New Zealand labour market post COVID

Below are figures and a graph for the NZ labour market from 2020 – 2022. Although the unemployed figures have fallen to 3.2% of the working population, the drop in those actively looking for work – participation rate – have fallen by a similar amount. The number of those employed increased although matched by the change in the working age population. This gives the impression that people who were previously unemployed in 2020 have not got a job, but are not making themselves available for work. Notice the difference in the graph between the growth in employment and the unemployment rate from 2020 onwards. Also the majority of extra jobs in the economy have been full-time roles as employers struggled to find labour.

Below is a flow chart that shows how you calculate the participation rate, unemployment rate etc with some older figures. This is important for MCQ as well as essays on the labour market.

Sign up to elearneconomics for multiple choice test questions (many with coloured diagrams and models) and the reasoned answers on Unemployment. Immediate feedback and tracked results allow students to identify areas of strength and weakness vital for student-centred learning and understanding.


Plenty of jobs but no workers.

The COVID pandemic has been prevalent in the global economy for just over two years now but although there seems to be plenty of job opportunities where is the available labour? According to a recent report from the IMF there are various reasons for this:

  • Reduced labour force participation: disadvantaged groups, the low-skilled, older workers, or women with young children—have yet to fully return to the labour market.
  • The pandemic: health concerns and favourable pension plan valuations have contributed to a lot of older workers departing the labour force
  • Worker preference: workers are moving away from some low-pay jobs. A lot workers in contact -intensive, physically strenuous and less flexible jobs are moving into other areas or have left the labour force.
  • Occupational mismatch: due to COVID some industries and firms have cut back on production due a lack of demand for their products/services or can’t function in the pandemic environment. As a result in a mismatch between those that are looking for work and the requirements of the labour market.
  • Border restrictions means limited immigration: this has led to large shortages of labour especially in primary industries and other low-paid jobs
  • Changing job preferences: COVID-19 affected hospitality work in particular and although the industry maybe recovering health concerns may be discouraging workers from keeping such jobs and job seekers from taking them up, leaving many vacancies unfilled
Source: Deloitte Insights – The global labor shortage

For more on Unemployment view the key notes (accompanied by fully coloured diagrams/models) on elearneconomics that will assist students to understand concepts and terms for external examinations, assignments or topic tests.

Baffling unemployment figures in New Zealand

The New Zealand economy Q3 2021 labour market data published today was simply bizarre and cannot be maintained. Below is a summary of the data:

Unemployment rate is now at a 14-year low of 3.4% which is well below the NAIRU which is estimated to be around 4.5%. Consequently the labour cost index has increased annually by 2.5% which is well above the 2% considered consistent with the Reserve Bank of New Zealand (RBNZ) meeting its inflation target of between 1% – 3%. With inflation already at 4.9% you can be reasonably certain that the RBNZ will be tightening the OCR (interest rate) on the 24th November.

Despite having over a third of the country in lockdown for half the survey period annual employment growth increased to 4.2% from 1.6%. The increase was driven by full time positions – 2.3%. Why is this the case?

  • Businesses are afraid of losing staff when COVID restrictions are lifted
  • Demand for labour in growth industries cancels out those jobs lost in affected sectors
  • The wage subsidy is keeping people in jobs
  • The government is taking on a lot of staff – contact tracing and health sector.
  • Construction industry is booming

Some key questions to be asked:

How long will the COVID workforce be maintained?
What impact will the removal of the wage subsidy have (1.27 million jobs are covered by it)?

With this added pressure on inflation will the RBNZ raise the OCR by 50 basis points?

Source: BNZ ‘Maximum unsustainable employment’ 3rd November 2021

RBNZ – LUCI indicator

RBNZ Deputy Governor Geoff Bascand presented a speech on inflation pressures through the lens of the labour market. The key message from the speech is that weaker than expected labour market pressures have been “a factor in our assessment that it has been appropriate to keep monetary policy accommodative” RBNZ research has identified large flows from non-participation into employment, flows that are much higher than that witnessed in other countries. Around two thirds of the newly employed were non-participators in the previous quarter. Bascand stated that “one implication is that participation is potentially more sensitive to cyclical variation than previously thought. Another is that the unemployment rate is a weaker indicator of labour market slack and inflationary pressure than previously assumed.”

Therefore, the RBNZ has developed a labour utilisation composite index (LUCI) which shows how tight or loose the labour market is relative to a long-run average. It combines 17 labour market indicators,weighted so as to provide the best historical fit to the broader economic cycle. The boom in the early 2000’s saw labour market conditions tighter than usual with resulting higher wages. However the GFC put a stop to that with a lot of labour market slack. Today, with labour market conditions broadly in balance since 2014 there has been little upward pressure on wages.

Recent low consumer price inflation in New Zealand of 0.1% can be mostly explained by falls in commodity prices and the high New Zealand dollar which makes imports cheaper.  However, the growth in labour force participation rates (see graph below) have put the brakes on wage inflation and therefore has had a lower inflationary impact than expected.

Participation rate NZ

Source: RBNZ

The participation rate has trended higher over the past 15 years, reaching around 69 percent in 2015. The main influences on this trend have been the ageing population, increased participation of older workers, and increased participation of women.

Participation tends to be cyclical in nature:

  • Strong employment and wage growth encourage people to seek work, who otherwise would not choose to participate.
  • When unemployment rises people spend longer time out of work. However some are discouraged from seeking work and no longer participate in the workforce.

A recent example of cyclical impact is Canterbury, where the strong rebuild activity encouraged additional workers to join the labour force. Participation in Canterbury rose from 67 percent at end-2011 to around 72 percent at the end of 2015, 4 percentage points above the rest of the country

Confusing signals from New Zealand employment data

You may have heard Stephen Topliss of the BNZ in the media this morning talking about the inconsistent employment data that was recently published. In 2012 30,00 people lost their jobs and there was drop in the number of participants in the labour force by 48,000 as people gave up looking for work – see diagram below for Composition of Labour Force. There are some conflicting pieces of data:

1. The unemployment rate fell from 7.3% to 6.9% over the last quarter but this most probably is due to the fact that the participation rate has fallen.
2. The number of people employed fell by 1.4% for 2012 but the Quarterly Employment Survey suggests that employment grew by around 1.5% over the last year.
3. Business intentions and actions are inconsistent – survey indicate that they expect to hire more labour but ultimately they don’t
4. In surveys consumer confidence is high with the backdrop of so many losing their jobs
5. Housing market usually reflects the state of the labour market – today employment market poor

It begs the question how accurate is the employment data. Lies, damn lies and statistics.

Composition of Labour Force in New Zealand January 2012
NZ Labour Market