When will NZ's 'rock star' economy trickle down to workers?

The fabled trickle-down effect isn't lifting Kiwis' wages because their bosses are still focused on cutting costs, it's been claimed.

Wage growth in New Zealand, like in much of the developed world, has lagged behind economic growth for decades. This means while there is more wealth than ever before, the share going to those who work for a living has been declining.

HSBC chief economist Paul Bloxham, best-known for describing New Zealand's economy as a "rock star" in 2014, told The AM Show on Thursday managers are doing what they can to keep their businesses profitable amid technological upheaval.

Paul Bloxham.
Paul Bloxham. Photo credit: The AM Show

"Businesses are still very focused on cost-cutting - they're still very much of the mindset that's something they can control. They can't control a lot of the things that are going on in the rest of the world in terms of technology and globalisation and how that adds into competition, but they can control that cost space," Mr Bloxham explained.

"The thing that normally happens though, that drives wages growth to pick up, is you start to run out of labour and you have to pay them a bit more, otherwise you can't get the skills you want."

With unemployment trending downwards, Mr Bloxham says it's likely wages will start rising soon - bosses can't hold back raises forever, as the recent wave of industrial action shows.

"Workers are getting quite unhappy about the idea that wages growth isn't lifting - and of course, it's a big question as to why that's been happening. I think it's partly the changing nature of work - it's technology, globalisation and a perception of increased competition globally having an effect.

"But of course, we should also be trying to seek to get wages growth to lift. It's an important part of an economy that's healthy."

National leader Simon Bridges made headlines in May when he said trickle-down economics still works. Trickle-down, also known as supply-side economics, is the theory that reducing the tax burden on the wealthy will prompt them to invest more in the economy, leading to increased wealth for all.

Whether it works or not is the subject of frenzied debate. While most Western economies have had impressive and largely consistent GDP growth since the late 1970s and early 1980s when trickle-down economics was widely adopted, it's usually also brought growing inequality and stagnant wages.

Mr Bloxham says rather than increased wages, in recent years trickle-down has manifested in other ways that don't always benefit those at the bottom.

"It's not clear to me that there isn't any trickle-down - I think there is some in the form of homeowners, for example, get the [benefit of the housing market lifting]. There are plenty of jobs being created, and that's a fundamental thing that drives that trickle-down process.

"If jobs are being created and employment is being created and employment is continuing to grow and unemployment  rates are falling, that is a trickle-down."

And while New Zealand no longer has the "rock star" economy of 2014, at 2.7 percent GDP growth it's hardly time to panic. But with business confidence down in the latest ANZ survey, Mr Bloxham says it's time the Government outlined its plans for the economy a bit better.

"You need more policy clarity, more direction about what's actually going to happen so businesses feel they know the direction New Zealand is headed."

Newshub.

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