30 Sep 2011

Lower skills among reasons for wage lag - NZIER

8:40 am on 30 September 2011

The Institute of Economic Research has criticised the Treasury's analysis of the reason wages in New Zealand lag so far behind those in Australia.

A report from the economics think-tank says weak managers and lower skill levels in New Zealand are among the biggest reasons for the income gap, estimated at $14,000 per worker.

That runs contrary to previous analysis by the Treasury which blames lower levels of investment by New Zealand companies.

Numerous Treasury reports have pointed to the greater amounts of capital per worker as a major reason for higher productivity and incomes in Australia.

But NZIER chief executive Jean-Pierre de Raad says there are bigger factors at play, including the quality of labour and skills, capital, management and the regulatory environment are likely explanations for differences in productivity.

Mr de Raad says New Zealand clearly outperforms Australia in agriculture, energy, water supply and even mining, but the services sector performs poorly which is problematic because of its sheer size.

He says New Zealand has more than 1 million people in the workforce who have basic or no qualifications, and to be able to compete with Australia, New Zealand industries need skilled labour that can learn new technologies and processes.

Mr de Raad says New Zealand's regulatory environment and reform processes have stagnated and in some cases slipped back, whereas the rest of the OECD has steadily improved its regulatory environment.

He says it's very important that New Zealand's regulatory environment provides a competitive advantage rather than a handbrake because this country already has other disadvantages such as a small economy and its remoteness.

Council of Trade Unions secretary Peter Conway says the report shows the Government should be paying more attention to improving workers' skills, while Auckland University economist Rhema Vithianathan says incentives should be given to improve management skills.