages. Real hourly wages are what really matters in any economy. They ultimately determine how rich any economy or household is in terms of income.
"Productivity isn’t everything, but in the long run it is almost everything," Nobel Prize-winning economist Paul Krugman wrote in 1994. "A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker," he said then.
On this measure, New Zealand's record is awful, and especially since 2012. Real GDP per hour worked has basically flat-lined over the last four years. We have managed to grow by importing more workers and working more hours per person. Our record is almost as bad over the last 45 years. We have been the second worst country in the OECD for real GDP per hour worked over that period. Worse than Italy, Portugal and France -- all of whom are now seen as basket-case, stagnant economies. Our relative underperformance over that period explains all of the 30% plus gap that has opened up between wages in New Zealand and Australia.
So why the self-congratulation about the current burst of GDP and jobs growth? Basically, we have kidded ourselves that we are richer because there are so many hours being worked by so many people and house values have almost doubled in the last 8 years. The rise in value of New Zealand's houses to NZ$1 trillion last month has made home owners feel much richer. These values have nothing to do with real incomes. They are all about high net migration, under-building and lower interest rates.
Renters, the young, the unemployed and the under-employed certainly don't feel the joy of this burst of growth. A much better aim for any Government or business would be to increase real output per hour worked and real hourly wages.
That would really be going for growth, as opposed to the growth we're kidding ourselves about at the moment.