Speech to Northland Business and Employment Law Conference

Speech to Northland Business and Employment Law Conference
Whangarei
10 November 2004

Good morning and thank you for inviting me to address your Conference today.

I'll start off by talking a little about the economy in general and the labour market in particular before taking you through what we are doing to address the labour and skills issues in the short, medium and long term. I'll also look at what industry needs to do.

Economic growth under Labour has been high – around 4% per cent a year since 2000, compared with a 2.4% average across the OECD.

The labour market has about surpassed all expectations during the last 3 years. We now have one of the highest job growth rates and one of the lowest unemployment rates in the OECD. Even with the tight labour market, job growth is projected to continue at 2.4%.

More New Zealanders than ever before – over two million – are now in work and the unemployment rate at 4 per cent is the lowest since the mid-1980s. Unemployment in Northland to June 2004 is down to 6% and even more startling is the National drop in Maori unemployment from 18.25 per cent in 1999 to 8.8 per cent.

But the strong economic and employment growth has raised an issue that we have not experienced for decades: too many jobs and not enough people. However, given that the economic growth appears sustainable, we mustn't allow labour and skills issues to strangle the growth we are enjoying. The labour market is sexy again and the government has done a number of things to anticipate this. More on this later.

There are stories of firms turning down work because they haven't got the staff and looking overseas to fill gaps. A labour shortage is now the main constraint on output for one in five firms – and a net 29 per cent of firms reported in the Household Labour Force Survey an increased difficulty finding unskilled labour in the June 2004 quarter – an all-time high.

As Labour and Immigration Minister, my key focus is to ensure that our labour market continues to support our economic growth.

While immigration will always be a part of the mix, it's not in itself the solution. We are going to have to get a lot smarter about how central and local government, and industry work together.

This is where industry leaders like you can play an important role. You know what is happening out there, where the gaps are, what can be done better.

The current growth has been driven by a number of key factors such as high commodity prices; growth in sectors like construction, education and hospitality along with strong export demand.

The government has had a clear policy framework to drive growth. This is called the Growth and Innovation Framework. It is about tuning the economy for growth. In November 2002, our economic objective was to return New Zealand’s per capita income to the top half of the OECD rankings and to maintain that standard. It is about the whole economy, including:

• Getting good ideas to market
• Developing skills and talent
• Increasing global connectedness
• Strengthening the foundations of the economy.

But it is also about extending the scope of our economic activity into the emerging high growth, high value sectors which are the hallmark of successful economies. Key areas of focus are biotechnology, creative industries and information and communication technology.

In terms of a particular focus on the regions and Northland in particular, regional economic growth for Northland to June 2004 was 5.1% (the highest was in the West Coast, at 5.6%).

Northland’s economy recorded a seventh consecutive rise, lifting its economic growth to an 8-year high.

This growth in the regions is fantastic news but we now need a strategy to build on this growth in a way that is sustainable.

Three key themes emerge from this discussion about growth and dealing with labour and skills shortages. These are:

• Recognising, as I said earlier, that the labour market is 'hot' again and it plays a vital part in supporting economic growth
• The need for industry strategies to help meet labour market needs
• Workforce: balancing training, education and immigration to get the right mix
• Workplace: what can be done at grassroots level to improve productivity and workplace relations?

Industry development is critical to sustainable growth. There has to be a partnership between government and business.

Industry strategies have already been developed in forestry, TCF (textiles, clothing and footwear), Biotech, Information Communications Technology (ICT), creative/film, horticulture and seasonal industries. Ministers have met with some of the seasonal industries to begin what I hope will be the start of a long-term strategy to resolve some of their labour market issues that appear every year.

The strategies to date have identified issues including infrastructure, international competitiveness, expanding offshore, better management practices and better workplace practices.

Several ministers and myself met horticulture industry representatives recently to discuss the industry's labour market issues. It was a very productive meeting and out of this has come a strategy to address the issues in the short, medium and longer term.

In the short-term, there was an acknowledgment that immigration responses will have to be used to meet labour needs. But in return the industry will have to demonstrate a commitment to an industry strategy as well as robust labour market tests, no use of illegal immigrants and ongoing cooperation with government.

The emphasis on immigration responses will be by using holiday working schemes, condition variations for people already here, recruiting off-shore and using Samoan and PAC quotas. There have also been changes to the unemployment benefit stand-down period to make more New Zealanders available. The government is also providing funds for the strategy.

Mobile field managers will also be established to offer specialised immigration services and identify areas of need. These are expected to be in Northland as well as Marlborough/Nelson, Otago, Hawkes Bay and Bay of Plenty.

The medium and long-term focus has to be on the government and industry working together. Industry would be required to show what steps had been taken to continuing to show good employment and recruitment practices. Focus would also be on improving productivity and training workers. Immigration is to be used but only when necessary.

From this starting point, all labour market issues flow. Upskilling New Zealanders to allow them to fill the labour and skills gaps will always be the top priority. We all need better information at local, regional and national levels on what exactly businesses want and need so training and education can be tailored to fit. We also need a closer relationship between industry and training advisors so that our responses to labour market needs are flexible and relevant. The only way the system will deliver is when everyone knows what is needed.

So what is the government doing to address this? Well, actually plenty. Time and money is being channelled into this area. Let's look at how.

• The Tertiary Education Strategy: is a five-year plan to meet the knowledge, skill and research needs of business and society. This gives New Zealanders the skills they need in the labour market
• Industry Training Organisations: now playing a stronger leadership role for the long-term interests of the industry as a whole – which includes putting mechanisms in place to get early warning of emerging skill shortages and how they can be addressed
• The Industry Training Strategy: has seen large increases in both trainee participation and achievement of national qualifications. There has been a large expansion in investment by both government and industry, with a shared target of 150,000 trainees during 2005. The target is 250,000 by 2007. The Government approved in last year’s Budget an additional $84 million over four years for industry training to achieve this target. In 2003, 126,870 trainees participated in industry training. This number has increased by 56 percent since 2000
• Modern Apprenticeships: the government has responded by increasing investment in this programme each year, enabling increasing numbers of young New Zealanders to participate. By the end of March 2004, there were 6,784 Modern Apprenticeships throughout New Zealand, in 30 industry areas. The target is 8,000 by 2006.

Government is also funding tripartite initiatives such as Skill New Zealand, involving Business New Zealand and the CTU, to create greater awareness among workers and employers of industry training and workplace learning. Their efforts have been focused on retail, hospitality, furniture manufacturing and tourism.

We want to keep people up-skilling throughout their working lives, to keep pace with changing business needs and opportunities. We have a challenge to meet head on in both foundation and higher-level skills, if New Zealand workers are to be prepared for working life in 2005 and beyond.

The government is also encouraging employers to look beyond their traditional labour pools. This has become even more relevant with the unemployment rate at 4 per cent. To this end, last month I launched People Power: Successful Diversity at Work a book that looks at changing workforce trends and sets out why employing a wider range of people – older workers, different ethnic groups, migrants, long term unemployed people for example – is good for the bottom line. The simple message is that widening your talent pool tends to make your business more competitive and successful.

Our first responsibility is to provide New Zealanders with work. This includes doing everything possible to train kiwis to give them the skills we need.
Our immigration policy also provides us with some of the workers and skills that the economy needs. It is important that this policy is linked to the industry strategies I mentioned earlier. Skilled migrants have always had a positive impact on the economy.

Let me make this clear, this is not at the cost of jobs for New Zealanders. Immigration cannot be used as a cheap training policy or as a substitute for long-term industry strategies. We are very careful that we only look offshore when it is shown that we need help to fill a particular skills shortage. However at times like this, when there are skills gaps, we are putting in a lot of effort overseas to target people we need here.

Immigration also has a role to play where gaps are short-term (for example, temporary work visas) and longer-term, where our new skilled migrant policy will take effect. This new policy is already lifting the quality of people wanting to come to New Zealand to live and work.

The Skilled Migrant Category (SMC) targets skilled migrants who can meet identified labour market needs and growth opportunities in New Zealand. The SMC shifts New Zealand’s skilled immigration policy from the passive acceptance of residence applications to one that promotes the active recruitment of the skilled migrants that New Zealand needs.

Under the SMC, prospective migrants submit an Expression of Interest (EOI) which includes information on points factors such as offers of skilled employment, relevant work experience, qualifications and age. Bonus points are given for factors such as job offers in areas of current shortage and/or from areas outside of Auckland.

EOIs submitted into a pool are ranked from highest to lowest points claimed. Selections of the highest ranked EOIs are made approximately every two weeks. Potential migrants are selected from the pool, strictly according to their points ranking which must be above a pre-determined ‘selection point’. Potential applicants can self-assess how many points they are likely to be able to obtain through an on-line facility and information about the selection point for previous draws is also available through the Immigration website.

Applicants must also meet certain prerequisites including health, character and English language ability. Highly ranked EOIs are invited to apply for residence in sufficient numbers to meet the annual New Zealand Immigration Programme.

I recently announced some enhancements to the skilled migrant category, which come into effect in December. These are to:

• Increase the level of points allocated to skilled employment, qualifications and work experience in areas of absolute skill shortage
• Expand and clarify the definition of skilled employment to enable a broader skill mix to qualify for residence
• Clarify the ability to grant permanent residence upfront where an applicant has high potential to contribute and settle (rather than in “exceptional circumstances”)
• Recognise a broader range of qualifications where they meet industry needs
• Clarify the definition of contract employment
• Include points for having close family support in New Zealand.

To make sure the enhancements are effective, an onshore and offshore recruitment campaign is to be boosted and a major staff training programme is underway.

I want to turn now to what is being done in the workplace to improve labour performance and productivity. Sustainable growth is the key to strong economic performance.

As you can see from the slide, labour productivity has not improved in a significant way in NZ over the last 5 years or so. This has to be addressed and is now a key part of the government's economic agenda.

In February 2004, the government established a Workplace Productivity Working Group to advise on ways for industry, businesses, unions and employees to work smarter and more productively. This is especially important given the current labour shortage. Over the last couple of decades, many New Zealanders have associated productivity increases with cost-cutting and job losses. Our focus on workplace productivity is different. We’re looking for business practices that improve timeliness and quality, minimise costs and waste, and involve employee participation in innovation and technology. We’re looking at ways to improve the return on investment in our workplaces – whether it is through new plant and equipment, new workplace practices, new technologies, new skills. Employers have a responsibility here.

The workplace productivity working group was tripartite - business, union and public sector representatives - and was a good example of a partnership model in action. It examined successful businesses and looked at how to promote the importance of improving workplace productivity to the wider community. Its consultation processes also included a workshop in May and there was a series of focus groups around the country.

I have received a copy of the working party's report and I plan to release the document with some proposals for action shortly.

The Government has undertaken a significant legislative review of NZ's employment relations' framework and this work is now complete. The review was part of the government's overall labour market strategy – to ensure that we have fair and reasonable minimum standards for all employees but also that any legislative framework is flexible enough to meet the diversity of New Zealand's working arrangements. NZ is competing for skills and labour with Australia and beyond, and our legislative framework needs to ensure we are actually able to attract and retain the right people.

The objective of the Employment Relations Act is to improve workplace relationships so that labour market performances can also improve. Generally, the ERA has worked well, with particular successes in areas such the introduction of non-legalistic, lower cost resolution of disputes. The recent amendment Act, which comes into force in December 2004 will build on this and other successes of the Act.

When the Employment Relations Act was passed in 2000, there were dire predictions from some about the economic consequences. It was predicted, for instance, that industrial conflict would skyrocket, and productivity, employment and wage growth would plummet. Happily, reality has seen such claims proven wrong and I predict that the results will be the same again following this recent review.

The Amendment Act key changes are to clarify the rules around and the duty of good faith and the practice of passing on terms and conditions to non-unionised staff, clarifying what could be considered to be a ‘genuine reason’ not to conclude a collective agreement and improving access to dispute resolution services.
The changes build on the principal Act aiming to strike a balance between promoting collective bargaining and the need to maintain the integrity of individual choice.

Other important changes have been made to the Holidays Act. A critical achievement has been the introduction of 4 weeks leave, due to come in on 1 April 2007. The labour market is extremely competitive. People are more mobile and will move to where there are better wages and conditions.
While there has been some criticism of four weeks leave I remind you that Australia has had this provision for nearly 30 years. Worker conditions such as this may well help to keep skilled kiwis here and attract skilled migrants from overseas.

However there were some "unintended consequences" arising out of the particularly around sick pay on public holidays which we have recently addressed with an amendment Act. The Government's core policies however have not changed. What we wanted to do was to ensure employees are guaranteed an additional payment for working on a public holiday. Most New Zealanders think this is fair. We also wanted to introduce 4 weeks annual leave from 2007, to bring us into line with our key trading partners, notably Australia.

The key changes from the Holidays Amendment Act are:

• No penal rates for public holidays on top of existing penal rates
• No public holiday rates if an employee does not work that day
• Employers may request a medical certificate before 3 days if they have reasonable cause to suspect the sick leave is not genuine and the employer pays for the medical certificate
• The time limit for solving issues relating to composite pay rates has been extended.

Finally, the Government has improved the health and safety legislation, placing a greater emphasis on a collaborative approach to improving health and safety at work and for the first time providing paid health and safety training leave for workers. We have also introduced paid parental leave which has just been increased to 13 weeks from 1 December 2004.

As I've outlined today, New Zealand has experienced some good economic growth in the last few years, but we can’t relax. Economic growth is critical for improving the standard of living for all New Zealanders, which is after all, our key task.

I’m focused on active labour market policies that can underpin our future economic performance. These active policies should span the quality and productivity of our workplaces as well as skills and participation in the workforce.

We have achieved a lot but there is always more to do. A partnership approach between industry and the government is vital for New Zealand's future. Chambers of Commerce have a unique position in the economy with your grassroots knowledge and contacts. I look forward to your continued constructive involvement in the drive to provide a higher-skilled and higher-paid economy.