The Working Poor – New Zealand’s Big Issue

A new phrase has entered New Zealand’s vocab in recent times: ‘working poor’. It’s pretty much what it says on the box. Although 95.5 percent of New Zealanders are working full-time and earning a wage, they’re still struggling to survive.

Why is this happening?

Figuring first and foremost in this complex issue is the lack of decently paid, skilled work in New Zealand. It’s a sad fact that wages in New Zealand are atrocious. According to countryeconomy.com the average wage in Australia during 2017 was A$64,022 versus a rather pathetic NZ$39,080 in Aotearoa.

The good news is that New Zealand has minimum wage laws. So, employees in New Zealand must be paid at least the minimum hourly wage rate (which is currently $16.50 per hour, set annually by the government). Being paid less than the minimum wage is illegal if you are a full or part-time employee. It doesn’t, however, apply to contractors.

The not-so-good news is that the cost of living in New Zealand is insane and continues to outpace the earnings of many New Zealanders. How has this come to be?

On the wage side of things, successive employment law reforms and the erosion of unions in New Zealand have shifted power away from workers. This is illustrated by Department of Statistics NZ data. It shows that a significant number of employed Kiwis had no written employment agreement in 2016. Just as telling is the fact that when employed Kiwis without employment agreements are split out by occupation, unskilled roles are over-represented.

Another measure is the sharp decline of industrial action. In 1988, the number of work days lost to industrial activity was 381,710. By 2014 this had slumped to just 1,448 working days. While employers are congratulating themselves on this feat, the harsh reality is that the checks and balances to ensure working Kiwis get a fair deal barely exist. Interestingly, in Australia, the Fair Work Act 2009 is there to do just that – could it be partly why wages are better in Australia?

While most New Zealand employers are ethical, and many try their best to give their staff a fair go, the reality is that many skilled roles are no longer based in New Zealand having moved offshore to Sydney, Melbourne, Singapore and Hong Kong. According to the NZ Dept of statistics, there were a whopping 528,168 businesses in NZ with foreign equity in 2017. These businesses employ a staggering 2,161,300 Kiwis. Labour market figures for the September quarter 2017 states the total number of New Zealanders employed as 2.5 million. In short, it appears that New Zealand’s business environment is dominated by offshore-owned ventures, which could explain why it has become little more than a warehousing and sales operation for multinational companies.

The reality is that since we opened up our markets to globalisation, a small number of people have become exceedingly rich, but for most, living standards have slid backwards.

Multinationals are rational beasts and, as such, are constantly looking for more efficient ways to operate. The age-old mantra here is ‘reduce costs, maximise profit’. The wider consequences of this is the growth of working poor.

Another economic reality is that New Zealand’s tiny population is spread across a landmass roughly the size of the UK. Servicing a small, yet geographically dispersed population is an expensive undertaking. This is compounded by low wages which mean consumer activity in NZ is very price driven and margins are low. Crucially, NZ’s tiny population also means that it is a rounding error compared to the more lucrative and larger Australian market.

Because the return on investment for businesses in New Zealand can be marginal, little in the way of marketing money gets spent locally. Kiwis are often last in line for products that are readily available elsewhere. Most importantly, low skilled retail and wholesale jobs means low wages. This in turn translates into less discretionary income, less demand for high value goods and services which also means less profitability for businesses who can’t afford to pay staff more. It’s a vicious cycle.

Then there’s the double whammy of the cost of living in New Zealand. Even though New Zealand produces massive surpluses of food that get exported, the prices of basic food staples in New Zealand are often crazily expensive compared to elsewhere.

According to Numbeo.com, one litre of milk costs a whopping 58.9 percent more in Auckland than it does in Sydney. It isn’t just milk either, other basics such as eggs, beef, chicken and oranges are also significantly more expensive in New Zealand than in Australia.

The anaemic Pacific Paso (also known as the Kiwi dollar) means New Zealand exporters stand to make more money on exported goods compared to selling them locally. This, say exporters, justifies the obscene prices often charged locally.

It isn’t just food, either. Consumables can also be crazily expensive in New Zealand. This is often because imported items are double, or even triple handled before they finally reach local consumers. Products on retailer shelves in New Zealand are often shipped from warehouses in China/the UK/USA to an Australian warehouse before being shipped on to a New Zealand warehouse. Shipping isn’t cheap. Neither is warehousing.

Add to this low interest rates and lots of cheap credit, plus New Zealand’s unbalanced economic growth, and you have spiralling house and rental prices, especially in Auckland. Then there’s our crazily expensive electricity – even though it is mostly renewable, and we don’t have to import coal, gas or uranium, we still end up paying stupid prices for power. Could it be that the current regulatory environment doesn’t encourage enough competition? Or is it simply that the Commerce Commission are about as useful and welcome as a fart in a spacesuit?   

Adding further to the economic woes of Kiwis, financial literacy in New Zealand is low, and this isn’t helped by the fact that political parties are engaged in an ongoing game of political ping pong. Successive governments from one party dismantle the initiatives set up by the outgoing government from the other party when they get into power. Fast forward to the next election term and this happens all over again. Rinse, wash, repeat almost every election.

The net result of this is strategic paralysis as well as vast sums of money wasted that could be used to upskill and grow the economy. All this is being sacrificed at the altar of ideological vanity while our economy flatlines.

Is it time for a new approach? What about multi-party working groups and politicians behaving like rational adults instead of engaging in pointless political point-scoring? MP selection processes should include a transparent performance review process. Those that behaved like media whoring idiots should be sacked.

Either way, Kiwis on low incomes are struggling and there’s no easy answers in sight. Wool producers, meat and dairy industries may have celebrated when globalisation was embraced, but the reality is that while New Zealand isn’t officially a state of Australia, it is treated as one by multinationals, most of whom pay next to nothing in company tax to the New Zealand government (and whose CEOs back in the US/UK/China probably couldn’t even find New Zealand on a map).

Some argue we should regulate to fix this. We could close off tax loopholes, require that all foreign owned businesses had a 51 percent NZ based board representation before they could register and trade within New Zealand. Then there’s also tariffs and so on. The trouble is, none of this is workable. The sad reality is this stuff will never happen as no one wants to jeopardise exports. Inept planning and little in the way of forethought about long term implications of globalisation has resulted in NZ painting itself into an economic corner.

The future also looks troubling thanks to another trend that is looming large: the gig economy. Under a gig economy, employers such as Uber treat employees as freelance contractors. This effectively sees their rights eroded even more. There is no job security, no sick pay or holiday pay and wages are often appallingly low. Next time you use an Uuber, ask the driver what sort of money they’re making – there’s a good chance that you’ll be shocked.

Businesses seeking to reduce costs and maximise profits are already embracing the ‘gig economy’. It doesn’t look like good news for Kiwi workers. Sadly, it looks like the working poor could become an entrenched fixture of the New Zealand economic landscape. Kind of sucks doesn’t it?

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