The Government's New 'Employment' Contract
By Keith Rankin
The government has got it badly wrong with the new Policy Targets Agreement, its contract with the Reserve Bank about monetary policy. Perhaps inadvertently, the emphasis is now on maximising employment, not living standards.
Maximising employment is not the same as minimising unemployment.
The Reserve Bank's main role is to maintain the stability of the monetary system, essentially to ensure that there is
enough money circulating (and sometimes to ensure there's not too much money circulating) to ensure that full employment GDP (gross domestic
product) can be purchased. The Reserve Bank's role is to facilitate the circulation of money. Indeed, the cycling and
recycling of money is the role of the banking system as a whole; to ensure that money in circulation grows in tandem
with market output.
In the years from the mid-1970s to 2008, the world's Reserve Banks came to see their role as essentially constraining
the growth of the money supply. Since 2008 their role has been mainly to expand the amount of money in circulation. The
(generally) two percent inflation target indicated to bureaucrat bankers whether the growth of circulating money should
be constrained (seen as necessary if actual and/or expected inflation was above the 2% target) or should be stimulated
(seen as necessary if actual and/or expected inflation was below the 2% target).
In reality, the indicator that guided monetary policy had been the 'natural rate of unemployment', which has
consistently been regarded, in New Zealand, as between three and four percent of the workforce. For public consumption,
an inflation target was always better than an unemployment target. Imagine a government supporting a Reserve Bank which
was actively trying to raise the unemployment rate. (Indeed there are many people who cannot quite get their heads
around the idea that central banks do – and are now mandated to – raise the inflation rate; they have been doing that
since the 2008 global financial crisis. We were brought up with the idea that inflation was bad, period.)
So far so good, and the new government contract means that the Reserve Bank will in practice be doing much as it has
already been doing, albeit with a change of style reflecting a new man (Adrian Orr) at the helm.
The big new problem is that, rather than seeking to maintain full employment (which is widely understood to mean three
to four percent unemployment), the government wants the Reserve Bank to support "maximum sustainable employment". This
is not at all the same thing as maintaining full employment, by any definition of 'full employment'. Rather the new
language of 'maximum employment', if taken literally, indicates a supercharged growth agenda. Does "sustainable" mean a
willingness to sustain three percent unemployed? Or is it meant to relate to a sustainable natural environment? It's
probably little more than a buzz word to placate the Green Party.
The working age population is conventionally divided into three groups: the employed, the unemployed, and the
non-workforce. The new language of 'employment maximisation' says it is bad to be either unemployed or in the non
workforce. The language of 'full employment' says it is good to be either employed or in the non workforce. The status
of the non-workforce has been further undermined through the use of the phrase 'maximum employment' in high-level
contractual language.
Until today, the accepted economic mantra is that we work to live. The new mantra is that we live to work. Under the new
refrain, paid toil (ie labour) is good, productivity dividends that increase our free time are bad.
In the developed world, from 1840 to 1970, we understood improved living standards primarily as achieving reductions in
necessary work; as creating leisure. Samuel Parnell, in Wellington in 1840, persuaded citizens that at least 8 hours of
each day should be devoted to activities other than labouring and sleeping. That enlightened view – equating rising
living standards with increased leisure and the capacity to enjoy it – changed from the late 1970s with the advent of
neoliberalism. While the cultural transition from 'work to live' to 'live to work' took place in New Zealand in the
1980s and 1990s, it was actually advanced by Roger Douglas in the early 1970s with a superannuation scheme that elevated
work – and the rewards from work – way above all other contributions to our social, whanau and individual wellbeing.
Indeed, today's mental health crisis springs from the mix of constantly cajoling people to labour, while making it in
practice extraordinarily difficult for our most vulnerable to meet that expectation. Further, many who do meet that
expectation – people toil for a living – are not exempted from poverty.
The Reserve Bank's contract with the government could target 'full employment' in the context of a society where rising
productivity would be steadily reducing (not raising) the number of hours in our lifetimes that we commit to performing
and preparing for paid work. In 1972 – when equal pay was introduced – 40 hours of labour in a week, plus universal
social benefits, could support a whanau of five people. A labour maximisation policy cannot, by definition, achieve
anything like that.
ENDS