Over-full Employment Harms N.Z. Economy”

Press, Volume C, Issue 29503, 3 May 1961, Page 17

Over-full Employment Harms N.Z. Economy”

Over-full employment to, the extent that at present characterises the New Zealand economy does not promote, but actually hinders, the growth of real income in the economy.

Fiscal and monetary policy, allied with more selective industrial expansion and a revised employment policy, can achieve both more stability and more growth.

These points were made in an address last evening to the Canterbury branch of the Economic Society of Australia and New Zealand by the Assistant-Governor of the Reserve Bank (Mr A. R. Low).

In recent years, the most popular economic objective had been full employment, said Mr Low. "Unfortunately, the term ‘full employment' means different things to different people. Everyone believes in full employment; I certainly do. I regard it as simple common sense. . . . "To many peopjle, 'full employment' means 'full-em-ployment-no-matter-what.’ In its devotion to the basically sound ideas of full employment New Zealand has very inadequately achieved some of the other objectives which are important—price stability, quacy of overseas requacyq of overseas reserves, some freedoms 1 because a number of direct controls are used to cope with the symptoms of inflation); and above al! we have in recent years done poorly in achieving the most basic objective of all. growth of real income a head.” Real income a head had grown at the rate of 1.2 per cent per annum in the last decade in New Zealand, said

Mr Low. This rate was one of the lowest in the world. “Blood Pressure” The current state of the labour market in New Zealand was not the full employment which was the accepted goal of economic policy; "it bears as much resemblance to true full employment as high blood pressure does to normal blood pressure, as high body temperature does to normal." Mr Low listed seven ways in which, he said, over-full employment was harming the economy:— (1) Slackness of individual effort. (2) High turnover of labour. (3) Absenteeism. (4) Idle machines. (5) Preoccupation of management with staff problems to the detriment of attention to the real problems of efficiency and policy. (6) Rising costs. (7) Diversion of labour from the most efficient industries.

In a really healthy economy there was a ccptinuous movement—a marginal movement —of labour between firms, and between industries: from the less efficient to the more efficient; from the stagnating to the growing. “There is a temptation to think that because we have everyone employed our economy is working to capacity and therefore we are getting the maximum possible growth of real income. This is a fallacy. No machine and no individual can sustain output at 100 per cent, of capacity over more than a short period.” • The maximum rate of “sustainable” growth in real income a head was likely do be achieved at a degree of full employment a fraction less than 100 per cent.. Mr Low said. “What that fraction is it is very difficult to say, but in New Zealand conditions it is very small, and should be kept that way.” Measures Required Monetary policy had a role to play—a limited but nevertheless important role—in correcting the present situation. Four “lines of approach” to the objective of both more stability and more growth were suggested by Mr Low. They were:— (1) More sober views about the prospects of industrial expansion, resulting in a more selective attitude towards new industrial projects. (2) A revised version of full emoloyment to mean “full” and not “overfull,” so that there can be a transfer of labour from the less efficient to the more efficient employers. and growth in the right places. (3) A willingness to change gear in interest rates from time to time. (4) Proper use of fiscal and monetary policy. In the “most likely conditions of the next few years at least,” this meant avoiding budget deficits and a continuance of “more or less tight money.”