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WHY DINING OUT COULD BE EVEN MORE OF A LUXURY

The current state of the hospitality industry appears to be unsustainable, writes

Stuff Gareth Kiernan.

contracts. The report says a common refrain from workers was: ‘‘If we did not sign we knew we couldn’t go. So we just signed and came.’’

However, the report notes this was in 2007 and by 2017 knowledge had improved.

Pressure goes on the RSE scheme

A investigation revealed some migrant horticulture workers were being housed six men to a room, and charged $150 a week to sleep in damp conditions that were making them sick.

Some were allegedly unable to travel home because they were in too much debt to their employers.

Equal Employment Opportunities Commissioner Saunoamaali’i Karanina Sumeo raised concerns about substandard housing where people had little freedom or privacy.

Improving the wellbeing of RSE workers was also a focus of this year’s annual RSE conference in July, and the public furore around the issue was front of mind for the horticulture industry in August, with Horticulture New Zealand putting out a statement after some RSE employers criticised the practices of others.

‘‘To break up, become disjointed or start to finger point would do nothing to maintain our social licence,’’ the statement said.

‘‘The significant majority of you do a good to excellent job within the RSE scheme.

‘‘If you are concerned about how others may be performing, let your product groups know and we will assist. The RSE programme is yours collectively to protect.’’

A review of the RSE scheme was supposed to start in 2019 but was delayed by Covid-19. It will now take place in 2023.

However, Sheardown doubts such a review will make a difference, in part because of how the RSE scheme looks from the outside.

When people look at many of these situations they will see an employer providing food, accommodation and taking care to protect workers from the influence of criminal gangs by preventing visitors from entering dormitories.

All make sense from a pastoral-care point of view, but Sheardown argues that this has a big impact on individual freedom.

A group of workers came to Sheardown recently complaining of having $105 per week deducted from their pay for a nutritious lunch where, if they had the choice, they would have eaten a less-nutritious meal and saved their money.

‘‘Protecting them from meth, giving them a nutritious diet, stopping them from getting into bad habits with alcohol . . . we look at it and we say, ‘oh yeah there are positives to it, greater good maybe.’ ’’

But this approach means when Sheardown’s family comes to New Zealand from the Solomon Islands he often can’t see them because their accommodation bars visitors – not out of spite, but out of care.

‘‘We do that with animals, we put them in pens, we give them nutritious food, and they can’t complain because at the end of the day they’re not human. You just forget that they’re a human being with rights, they’re not cattle.’’

The labour market’s tightness over the past 18 months has become increasingly pervasive across all industries and regions.

The record-low unemployment rate in the first half of 2022 highlights the difficulties that all businesses have experienced trying to find new staff or retain existing workers.

In general, employees have been in a strong bargaining position for higher wages, particularly in the context of the rising cost of living and increasing mortgage rates. It’s little surprise that wage inflation is now the fastest it’s been since the 1980s, at 6.4% a year.

The unemployment rate is unlikely to stay as low as it currently is, near 3%, over the next couple of years. Rising interest rates, both domestically and internationally, are taking some of the heat out of the economy. Businesses will feel less compulsion to try to find additional workers as growth in demand slows and we’re not moving at a breakneck speed.

A quick survey of forecasters shows that by the end of 2024, the unemployment rate is expected to be somewhere between 4% and 5%, which is still low compared to previous slowdowns in the economy. So even with economic growth softening, there will be only a limited amount of slack in the labour market in two years’ time.

Forecasters have been warning for several years that slowing growth in the number of working-age people, due to demographic trends such as the ageing population, could constrain medium-term economic growth.

Covid’s glimpse of acute worker shortages

Nevertheless, the disruptions caused by Covid-19 and the border closures since 2020 have provided an accelerated glimpse of how some issues associated with a permanently tighter labour market might play out. Industries that have traditionally been reliant on workers from overseas have found themselves the most short-staffed, contributing to significant cost increases (construction, for example) or concerns about levels of service (aged care and nursing, for example).

Covid-19 restrictions have also left tourism and hospitality businesses facing a curious mix of reduced demand and a constrained labour supply.

If worker shortages are going to persist across the economy, it is likely these shortages will be most critical for lower-paid roles. Our analysis shows that average wages for most industries are either above or within 11% of the economy-wide average. However, retail trade and accommodation and food services stick out like a sore thumb, with average wages in both industries about 25% below the average.

Businesses in these industries should be extremely concerned about their ability to attract workers over the medium term. A walk through any shopping or restaurant area shows that most businesses are advertising for staff, but that situation is unlikely to improve markedly. Apart from the part-time and flexible nature of some retail and hospitality jobs, why would people choose those roles over higher-paying alternatives?

Hospitality’s unsustainability

The current state of the hospitality industry appears to be unsustainable. Covid-19 has already led to some consolidation in the industry, with businesses closing due to restrictions on spending, a lack of tourismrelated revenue, and widespread cost pressures. Yet the industry is still being squeezed between the apparent need for higher wages to attract staff and the reluctance of diners to pay more for their meal.

The solution is not necessarily straightforward. Continued consolidation could result in a permanent reduction in the number of restaurants and cafes, with the survivors commanding a higher price and being able to pay their staff more. Dining out would therefore become more of a luxury than it already is.

An alternative is the adoption of increased technology. Ordering from your table via a QR code is becoming more commonplace, providing efficiency gains for the business as well as decreasing the number of wait staff required. The retail industry is further advanced down this technological path – online shopping and self-service checkouts provide clear examples of how staff numbers have been reduced throughout the past 10 to 15 years.

More immediately, how does the hospitality industry navigate the upcoming summer? There are high hopes that even a partial rebound in visitor arrivals over coming months will cushion the effects of slowing domestic demand on overall economic growth. We estimate that even a recovery in tourism earnings of just half the drop experienced since Covid-19 struck would add 1.2% to GDP over the next year.

But a lack of available workers could prevent tourism from achieving even this degree of recovery. Queenstown’s restaurants and hotels are already highly stretched by a lack of available staff, despite New Zealand’s peak international tourism season being between November and March, not between June and September.

Don’t tell anyone thinking of visiting New Zealand over summer, but we might only be able to accommodate them if they cook their own meals and make their own beds.

Even with economic growth softening, there will be only a limited amount of slack in the labour market in two years’ time.

Gareth Kiernan is the chief forecaster for Infometrics.

THE MONITOR

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2022-09-25T07:00:00.0000000Z

2022-09-25T07:00:00.0000000Z

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