Inland Revenue has released data under the Official Information Act showing the number of New Zealanders working more than one job has increased by more than 40,000 in six years.

In the 2016/2017 tax year, there were 233,000 people receiving PAYE income from more than one employer for more than one month, or 9.2% of all people with job income.

That rose to 279,000 in the 2021/2022 year, or 10.4% of all people with job income. Read more

The idea can even seem to come right from the mouths of experts, including the bank's governor, Adrian Orr.

Speaking recently to an industry conference, he said: "Returning to low inflation will, in the near term, constrain employment growth and lead to a rise in unemployment."

Similar sentiments have been expressed by independent economists and commentators.

But is it as simple as it might appear? What is the relationship between inflation and unemployment, and is it inevitable that reducing one will lead to an increase in the other?

Historic highs and lows

Like other developed countries, New Zealand has been going through a period of historically high inflation. The latest figures for the September quarter of 2022, show an annual rise of 7.2 per cent, only slightly lower than the 7.3 per cent recorded for the June quarter.

Inflation is the highest it has been since 1990. The story is similar across the OECD, where inflation averages 10.3 per cent, including 8.8 per cent in the UK and 8.2 per cent in the US.

At the same time, New Zealand is experiencing a period of very low unemployment, with a rate of just 3.3 per cent for September 2022, following 3.2 per cent in the June quarter. These are near-record lows, and the rate has not been below 4 per cent since mid-2008.

So, right now New Zealand is in a period of historically low unemployment and historically high inflation. At first glance, that might suggest that in order to return to low inflation, we may inevitably experience higher unemployment.

The Phillips Curve

The idea that inflation and unemployment have a negative relationship (when one increases, the other decreases, and vice versa) dates back to work by New Zealand's most celebrated economist, A.W. (Bill) Phillips.

While working at the London School of Economics in the 1950s, Phillips wrote a famous paper that used UK data from 1861 to 1957 and showed a negative relationship between unemployment and wage increases.

Subsequent work by economics Nobel Prize winners Paul Samuelson and Robert Solow extended Phillips' work to show a negative relationship between price inflation and unemployment. We now refer to this relationship as the "Phillips Curve".

However, even though this relationship between inflation and unemployment has been demonstrated with various data sources and for various time periods for different countries, it is not a causal relationship.

Lower inflation doesn't by itself cause higher unemployment, even though they are related. To see why, it's worth thinking about the mechanism that leads to the observed relationship.

Collateral damage

If the Reserve Bank raises the official cash rate, commercial banks follow by raising their interest rates. That makes borrowing more expensive. Higher interest rates mean banks will lend less money. With less money chasing goods and services in the economy, inflation will start to fall.

Of course, this is what the Reserve Bank wants when it raises the cash rate. Its Policy Targets Agreement with the government states that inflation must be kept between 1 per cent and 3 per cent. So when inflation is predicted to be higher, the bank acts to lower it.

At the same time, higher interest rates increase mortgage payments, leaving households and consumers with less discretionary income, and so consumer spending falls. Along with reduced business spending, this reduces the amount of economic activity. Businesses, therefore, need fewer workers, and so employment falls.

So, while the Reserve Bank raises interest rates to combat inflation, those higher interest rates also slow down the economy and increase unemployment. Higher unemployment is essentially collateral damage arising from reducing inflation.

Great expectations

That's not the end of the story, though. After its 1960s heyday, the Phillips Curve was criticised by economists on theoretical grounds and for its inability to explain the "stagflation" (high unemployment and high inflation) experienced in the 1970s.

For example, Milton Friedman argued there is no trade-off between inflation and unemployment because workers and businesses take inflation into account when negotiating employment contracts.

Workers' and employers' expectations about future inflation are key.

Friedman argued that because inflation is expected, workers will have already built it into their wage demands, and businesses won't change the number of workers they employ.

Friedman's argument would suggest that, aside from some short-term deviations, the economy will typically snap back to a "natural" rate of unemployment, with an inflation rate that only reflects workers' and businesses' expectations.

Symptom or cause?

Can we rely on this mechanism to avoid higher unemployment as the Reserve Bank increases interest rates to combat inflation?

It seems unlikely. Workers would first have to expect the Reserve Bank's actions will lower inflation and respond by asking for smaller wage increases. Right now, however, consumer inflation expectations remain high, and wage growth is at record levels.

So, we can probably expect unemployment to move upwards as the Reserve Bank's inflation battle continues. Not because lower inflation causes higher unemployment but because worker and consumer expectations take time to reflect the likelihood of lower future inflation due to the Reserve Bank's actions.

And since workers negotiate only infrequently with employers, there is an inevitable lag between inflation expectations changing and this being reflected in wages. Alas, for ordinary households, there is no quick and easy way out of this situation.

• Michael P. Cameron, Associate Professor in Economics, University of Waikato
• First published in The Conversation. Republished with permission.

Stats NZ says food price inflation in New Zealand jumped 8.3 percent year-on-year in August 2022.

All food categories gained annually: fruit and vegetables (16 percent), grocery food (7.7 percent), meat, poultry & fish (6.7 percent), restaurant meals and ready-to-eat food (6.9 percent) and non-alcoholic beverages (4.8 percent).

Increasing prices for yogurt, two-minute noodles and tomato-based pasta sauce were the largest drivers within grocery food.

The second-largest contributor to the annual movement was fruit & vegetables; the items within this group that influenced this movement the most were capsicums, tomatoes, and broccoli. Month-on-month food prices increased by 0.4%.

Food charities

A new survey of 43 food charities from around the country has revealed that the demand for food support continues to skyrocket, as a result of the long-lasting impacts of Covid-19 and the ever increasing cost of living.

The New Zealand Food Network (NZFN) ran the survey to ask the food hubs it works with about their experience with food support between January and June 2022.

The results found that the top three reasons for requesting food support were low household income due to low paying jobs (79%), unemployment (70%), and Covid-19 isolation (60%).

International impact

International reports show food inflation is a problem stretching from the UK to New Zealand.

In the UK, for instance, a senior economist is warning "daunting" food inflation in the UK could soar to between 17 and 19 percent next year.

According to the Office for National Statistics, food inflation in the 12 months to September hit 14.6 percent.

That increase is significantly higher than overall consumer price index inflation, which was 10.1 percent.

James Walton, chief economist at the Institute of Grocery Distribution, has warned MPs that the worst is yet to come.

"Consumer food price inflation is currently around 15 percent," Walton said.

"This is as bad as it's been to date - but we do think it will go further.

"Today, we've issued a new forecast... [we expect it] will probably peak in the first part of next year, between 17 percent and 19 percent ... that is a fairly daunting prospect.

"We think that inflation will start to dissipate over the course of 2023, but it will still be above zero by the end of the year."

Walton also warned "food stress" is no longer an issue which is primarily facing those on lower incomes.

"Food stress is becoming increasingly prevalent in the UK," he told MPs.

"Not just amongst the least well off households, but actually amongst households further up the income ladder."

Last week, a YouGov poll revealed that one in six Britons are not confident they can afford to feed their families.

Young people are the age group struggling most the rising cost of groceries. Twenty-six percent of 18-24 year olds say they are borrowing money to afford food bills.

The news is on a sorry downward slope.

In September, the Food Foundation warned one in five families are facing food poverty.

New prime minister Rishi Sunak and chancellor Jeremy Hunt are coming under pressure amid the rising prices.

They are expected to provide more cost of living support when they deliver their autumn statement next week.

"Food stress is becoming increasingly prevalent in the UK.

"Not just amongst the least well off households, but actually amongst households further up the income ladder," Walton says.

Source

• Yahoo News
• NZ Food Network

Just how much it will help, however, is less certain.

At 6%, the increase is in line with the 5.9% annual rise in the consumer price index (CPI) in the December 2021 quarter. But inflation is still rising, with domestic and global pressures meaning it's likely to keep rising for some time.

Those minimum wage gains, along with simultaneous increases to other benefits and superannuation payments, are already eroding.

The food price index rose 6.8% in February from the previous year. International commodity and oil prices have soared since the Russian invasion of Ukraine. Some estimates suggest an annual CPI rise of between 7% and 8% in this year's March quarter.

It's clear that low-income households will continue to struggle to keep pace with the rising cost of living. For that reason, the minimum wage increase must be accompanied by other support measures, and not viewed as a solution in its own right.

Minimum wages and employment

In fact, there are those who don't see a minimum wage as being productive at all.

One school of economic thought proposes that minimum wages actually undermine job creation by making employers avoid paying for more expensive labour at the same time as encouraging more workers into the job market.

This view was articulated by Nobel laureate economist George Stigler, who wrote in 1976:

One evidence of professional integrity of the economist is the fact that it is not possible to enlist good economists to defend protectionist programs or minimum wage laws.

But other economists have argued against this - for example, David Card and Alan Krueger, who published several controversial empirical works in the 1990s finding that increasing the minimum wage doesn't necessarily lead to fewer jobs.

Not everyone agrees with Card and Krueger, however. David Neumark and William Wascher evaluated the evidence and argued minimum wages do reduce employment opportunities for less-skilled workers, "especially those who are most directly affected by minimum wage".

So, there is no real academic consensus on minimum wages - and not even much agreement on what the research literature really says.

Effects on poverty

Given all this, perhaps the better question is whether minimum wage policies reduce poverty overall. But again, the research has been contradictory.

In one New Zealand study in 2012, researchers found that minimum wages do not guarantee that people will escape poverty. Another study using Irish data also concluded that minimum wages may be "a blunt instrument" for tackling poverty.

On the other hand, a 2021 US study found significant positive employment effects for single mothers with aged children five and under, suggesting minimum wages at least have potential as a policy instrument for reducing child poverty.

This is particularly relevant in New Zealand for two reasons: one in five Maori children and one in four Pasifika children meet the criteria for material hardship, and Pacific people and Maori represent 10% and 20% of minimum wage earners, respectively.

Minimum wage just one tool

What does seem clear is that minimum wage policies are most effective as part of a complementary income support bundle, as some overseas research has shown and which was supported by a comprehensive review of minimum wage policies in New Zealand.

Examining the effects on various economic outcomes since 2000, the authors argued that minimum wage policies should be "designed and evaluated in the context of other income support policies".

Those other supports include the Families Package introduced in 2018, which included an increase to the accommodation supplement, designed to help low-income earners with rent, board or mortgages (but is not available to those in public housing).

The same authors recently investigated the impact of increases in the maximum accommodation supplement rates to see if these had simply been swallowed by rising accommodation costs.

Their findings were encouraging: more than 90% of the increase in assistance was captured by the recipients as an increase in after-rent income. A minimum wage policy has a greater chance of success when coupled with successful support policies such as this.

But it's important that such complementary policies are synchronised, especially given that only some other social policies, such as Working for Families, are inflation-adjusted.

Getting the mix right

Elsewhere, these policy combinations have been effective. In the United States, for example, the Earned Income Tax Credit (EITC) - as its title suggests, a refundable tax credit similar to New Zealand's Working for Families policy - has been shown to benefit low-wage workers and families in combination with a modest increase in the minimum wage.

Again, the combination of policies works better than either in isolation, and some recent studies suggest EITC expansions and minimum wage hikes should be thought of in tandem as complementary policies.

However, one of the big challenges of integrating minimum wage settings with other policies is that each tool affects many economic outcomes. What should be the optimal level of minimum wages? How do minimum wage hikes interact with other supporting policies?

While there have been some official efforts to measure the relationship between the minimum wage and other state interventions, this needs to go further in order to find the right policy mix - especially during a year that will see continued high inflation, low growth and economic uncertainty.

• Murat Ungor is a Senior Lecturer in Economics at the University of Otago.
• First published in The Conversation. Republished with permission.

The Auckland-based community support worker looks after people in their own homes using her own car to get there, but her rising fuel costs aren't matched by the mileage rates set by the Government. Currently, she receives 58 cents a kilometre.

She said the latest petrol price hike would be the straw to break the camel's back. Read more

The consumer price index, a measure of inflation, jumped to 3.3 per cent in the year to June, the biggest increase in nearly 10 years. It had run at an annual rate of 1.5 per cent for the preceding quarters.

Inflation refers to the rise in average prices throughout the economy.

But what exactly will take the biggest chunk out of Kiwis' wallets over the coming months? Read more

There is disquiet that the monetary response to Covid-19 is fuelling inequality by driving up share-markets and house prices.

Recent Stat's NZ data shows high-spending households are benefiting from zero inflation on the mix of products and services they buy. In contrast, price rises are still impacting those with less money to spend.

Stats NZ says thanks mainly to falling interest rates, high-spending households experienced zero inflation in the three months to the end of September. This was even while prices overall rose 0.4 percent.

The biggest losers in the inflation stakes over the past three months were superannuants. Stats NZ says they had the highest inflation rate during the quarter - 0.7 percent.

The reason: they were proportionally most impacted by rises in local authority rates bills.

"The highest-spending households benefited the most from the recent drop in interest rates, helping offset rising local authority rates," consumer prices manager Nicola Growden says.

"Interest payments make up about $1 in every $10 of this household group's spending."

Growden says spending on interest payments fell 6.4 percent when compared with the three months to the end of June and by 10 per cent compared with a year ago.

Rates rose 3.1 percent during the quarter.

The Council of Trade Unions (CTU) has also expressed concern in a recent report about unemployment inequalities.

The report says women are disproportionately impacted by unemployment, which rose to 5.3 per cent in the September quarter.

CTU economist Andrea Black says the unemployment rate was 4.8 percent for men but 5.8 percent for women.

"It is also important to note that even in good times the unemployment rates for Maori and Pasifika are higher than for Pakeha," she said.

"This trend continues with the Maori unemployment rate of 8.8 percent and Pasifika at 8.1 percent."

Black says the CTU wants the Government to invest more resources into social infrastructure. These include early childhood education, midwifery and the care sector.

Source

• Stuff
• Image: Newshub

The International Monetary Fund is predicting the inflation rate in Venezuela will top one million percent this year. If that happens, the monthly minimum wage will not buy enough flour for a batch of arepas, the corn bread that is a Venezuelan staple. Read more

The monthly production of hosts in the South American nation has fallen from 80,000 to 30,000 recently, the Catholic News Agency reported.

Giovanni Luisio Mass, prior of the Order of Poor Knights of Christ of the Temple of Jerusalem, told local media the drop has affected every parish in three Venezuelan states.

He added that only 1500 hosts can be sent to the parishes in the north of the country.

This is because there is no longer enough flour to make the 8000 hosts these parishes have always needed.

Several parishes, along with the local communities, have started their own searches for the flour needed for the hosts.

Shortages in Venezuela include food, toilet paper, medicines, auto parts, chocolate, oil, and clothes irons.

According to the Central Bank of Venezuela, food prices went up 92 per cent last year.

According to the Colombian newspaper El Tiempo, since 2003 the Venezuelan government has imposed price controls on 165 products, including cooking oil, soap, milk, flour, cereals, toilet paper , cleaning products, detergent, diapers, toothpaste and sugar.

The local currency has plummeted in value.

As a result, price-controlled commodities are affordable, but disappear from shelves in no time, often to be resold on the black market at market rates.

And the goods that are not price-controlled are unaffordable because of the devalued currency.

The government has instituted measures such as distributing tickets for supermarkets and placing digital fingerprint readers in stores to prevent people from exceeding the allotted amount of products they can buy.

Sources

• Catholic News Agency
• Image: Triumph Dining