Debt and Labour Force Issues
Speech by Ross Wilson
President of the New Zealand Council of Trade Unions
to the NZUSA Debt Summit
23 July 2002
DEBT AND LABOUR FORCE ISSUES
Thanks for the opportunity to participate in this very important discussion. I am very happy to present a CTU viewpoint on this very important issue of student debt.
Can I begin by declaring an interest. I have one son who has already left New Zealand with a hefty student loan, and another one starting in the system this year. So, like so many other New Zealanders I have a concern as a parent.
I also speak as a 1960’s graduate who not only had the benefit of a free state education up to and including university, and who had an expectation that a progressive taxation system would ensure that I repaid that investment (if I achieved a good income as a result) and that future generations had a similar opportunity.
But I am here today as the CTU President to represent our 33 affiliated unions of almost 300,000 union members. And of course they represent a fairly broad cross section of New Zealanders.
I am also here to listen. I am somewhat daunted by the authoritative papers presented this morning, and, in addition, I have an expectation that you will all be far more informed and expert on this issue than I will ever be.
We have had several discussions with the NZUSA leadership on this issue over the past few years, and I have been very impressed by the work done byRebecca, Charlie, Andrew and others. It is thanks to much of that material, which I looked at again over the weekend, that I can at least say I know more about this subject this week than I did last week.
For example I now know that “flat spotting” is not looking for a flat to live in but is a new phenomenon where graduates loan repayments are not even enough to cover the interest.
So let me turn to a CTU perspective on student loans and graduate debt as a labour force or labour market issue; a union view rather than a academic view.
From that perspective this is a very serious issue. Firstly there is the direct impact on students and the burden placed on families and those trying to support students. Secondly, there is a broader economic impact that will exacerbate difficulties in recruiting and keeping many skilled workers, , and has resulted in higher emigration,and lower savings. Yet at the same time NZ is trying to embrace an agenda of innovation and growth that fundamentally requires higher levels of skill and education. .
We can’t pretend that lifelong learning will be a reality for a majority of our society if we under-invest and if there are significant disincentives which discourage people from higher education.
The CTU recognises the crucial value of education. In general the more educated a person, the higher the income. So there are individual benefits from education. But it makes much more sense to see education as a public good, as the positive spillovers benefit the economy and society in general.
In addition, among our affiliated unions, we have a number which represent workers in the education sector. It is perhaps an understatement to say that there are a number of difficulties facing these unions! They are trying to grapple with long-term declines in pay relative to other groups, and higher workloads. Research, scholarship and teaching undertaken in the public tertiary education sector make a key public good contribution to the nation’s social, economic and cultural development. This election the CTU has called for a longer-term planned re-investment in public tertiary education which incorporates a strategic workforce development plan for staff, improved staff: student ratios, universal student living allowances and reduced tuition fees., Given the Government's resource constraints, we have also opposed the leakage of government funding to for-profit providers and called for more effective quality assurance and accountability measures for Private Training Establishments receiving public money. ..
This focus on both the needs of workers within the sector, and of working peoples’ ability to access lifelong learning is reflected in unions and NZUSA’s joint participation in the Public Tertiary Education Coalition.
Also, we include industry training as a form of tertiary education, and we are keen to see more resources devoted to apprenticeships and industry training.
One of our defining principles in the union movement is - fairness. So from the union perspective it is simply unfair that, as one study I have seen shows, 44% of university students come from the wealthiest 20% of school districts compared with 9% from the poorest 20% of school districts. We know from many studies that the economic returns to higher education can be significant. If access to university education is skewed in favour of those already better off, then we worsen inequality, not lessen it.
Equity of access is a fundamental principle underpinning the sector, yet is undermined by the differential impact of student debt. Women, Maori, Pacific and low-income students will take longer to repay loans, effectively facing higher repayment levels as interest continues to mount on their original debt. It is also clear that student debt is operating to worsen the gender pay gap. Is it a coincidence that in the predominantly female profession of general nursing it takes an average of 23 years to pay of a student loan; I am told the longest repayment time of any occupational group.
One of the most debilitating impacts of debt is that it entrenches disadvantage and intergenerational inequity. In this regard, it is interesting to note that many overseas countries attempt to ameliorate this imapct through fee reductions or rebates for low-income students. This contrast with private savings schemes which risk producing a two-tier system where only those who can afford to save privately receive quality tertiary education.
And an incidental, but important, equity issue I noted in the NZUSA papers is that there appears to be no provision for those who become disabled to get some relief from debt repayments.
There is of course ample evidence of the negative impacts of rising student debt.
The Teachers’ Student Debt Casebook produced by the NZUSA in conjunction with NZEI Te Riu Roa, our primary and early childhood education union, contains graphic case study evidence of the impact of student debt on:
- whether to go overseas
- whether to leave teaching
- whether to have children
- and the ability to access loans for other purposes
I was particularly concerned to note the comment that many graduates went overseas not just to get away from the debt, but also because the whole experience had developed a feeling of disassociation and alienation from New Zealand society.
And if you do decide to stay in New Zealand there is also the more general issue of debt which compounds the problem:
Credit card debt. One report I saw stated that outstanding advances on the cards - debt not repaid within the allowable interest-free period - have risen by 56 per cent in the past three years, and are expected to top $3 billion soon. Although the trend has slowed a bit recently, total outstanding credit card debt is still growing well in excess of household incomes.
Household borrowing increasing from 57 per cent of disposable income in 1990 to 110 per cent in 2000. While, this level of borrowing in itself is not unusual internationally, it is a massive shift into higher debt for the average household. .
In 2000, the OECD average household saving rate was 8.4 per cent, but we were in negative territory and spending more than we earned.
New Zealand households net financial wealth - deposits, shares, unit trusts, pension funds, etc, less household debt - is estimated to be around 70 per cent of household annual disposable income. In the larger developed countries, that ratio averages around 270 per cent. - that’s 4 times higher than the financial wealth of households here.
Underpinning debt is the massive disparity of income that has developed - with real incomes falling for low-income families, yet increasing considerably for those on high incomes.
Between 1983/4 and 1995/6 the bottom 10% of households had a fall in real per capita income of 8.8% while the top 10% gained 26.5%, and the top 5% a massive 36.4%. This was at a time when, not surprisingly, the number of foodbanks in Auckland alone grew from 16 in 1990 to 130 in 1994.
Tax cuts in 1996 and 1998 also contributed to these disparities with one-third of the income gains going to those in the highest income quintile.
In New Zealand there is an increasing polarisation of amounts of paid work, with two earner (“work rich’) families contrasting with many (“work poor’) families where no-one is in paid work. And a huge proportion of those struggling with unemployment are Maori or Pacific families. For example, while the rate of Maori unemployment has fallen significantly, any Maori person is still three times more likely to be unemployed than someone who is Pakeha.
The neo-liberal experiment failed. But we continue to experience its legacy. One of these is a constrained State sector.
The neo-liberal experiment essentially “parked up” the New Zealand economy. Professor Paul Dalziel’s study shows that although the NZ & Australian economies tracked along the same prior to 1984, they diverged markedly after that. If the New Zealand economy had grown at its previous trend rate, or matched Australia over the same period, output would have been a third higher at the end of the 1990s.
The amounts of personal and public income associated with this are staggering.
If New Zealand had continued to match Australia’s growth the extra income would have generated, at the end of the last decade, an extra $11 billion of tax revenue per annum - enough to halve net government debt, or double spending on health and education.
What this means for workers is that their direct wages either fell or held level, and their social wage in terms of health, education and housing, fell over the 1984-99 period. Since then, it is probably fair to say that wages have just kept pace with inflation (although are probably just starting to go ahead now) though household incomes have improved through higher levels of employment and more hours of work.
Turning now to the specific labour market effects of student debt.
The impact of this is already being seen in the labour market. Some workers are having to work longer and longer hours. Some are leaving New Zealand. But inevitably it will impact more and more on employers. There will be pressures for wages to rise, driven by the cost of debt servicing for workers. Recruitment and retention will be more difficult.
In short new graduates burdened with student debt are entering a working environment in New Zealand where they will also face:
„« Mortgage debt to buy a house (if not excluded by student loan)
„« Dramatically increasing household and credit card debt
„« Trying to save for retirement
„« Assumptions that families will have to save to pay a higher proportion of their children’s and grandchildren’s tertiary education
And with the pressures created by the market mechanisms, in particular the Employment Contracts Act, of the last decade we are seeing an intensification of work and a serious work-life imbalance.
As part of our “Get a Life’ campaign, yesterday the CTU launched a report about the increasing number of hours NZ workers are spending in paid work. That report is based on extensive interviews with 30 workers and their partners. It can be found on our web-site www.union.org.nz
For almost all of the workers we interviewed in the Thirty Families Project, work hours were a major issue with huge implications for individual workers, their families, and their communities. Some workers worked long hours on a paid basis, but many received little or no payment for the extra hours they worked. Those who worked long hours unpaid, were motivated by a commitment to the job, pressure from an employer, understaffing or a combination of these forces. They often felt their contribution was undervalued, not only in financial terms, but also in the lack of recognition for the negative impact on themselves, and their families.
Many worked long hours without real control over their hours and, in many cases, the length of work hours was coupled with significant pressure, and work intensity. Workers in the hospitality industry, in nursing, teaching, social work, in call centres, in the public service and in law, all commented on the constant pressure to complete more and more work, with fewer and fewer workers, resources and time. Many workers said that work was frequently unfinished at the end of the day, and at the end of the week. Workers constantly felt that they "never got on top of it, or to the end of it."
One of the main reasons people gave for working longer hours is the need for more income. A contributing factor to this situation is the burden of debt combined with low wage rates.
A number of workers interviewed specifically mentioned the pressures a student debt placed on their lives and employment choices. For example, one trained teacher said there was no way she could pay off her $45,000 student debt working as a teacher, so she has walked away from her profession and taken up other work. Other current students were working very long hours in an attempt to avoid excessive student debt. The CTU campaign has highlighted to us that for many young people the juggling act is between paid work / study and having a life.
Now clearly it is not in the nature of workers and their unions to take all of this without fighting to redress the inequities.
There are inevitable labour market impacts through bargaining, and these are already being seen, and within the State Sector particularly in the health and education sub-sectors. Frustration with working conditions and remuneration levels erupting in industrial disputes, with anecdotal evidence that there is particular dissatisfaction from new graduates who have entered those professions. Trainee teachers in the education unions and nursing students from NZNO remind us that there are integral links between the costs of training, and the pay and conditions required tom recruit and then retain staff.
The CTU anticipates that apart from the other effects of student debt already mentioned there will increasingly be a direct impact on employment contracts and collective bargaining. Student fees may be covered partly by employers, there may be bonding arrangements, and some other conditions of work may be jeopardised because of a shift in emphasis towards employment contracts that address debt issues.
unionisation and collective bargaining are therefore powerful tools for addressing issues like student debt. But we also need to acknowledge the huge proportion of young workers who are casualised, often in non-unionised parts of the workforce. They are a harsh reminder of the parallel need for government policies that reduce student debt.
The labour market effects of student debt can therefore be summarised as:
- it is worsening the gender pay gap
- it is forcing students into more and more paid work while studying
- it is leading to higher levels of emigration
- it is affecting bargaining by introducing concepts such as bonding, employer payment of fees and so forth
- it is affecting recruitment and retention
- it is adding to the debt burden of workers which ends up meaning more stress and longer hours of work
So returning to the value of higher education I wanted to briefly state our views on lifelong learning and the knowledge society?
We have been part of the Knowledge Wave Project - and although it has been uncomfortable at times because of the agenda of some participants, and the tendency for more exclusive solutions that would miss out most workers, it has served as a useful focus on the importance of the role of knowledge.
The CTU recognises that knowledge is an infinitely renewable resource - but only provided we invest in it. That needs to be seen as primarily a social or collective investment - not a private one. Unions argue hard over the distribution of today’s resources. But we also want to see investment in economic and social infrastructure, education including specific skill development opportunities for workers, so that we can build a high wage, high skill, high trust, quality economy.
Far too many workers in the labour market either have no formal qualifications or their “trade” training was many years ago. One of the key points of the reforms to tertiary education is to ensure that more and more workers complete qualifications, and are regularly retrained. As the CTU has said on numerous occasions, 80% of the workforce of 2010 is in the workforce of today. We can’t build an economy, which is based more and more around “knowledge” if we ignore the vast number of workers already in the workplace.
Many employers from the late 1980s had been able to source skilled labour from those displaced through state sector restructuring, the privatisation process, and the closure of the so-called protected manufacturing sectors. But that is no longer possible and there is now an acute awareness of not only current skill shortages but also the fact that the age profile of those formally trained has risen. In the past, many of the government owned operations provided a high level of staff and trade training with positive spillover effects throughout the economy. Privatisation has drastically affected this process, particularly when parcels of work have been contracted out to smaller and smaller firms with no inclination or budget for training.
So we have to get a higher level of investment into education and training. I have yet to meet a worker who doesn’t want to learn more. But, the structures, incentives and funding are not yet in place to ensure that quality lifelong learning is a reality for New Zealand workers.
This means that the labour force issues facing us now due to student debt and other forms of debt must be tackled - otherwise “lifelong learning” will end up as a discredited buzzword, instead of an integrated conceptual and practical approach to economic and social development.
I have no doubt that the current Government has a sincere commitment to investment in education and training. They have introduced some specific measures both in broader tertiary education, and in industry training, as evidence of that commitment. But we all know this isn’t enough. When I meet health workers - they appreciate the extra resources in their sector - but also say it isn’t enough. So we have to continue to advocate for stronger state sector capacity. Three years ago the CTU set out a number of key areas of work - including fairness at work, economic development, investment in education and skills development, improving the social wage, and state sector capacity. That means we have a lot in common with NZUSA.
So clearly, the CTU agrees that there is a huge problem here. I can also understand the frustration of students who want to see the Government do more to reduce this burden.
Given that it is election week, quite legitimately, you are pushing hard on this issue.
I think however that it is important to acknowledge that the current government has made a start with the measures on removing interest payments while studying, and freezing fees. We are also aware that many students are also reliant on bank overdrafts, and that when the government removed interest payments some banks then attempted to reintroduce interest on student overdrafts. Therefore, any policy development around student debt needs to incorporate an analysis of all components of that debt.
Today we have around 300,000 students owing $5 billion, projected to rise to $20 billion. And whilst fees are frozen, they remain at high levels. Therefore I can understand why many feel this Government has only started to scratch the surface. So what is the way forward?
Clearly from the Government perspective, there are competing priorities both within Vote Education, and across the broad range of expenditure.
Yet, arguably, w given the healthy healthy Government surplus, - there is more room to move in a number of social policy areas. Obviously the CTU takes this view, as we have continually called for greater government investment in the provision of public services, especially education and health. Notwithstanding the current surplus, additional government funding is also likely to be required. In this regard, the CTU has policy supporting a a more progressive tax structure to both assist low-income workers and beneficiaries, and generate higher levels of government revenue from those on top incomes.
After all, what is wrong with the arrangement that operated in the past when tertiary education was free, and those that benefited by getting higher paid jobs, would through a progressive tax system pay higher tax rates. Requiring students to take on debt before they finish their study is getting things the wrong way around.
I have seen the set of proposals by NZUSA and note that they include in numerous areas clear statements of objectives, but also interim measures suggesting a pathway towards such objectives. I think that is a sensible approach.
So in the last few days of this election campaign I wish you as much success in advancing the interests of students as we are hoping for in the interests of workers.
The interests of workers and their children will be advanced when all students can gain a qualification without going into debt
Thank you once again for the opportunity to participate in this Summit.