jamesz

How lazy are public sector workers?

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Stuff has the data:

Figures from the State Services Commission show government employees took an average of 7.6 sick days in 2012.

No official figures are kept for private sector sick leave, but an Employers and Manufacturers Association survey suggests the average could be as low as 3.7 days a year.
…
The discrepancy of nearly four days between public and private sector workers could be explained by a more relaxed public “workplace culture”, [Association employment services manager David Lowe said] said.

“There is an impression that the workplace culture in the public sector might not be as focused as in the private sector.”

So there is no comprehensive data on the private sector, which means that the numbers may well be incomparable, depending on the composition of the sample and nature of the survey. Even if we believe the difference is significant, there could be lots of reasons for it. It may be that public sector jobs are more dangerous, or just more stressful, which causes more sick days. It may be that the intense restructuring and job losses in the public sector have caused people to become disengaged with their organisation and take more sick days. It could be that private sector employees are paid more and public sector employees are compensated slightly with the perk of more lenient treatment of sick days.

There are plenty more reasons for the possible difference, but there’s no way that we can discern anything about the laziness of public sector workers from these numbers alone. Not without a healthy shot of prejudice, anyway.

Matt Nolan

Time to build state houses?

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Labour has an interesting proposal to build state houses.  I know some other economists who have a more intimate knowledge of the building industry, and they tend to agree with the concept.  From what I can tell the justification is:

  1. The credit market for builders/developers/housing is dysfunctional at present and there is no direct solution.
  2. This is especially the case for the area of the market that state houses would fill.
  3. For social reasons the government wants to carry a certain stock of housing, and this has been run down below the level they desire.

Given the last factor, building state houses may be preferable to say having the RBNZ give direct lines of credit at “functional market” interest rates to builders/developers.

Now, I was wondering if there are people out there with a bit more data and information on this – and whether they can throw down things in the comments.  Such a direct intervention requires a hefty amount of evidence, and while I’m sure that the policy is being put out on well considered grounds I would also like the opportunity to look over this.

Matt Nolan

A hole in construction employment … really?

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A big deal was made during the release of the Household Labour Force Survey (HLFS) of the decline in construction employment.  According to the HLFS, employees in the construction industry (including the self-employed) fell 4.0% from a year earlier in the September quarter – even as New Zealand’s second biggest city was supposed to be being rebuilt!

What was ignored was that this isn’t the only figure that discusses employment by industry.  A couple of days earlier the Quarterly Employment Survey (QES) was released.  This survey suggested that the number of staff hired by construction firms (excluding the self-employed) rose 5.7% while the hours being paid for in the industry climbed 9.2%!

Source:  Infoshare from Stats NZ

So what do we believe?  That is tough, lets go through some ideas.

  1. The HLFS includes self-employment, the QES doesn’t.
  2. We know that the HLFS isn’t picking up a number of self-employed workers shifting down to Christchurch, neither does the QES.
  3. The QES does capture employed, but not self-employed workers who have just shifted down the Christchurch, the HLFS may miss them (this may be one of the factors behind the lower response rate for example).
  4. The QES occurs in a specific week in the middle of the quarter – if the quarter itself was materially different (in a non-seasonal way) this could explain some variation.
  5. The QES only takes a sample of “economically significant” firms.
  6. Firms and households may classify industries in a different way – making the “construction” sectors incomparable.

See more comparisons here.

The key point is, the HLFS told us that the labour market is very weak.  But it is not clear that construction is weak – in fact the acceleration in economically significant firms hiring and utilising workers suggests the opposite.

Matt Nolan

Institutional status report

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The jump in unemployment, and the fact that the labour market has been weak for a long time, is leading to understandable angst.  The government has been blamed as you often expect, the world has been blamed as it should, and the RBNZ is increasingly being blamed.  I would like to cover off a few things – just so when we discuss the issue of the economy, we are on the same page.

Update:

For the tl;dr audience, Kimble put together a neat summary:

Cliffs:
> The RBNZ bases their policy on forecasts, not the current state of the economy.

> Blaming them for the current state of affairs is to blame their previous forecasts.

> The argument they should take action to remedy the current state of the economy implies that you disagree with their forecasts.

> Making that argument without mentioning those forecasts seems completely insane.

I will have the post itself where I talk about these things, and justify why I am talking about them, below the fold.

Read more

Matt Nolan

Circling the square: House price lift and high unemployment

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On Breakfast this morning I heard the presenters querying why house price growth is so strong (5.7%pa in October) while unemployment is at a 13 year high (7.3% in September).  What is especially perplexing is that the house price growth is primarily in Auckland (with Canterbury also important – but this is due to the earthquake reducing the stock of property) so has the increase in unemployment!

How can this be?

Well I’d note a few things:

  • House price growth is strong in Auckland especially the old Auckland City.
  • Growth in rents is relatively strong in Auckland.
  • We know there has been very little building in Auckland.
  • Occupancy rates have been pushed up in recent years at a relatively rapid rate.
  • Credit growth is still slow (albeit picking up).
  • We suspect that job loses are focused in Manukau and Papakura, given the weakness in wholesale trade and manufacturing employment.
  • Although jobs have been lost, underlying “real wage” growth has been good relative to recent years – giving households with income a bit more money to spend.  Banks are competing like there is no tomorrow to give out mortgages.
  • House sales volumes relative to population are still “low” relative to history – even after rising sharply.

Now, the lift in house prices is starting to boost building activity in Auckland, as you would expect.  However, there is a significant supply shortage.  In the face of that, houses are more scarce and so we would expect prices and rents to rise.  Furthermore, there are people with jobs and with access to credit at very low interest rates who are interested in moving or changing house – while there are people with houses who are relatively unwilling to sell in the face of uncertainty and the knowledge that there are “too few houses”.

In many ways this doesn’t look like, or at least is largely not, a bubble – as borrowing and investment in housing is still so low, and so is turnover.  Instead this is an indication of the supply issue in Auckland.

This does not mean that we should expect rapid house price growth going forward, or that unemployment and house prices aren’t linked – it just tells us that there are other factors going on that explain the difference, other factors that indicate the importance of supply side constraints in the building industry.

Matt Nolan

Supply or demand – why not both?

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I’m a little perplexed to see Gareth Morgan come out railing against the Productivity Commission’s report on the housing market.  Now when it was released, I thought the focus and justification were a bit funky – but that the analysis seemed largely sound.

Gareth’s posts have been found here and here.  He says that supply is not the issue, its demand due to the tax status of housing and the Reserve Bank.

Seamus Hogan at Offsetting has covered off why this critique of the PC seems weird, so I’d suggest reading that.  As Seamus says, it is incredibly strange to treat the supply and demand factors as mutually exclusive – both can exist.  In fact to justify house prices being “too high” while the volume of the housing stock is “too low” REQUIRES a large supply impediment.  If what Gareth said was the whole story we would be experiencing overbuilding!

Why is that?  Well if something is boosting the demand for existing housing beyond what is “socially optimal” this bids up the price for existing houses while the cost of making a new house is unchanged.  As a result, there will be a lift in demand for new houses as well, leading to a lift in building activity (and building costs) such that we are building more houses than is “socially optimal”.

We could well debate whether this was the case pre-crisis – we know that expenditure, and volumes, or residential investment were very high between 2002-2007, but we also have some suggestions that much of this was due to increases in the size and quality of housing.  We were buying “more house”, rather than more houses.  Even during 2007, there were still concerns that there was not enough houses in some key regions – unlike the US experience there was not a wide view that we were “oversupplied” in terms of our housing stock.

Come to the post-crisis period and it is widely believed that we have a massive undersupply of property in Auckland (and Canterbury, but that is due to the quake).  House prices are still elevated, RBNZ policy is still “friendlier to mortgage debt”, but building activity is damned low!  This is far more than a cyclical downturn – there are significant issues of financing and co-ordination in the industry. “Reducing demand” doesn’t change this – and doesn’t make policies that are looking at the supply-side issues irrelevant!

The key point against supply side issues will be the fact that rental growth hasn’t gotten scary at any point – is there are “too few” houses, then we should really see the cost of housing services/rent pick up.  This suggests to me that any perceived demand side issues are also important, and should be taken into consideration [Note:  Think of demand issues in this context as things that increase the wedge between the individual rate of return on housing and the social rate of return – as this leads to people being more willing to use housing as an investment vehicle for a lower relative rate of return, the rent 🙂 ].  Once again though, supply and demand are not mutually exclusive.  The fact we are looking at one doesn’t mean we throw the other away.

One final note – the Productivity Commission spent a long time getting together facts and figures in order to make its case for why the supply issues were dominant.  And they also made note of perceived “misallocation” issues and the such stemming from the demand side.  Gareth’s decision to just out of hand dismiss what they are saying and state that the answer is “obvious” is a touch grating.  I don’t think the Productivity Commission (or myself for that matter) would disagree with the points he raised … as they aren’t mutually exclusive – I’d say I just weight them less severely than he is because I am willing to accept that there are supply side issues which are behind part of the price lift.  And I think this is the reason the supply issues are being attacked … just to increase the “weight” people place on the demand side.  I’m not sure I agree with this.

Note:  Remember that show Heroes, where they say “save the cheerleader, and save the world”.  The building issue in NZ has had a significant impact, both in terms of the run up of debt and the allocation of resources – in many ways people have been “saving” in a vehicle that might not give them the return they expected in terms of future goods and services!  Given this, understanding these issues is important.  You could even say “save the housing/building industry, save New Zealand”.  I’d avoid that though, because “saving things” always seems to involve subsides and bailouts which is not really what analysts are suggesting …

Update:  Seamus cleans up some of the places where my language is too loose.  His clarifications are entirely right.