The New Zealand Herald reported last month:
Robbie Winterson says he faces a battle every time he tries to hire new plumbers in his business.
He runs Go Fox Plumbing and Electrical in Putāruru in the South Waikato. When he puts a job ad on Seek or Trade Me, he says, he either gets no New Zealand applicants at all, or only people completely unsuitable for the job.
“We don’t get good-quality applicants at all. You just don’t get people applying.”
Winterson said plumbers would be paid more than electricians and his firm paid the same as they would get in Auckland, but it was still hard to hire.
The problem here is that Go Fox Plumbing is only offering to pay the same as plumbers would receive working in Auckland. To get quality applicants, they might have to offer more. They face essentially the same problem as South Waikato District Council looking for a health and safety manager in 2018, or a Tokoroa GP looking for a doctor in 2016. In all cases, despite offering what they thought was a competitive wage (compared with elsewhere), the employer was unable to attract good people for the role.
Aside from difficulty in recruiting, there is one common thread there, and that's the location: South Waikato. Before we talk about why that's relevant (and potentially throw some shade on South Waikato), we need to review a bit of theory on compensating differentials.
Wages differ for the same job in different firms or locations. Consider the same job in two different locations. If the job in the first location has positive non-monetary characteristics (e.g. it is in an area that has high amenity value, where people like to live), then more people will be willing to do that job. This leads to a higher supply of labour for that job, which leads to lower equilibrium wages. In contrast, if the job in the second area has negative non-monetary characteristics (e.g. it is in an area with lower amenity value, where fewer people like to live), then fewer people will be willing to do that job. This leads to a lower supply of labour for that job, which leads to higher equilibrium wages. The difference in wages between the attractive job that lots of people want to do and the unattractive job that fewer people want to do is called a compensating differential. The compensating differential essentially compensates workers for working in jobs with negative non-monetary characteristics compared with working in jobs with positive non-monetary characteristics.
Now, if South Waikato employers (the council, or a GP, or a plumber) are all offering 'competitive' wages and unable to find quality workers, then that suggests that they are not offering wages that are high enough to compensate for the non-monetary characteristics of the job. If they have to offer a wage that is even higher than workers would receive in other locations, that suggests that there is a compensating differential at play. For some reason, it appears that workers perceive that working in South Waikato comes with negative non-monetary characteristics relative to other areas, and are unwilling to move and work there at the wages that are being offered.
Workers' perceptions have an important implication for South Waikato employers. If they want to attract quality applicants, then South Waikato employers either need to find some way to convince potential workers that there are positive reasons for living in South Waikato (South Waikato District Council is clearly trying their best), or they need to pay more to offset the perceived negative characteristics of living in South Waikato.
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