Policies for dynamic labour markets and productivity growth

If you’re at risk of losing your job, your best protection is to have lots of other good job opportunities. Dynamic labour markets improve job prospects for people seeking work, and help workers move to jobs that better match their skills.

As Tim explained, dynamic labour markets are important to boosting productivity and incomes. They help resources move from less productive to more productive activities. An economy driven by more tech is likely to create more jobs overall, even if some tech-adopting firms shed labour. Where people’s jobs are at risk, policies to improve job security may help them less in the long run than policies that create options and promote mobility.

Traditional job protections, like mandatory redundancy pay or minimum notice periods, can stifle labour market dynamism. Job protection discourages labour market mobility and skill redeployment, and it favours workers who have protections over those that don’t. That’s why John argues that expanding mandatory redundancy pay is not a labour market policy that can both protect workers and promote the adoption of technologies to boost New Zealand’s productivity and living standards.

Policy makers should look to options that offer both effective and inclusive protections and create better incentives for labour mobility and productivity growth. What’s needed are policies that protect people’s incomes while they look for a new job. 

The Commission’s recent report Employment, labour markets and income outlines three options for income security:

1. Portable individual redundancy accounts – a bit like KiwiSaver – which workers contribute to and can then draw on if they lose a job;
2. An unemployment insurance scheme – more like ACC – with contributions from workers and/or employers; and
3. Changes to existing benefits and tax credits that provide increased, but time limited, income support for people out of work and looking for a new job.

There are advantages and disadvantages with each of these (check out Employment, labour markets and income for more detail). But they all offer a big advantage over traditional job protections – they don’t tie you into a particular job, as they move with you.

The Commission hasn’t formed a view about which option (or combination of options) would work best in New Zealand and is seeking submissions right through to 7 February.

Right now, though, the team are looking at how New Zealand upskills people in work. Stay tuned!

Images: Jack MacCormick