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Raising interest rates may cost jobs, warns Donald

11 August, 2004

Raising interest rates may cost jobs, warns Donald

Green Party Co-leader Rod Donald is warning that a threatened hike in interest rates as a result of falling unemployment could stall jobs growth.

"It is a perverse consequence of falling unemployment in New Zealand that the Reserve Bank may raise interest rates to meet its inflation target," said Mr Donald. "Such a rate rise could well be counter-productive as many employers will be less likely to borrow in order to increase productivity and employ more workers.

"Threats of interest rate rises underscore continuing structural problems in the New Zealand economy."

Mr Donald pointed out that the sustained period of high employment and low inflation after World War II was a time of relative equal income distribution in OECD countries.

"Sharing the gains more equally is a fundamental part of avoiding the boom-bust cycle. There is no reason for an employment rate of four per cent or even one per cent to be inflationary.

"It is great news that official unemployment has fallen to four per cent but that still represents 84,000 New Zealanders without a job," said Mr Donald. "The official figures show an additional 148,000 people without work and wanting employment. Clearly, there still isn't enough work for everyone who wants a job."

Mr Donald refutes calls from employers that the answer to the perceived 'skills shortage' in the New Zealand workforce is simply to recruit more skilled workers from overseas.

"Employers should look in the mirror," said Mr Donald. "Too many of them are unwilling to invest in training young workers and in re-training older workers. Neither are they prepared to pay the market rates needed to keep trained kiwi workers from going overseas, despite their advocacy of 'market forces'."


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