New Zealand’s NAIRU
Stephen Toplis at the BNZ produced an interesting graph showing the Non Accelerating Inflation Rate of Unemployment – NAIRU. With the increasing amount of structural unemployment in the New Zealand economy caused by a mismatch – Skills of unemployed v Skills required in the labour market – the NAIRU is around 5%. This means that an unemployment level of 6.7% is worringly tight and a level below 5% could be inflationary. This is likely to result in upward pressure on wages which will erode corporate profitability given that output growth will be constrained.