Wages, exports, and employment

Press, 17 July 1978, Page 12

Wages, exports, and employment

The 6.6 per cent increase in wages shown in the Labour Department's sixmonthly survey in April brings the annual increase to 11.9 per cent. This increase has been in a year during which the surveyed labour force fell 1.1 per cent and unemployment rose fourfold. Wages have doubled in the last six years: prices have more than doubled. Wage rates, before tax, barely matched price rises: wages, after tax has been paid, have fallen behind price rises. The “effective wage index” shows how the purchasing power of wages has been modified by price changes: wage rates are deflated by the cost-of-living index. The effective wage index rose from 974 in June, 1971, to a peak of 1120 in September, 1974, and then began to decline. It went down to 1000 in December. 1977. The March, 1978, figure will be within a few points of 1000, and later figures in this Index wilt reflect this month’s general wage order. The fact that New Zealand’s terms of trade have been depressed for the last five years is distinctly relevant to what has been happening to earnings. The ratio of export prices to import prices has been measured on an index for which the base year was 1957. The connection between the prices for given quantities of imports and exports was rated at 100 points. By June, 1973, when export prices were high in relation to import prices, the index rose to a peak of 124. Since then the index has been as low as 69 (in December, 1975) and by the end of last year had recovered to only 73. In round terms, a typical shipment of New Zealand exports now buys only about three-quarters of the

quantity of imports that the same exports bought in 1957. That year, in the recent history of prices for exports and imports, was a fairly average year and was a reasonable base for comparing the changes. The general wage level in New Zealand is bound to reflect the country’s trading fortunes: high wages may be paid in the face of falling export prices and rising import prices; but they will be paid at the expense of employment, or inflation, or both. Devaluation of New Zealand’s currency would redress the effects of the terms of trade, our exports would be cheaper and more competitive on overseas markets and our exporters would receive more New Zealand dollars even for the same volume of business. Much of the extra money would, of course, be needed to pay for imports at new and higher prices after devaluation. Local manufacturers might receive a boost, but the importance of their higher bills for imported materials and parts, and of the heavier charges for overseas borrowing cannot be discounted.

If devaluation is to be avoided in the coming months, no improvement in real wages can be expected unless New Zealand enjoys some unexpected improvement in export prices. The fairness of the general wage order to people on low incomes is obvious; further increases in wages, however, must be reflected in renewed cost increases or higher Unemployment. Better times will come from better prices for exports, from an increase in exporting, and from higher productivity in New Zealand. They will not come simply from financial adjustment.