The Australasian labour market: in an Asian Context

CTU president Ross Wilsons speech to the Australia-New Zealand Leadership Forum, 29-30 April 2005.

The starting point for what I want to say is to put labour market issues in the context of the fact that Australia and New Zealand have a closer economic partnership, have been exploring a range of harmonisation proposals, and are both involved in significant FTA negotiations with China and in an ASEAN-plus context.

And I believe this means that our respective labour markets both face potential shocks, as well as opportunities.

I think there is general agreement that we are not, in the foreseeable future, going to be able to compete with China on wages. In case there is any doubt about that can I just quote by way of evidence the statement by the chief executive and managing director of Richina Shanghai Leather Richard Yan, when he told an Auckland conference late last year that the salary bill for the 22 Australian and New Zealand expatriates the company employed in Shanghai was more than the total wages bill for his 2,500 Chinese employees.

The challenge for both of our countries is to move as quickly as we can to a high skill labour market producing high quality goods and services. As noted in the Working Group Paper on Labour Market issues which I have tabled:

"it may be worth exploring initiatives to develop the critical mass of skilled individuals in the Trans-Tasman labour market necessary to support high productivity Trans-Tasman industries. This may be particularly important in the context of negotiations currently being undertaken by both countries of free trade agreements with China. For example, it may be worthwhile investigating how Trans-Tasman intra-industry trade in manufactures might underpin high wage, high skill jobs that can survive in a world with China dominating a significant share of manufacturing exports. This might involve:
a Increased linkages between the two countries' manufacturing sectors, including identifying common skill needs at a variety of levels; and
be Supporting the move towards specialisation and short-run niche manufacturing of high value products, and the development and retention of the skills needed to support this".

From my perspective there is considerable urgency on this.

There seems to be an argument around that says countries like ours will do the design work, keep some of the intellectual property, and a few high-paid science and management jobs, but all the manufacturing will be done elsewhere.

I don't accept this - although I don't underestimate the challenge we face.

But we also know that in China, for example, there is sophisticated technology, low cost of capital, highly skilled engineers, as well as the dramatically lower labour costs I have mentioned. The Chinese Government is driving a growth agenda that aims to leave no stone unturned.

Manufacturing in New Zealand and Australia therefore will need to be based on high levels of sophistication, probably involve a greater use of joint ventures, ensure reliable delivery, and be flexible.

Both of us have range of industry assistance policies. There are some differences - in scale (even on a pro-rata basis) and also in particular areas (e.g. support R&D).

Both Australia and New Zealand are reporting significant skill shortages in similar employment categories. These include construction, trades, health professions, education professions, information technology among others.

Some say that the New Zealand labour market effectively acts as a 7th state of the Australian market. That is, the flow of people between the two countries reflects the relative state of both economies, although the flows are slightly less than would occur if there were no border.

As the Working Group paper notes:

The development of a Trans-Tasman labour market has been possible because of the broad social, economic and institutional relationships between the two countries, and particularly because of such factors as:
a. The relatively free movement of people between New Zealand and Australia;
b. The formalised structures for the mutual recognition of registered occupations under the Trans Tasman Mutual Recognition Arrangement (TTMRA)
c. The common recognition of school and tertiary qualifications in each other's country
d. The emergence of systems to mutually recognise work-related skills in both countries.

But of course there are differences. From where I sit, the higher wage rates in Australia must be related to both higher levels of productivity and the industrial relations system which includes the retention of occupational and industry awards protecting minimum conditions of employment.

You will not be surprised to hear that both the NZCTU and the ACTU actively support and advocate for the "high road" to international competitiveness. In New Zealand that means investing at a high rate in skills development, innovation systems, technology, quality infrastructure and so forth. We tried the low road in the 1990s. It did reduce labour costs - and costs always matter. But it embedded low wages, reduced investment in skills, plant and technology, and shifted the focus away from adding value.
As a consequence New Zealand has relied more heavily on participation increases for its economic growth than has Australia. Increased participation by women has been a feature of this. At December 2003, female participation in Australia was 55.9% (up from 44.7% in 1993). Female participation in New Zealand rose from 50% to 60.7% over the same period.

In contrast, Australia's economic growth has been driven more by increases in labour productivity This is combined with higher levels of part-time and casual employment. (28% of total employment in 2003 compared to 21% in New Zealand).
Australia has had labour productivity growth rates between 0.5% and 1.0% higher than New Zealand's during the 1990. Although the growth in labour productivity has converged in recent years, Australia's labour productivity has increased in recent years. So what I would like to see is a pathway where we can work together on the high road to competitiveness in the context of expanding trade relations with China and Asia.
For instance, if we can further develop intra-industry trade to build economies of scale in specialised areas and harmonise as effectively as we can across a wide range of areas, then we are both better placed to compete against China.

Also if we both stand firm on issues such as anti-dumping measures, border protection, labour standards, and intellectual property - then we may have the prospect of beneficial trade agreements - rather than ones that place thousands of jobs at risk.
From an NZCTU perspective we acknowledge that the impact of China is a reality whether or not we have a Free Trade Agreement, but there is no doubt that the economic and process integration which such an agreement is likely to produce would make it easier for Australian and New Zealand manufacturers to re-locate their production to China.

And it is no strategy to blame China for this although there are the very important issues, including labour standards in China, which must be addressed. For our part we have recently had discussions in China with union and government officials and are working on a joint process which may help to ensure that adequate labour standards are enforced.

But the reality will remain; wage rates in China will be a fraction of those in Australia and New Zealand and the only real alternative is for us to build the capacity and skills of our workforce so that it can underpin the high skill high value economy we aspire to.

The Working Group Paper contains some suggestions, for the purpose of discussion only, on some steps which may be taken to jointly address this challenge. They include:

- Extend the existing the co-operation between New Zealand and Australian on initiatives which have the potential to increase productivity
- At officials level to reduce the extent of duplication andinconsistency between the regulatory regimes that apply in each country (for example, the decision to establish Food Standards Australia New Zealand).
- At industry and enterprise level to develop processes which facilitate the transfer of best practice and smart ideas.
- Encouraging industries to take a trans-Tasman perspective on skill needs and skill development requirements. This would recognise the trans-Tasman nature of the labour market, and recognise that taking steps to meet the skill needs in a particular state in Australia, or within New Zealand, may not lead to the best use of training resources.
- Encouraging Government agencies to also adopt a trans-Tasman approach to their work on identifying skill needs and skill development requirements. While there is some co-operation and information sharing between Australian federal agencies and there New Zealand counterparts, there may be benefits if they moved to a level of co-operation that extends beyond information sharing into joint decision making.
- Developing a common system for recognising skills within New Zealand and all

Australian states. This will allow labour to move more easily to those areas where it is in greatest demand and increase the potential for labour specialisation, which can increase labour productivity. Currently, it can be difficult to move between New Zealand and all states of Australia due to different skill recognition regimes applying in each state.

These are merely some ideas for discussion, and of course the purpose of this meeting is to come up with our own proposals and advice to our Governments, employers and unions.

At last year's forum the issue of people and skills was acknowledged as an emerging issue. In that 12 month period it has become one of the hot issues.
I hope that we can over the coming period pick up the momentum on this area. I would certainly like to see all these issues debated and some active proposals emerge.

But I would like to return to the context I began with - CER, harmonisation, and concurrent negotiation of FTAs including China.
Is there support for more of a combined approach in the FTA context where we develop a model that can grow sustainable, high wage and high skill jobs. This means we look for better alignment of industry policy as well as in labour market areas such as skill development.

This does not mean that as countries we would never compete. By way of analogy, firms within industry actively compete with each other. But they also see a value in industry approaches to industry challenges. I think we could both benefit from an Australasian approach to sustainable employment and improved labour market outcomes in the context of expanding trade relations with China and ASEAN countries.