New Zealand’s NAIRU and youth unemployment

The BNZ Economy Watch today talked of the labour market pressures that might be facing New Zealand over the next year – this is especially prevalent if the country is going to meet the needs of a more bouyant economy. What is interesting to notice is the actual unemployment figures during the recent recession compared with those from earlier downturns:

2010 – Unemployment 7%
1998 – Unemployment 7.9%
1991 – Unemployment 11.2%

This suggest that in 2010 the labour was already very tight going into the recession and had fallen to 3.4% which is well below what is considered New Zealand’s NAIRU (Non-Accelerating Inflation Rate of Unemployment) of 5.0% – earlier this year I did a post on the Austalian NAIRU – Aussies – cruising along nicely but watch for the NAIRU. So it could be said that the first stages of the recession were just reducing the excess demand in the labour market and even when in recession employers reported difficulties in finding skilled labour. See graph below

The BNZ is concerned that the labour supply is insufficient and has the potential to result in a combination of constrained economic expansion, rising unit labour costs and increasing inflationary pressures more generally.

Youth Unemployment
The current youth unemployment rate (those aged 15 to 19) is a staggering 27.5%. Moreover, the next age group up (ages 20 to 24) has an unemployment rate of 13.5%. See graph at the bottom of the post.

If the youth unemployed are the main pool of labour available to call on for economic growth then there may be issues in finding the necessary skills. At that point, however, the data becomes “curiouser and curiouser” when one looks even more closely at its composition. Despite the relative surge in the youth unemployment rate the proportion of unemployed who are youths actually falls. What this means is that youth employment fell and rather than unemployment rising folk simply left the labour force altogether. And boy did employment fall. Stephen Toplis BNZ

Inflation outlook
The labour market still appears to be very tight and this will ultimately lower New Zealand’s growth potential. This means that lower growth rates will impact on inflationary pressures as labour becomes more scarce and therefore this may lead to an increase in interest rates and the NZ$. Not really what New Zealand needs at this present time.

2 thoughts on “New Zealand’s NAIRU and youth unemployment

  1. Recruitment Agencies Auckland January 17, 2012 / 9:11 am

    I think unemployment reporting has a lot to do with those stats. Also to be considered is the fact that 7% of NZ”s population now is probably more than 11.2% in 1991. This will be an interesting year for sure. I am in the recruitment agency business myself and can honestly say that bigger companies are laying off staff while smaller companies/startups are taking up the slack and hiring people.


    • Mark January 17, 2012 / 11:52 pm

      Thanks for the comment. If you look at the US you tend to get the same situation although their productivity levels have improved drastically. Probably due to the weak economic conditions where workers are concerned about job security so therefore tend to work longer hours and become more innovative in performing their job. Productivity levels are up for Non-Farm Business 2.3% Business 1.9% Manufacturing 5.0%. Maybe they were weeding out the weakest workers and have know become very lean in their production.


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