Opinion: Govt's education cuts poorly timed; We need to retrain workforce

By Infometrics economist Geoff Simmons Have you lost your job or are you worried about doing so? You no doubt had a rush of hope after the Job Summit - everything was going to be okay. At one stage I was expecting to see our unemployed diligently hacking out a cycle track worthy of Wellington's mountain biking elite. I pictured John Key at the front of the line, pick and shovel over either shoulder, singing "Hi Ho, Hi Ho, It's Off to Work We Go"¦", with Paula Bennett, our very own Snow White, bringing up the rear. Apparently we couldn't afford to implement that one completely as planned, probably due to costume shortages. But that was okay, because for a while it looked like the green shoots of economic recovery were going to take the pressure off the Government. Now the higher dollar and slumping dairy price has poured Roundup all over those dreams. So John and Sideshow Bill are coming under pressure to come up with something better to stem the queues of unemployed turning up at Work and Income.

Over 50,000 people are now on the dole, and it's increasing by about 1,000 per week. As an emergency measure Labour are suggesting that all those made redundant should receive the unemployment benefit. John Key helpfully retorted that there are no pixies printing money at the bottom of the garden. Should he have added "like they have in America?". Political panic is in the air, but surprisingly everyone is talking about welfare, and no-one is talking about these times being a chance to retrain. In truth, the Government can do little to stem the flow of job losses. Their infrastructure spending may take the edge off the ills facing the construction industry, but has anyone bothered to think there are different skills required to plaster a house than build a motorway? Keynesian economists argue that Government should spend more to prop up the economy, and it doesn't matter too much what they spend it on. Just get the money in people's pockets and get them spending, which is probably behind Labour's idea. This devil-may-care approach to fiscal policy may have some merits in a crisis, but it is always worth asking if there is a better way to spend the money. We could view this current crisis as an opportunity "“ some downtime to retrain and prepare ourselves for the future. Recessions have always had a cleansing effect on the economy, much like winter has on the land. They are painful, positively awful for those that lose their jobs and even homes, but it recycles resources for the economy to head in a new direction when spring arrives. And boy do we need a new direction. As Don Brash will tell you, every hour you work here creates 1/3 less money than if you were in Oz. We need to boost our quality of investment to catch up, including investing in human capital - skills. This current recession provides the perfect opportunity to start that investment. Our education system seems to be doing okay "“ young people entering the workforce are more qualified than ever. As a result the proportion of people with no qualifications is falling, down from 40.5 percent of the working age population in 1986 to just 19 percent in 2006. But those already in the workforce still have a lot of catching up to do. Over 40% of working age New Zealanders have literacy skills below those needed to participate in modern society. Scary stuff. In the past we focused on the young and waited for the dead wood to retire. But we already face skill shortages, and with increasing retirement rates there will not be enough skilled young people coming through to plug the gaps. Around 80 percent of the current workforce will still be in the workforce in 2020, so we need to encourage people that are working or could work to retrain. So if we want to help people and pump some money into the economy at the same time, we could do better than giving them all a handout. Sure there are bits of retraining assistance around, but maybe now is time to think big about training incentives "“ like a universal training allowance. We should also not just work with those who have lost their job - now is the time to start talking to those people that are already in jobs but fear for their future. These people could be helped to plan ahead and get the skills they need before they are made redundant. Industry training and adult education have over 400,000 learners between them so they are the major source of training for people already in work. The Government's recent cuts to both may have been poorly timed "“ they could hamstring New Zealand's ability to seize the opportunities that will arise after this harsh winter of recession. ________________ * Infometrics is an economic information and forecasting company based in Wellington. To find out more, see its website here. This piece first appeared in the Dominion Post.