State Of The Labour Market
Our key theme for a couple of years now has been that businesses planning expansion are going to have to give
greater priority to capital expenditure and boosting productivity than hiring more people. This is because the
availability of skilled and unskilled labour in New Zealand has permanently declined. Data released on Tuesday showed
this in stark terms. Whereas 11 years ago in New Zealand the unemployment rate was almost 11% and there were many
skilled and very motivated people begging for work, in the December quarter of 2002 the rate was at a 15 year low of
4.9% and it is the employers doing the begging.
The fall in the unemployment rate from 5.4% in the September quarter and a year ago does not reflect massive
jobs growth. In fact job numbers have only risen 2.4% over the past year, practically right on the average jobs growth
for the past decade, with a gain of just 0.4% during the December quarter itself. The fall in the unemployment rate
mainly reflects a decline in the proportion of the working age population in work or actively looking for it and
therefore classified as unemployed. This participation rate fell to 66.3% in the December quarter from 66.6% in the
September quarter and a near equal record high of 66.8% in the March quarter.
The point we invite businesspeople to note is that the participation rate is still very high and it is not
reasonable to expect that it will rise much in the near future and alleviate the labour shortages we know exist from
anecdotal evidence and official surveys. For instance, the NZIER Quarterly Survey of Business Opinion shows that in the
December quarter of last year a net 18% of employers said they were finding it difficult to get unskilled labour and 39%
said it was hard to get skilled labour. These proportions have been higher in the past, but not by all that much. And
very importantly, you have to go back to 1974 to find a higher proportion of businesses saying labour is the main
constraint on their ability to expand production.
As is our usual practice we have gone through the Household Labour Force Survey in some detail to try and find
interesting tit-bits and here are a few.
In the December quarter the proportion of those in work classified as self-employed was 11.2%, down from 11.6%
in the September quarter and 11.7% a year earlier. This was the lowest such proportion since June 1991. In contrast 81%
of people were classed as employees, the highest since December 1987. We interpret these data to mean people are finding
jobs easily enough with existing companies and don’t feel they need to take the capitalistic risk of setting up their
own. Perhaps reflecting growth in the tourism industry but also reflecting weakness late in 2001 due to terrorism the
number of people employed in the accommodation, cafes and restaurants sector jumped 40% between the December quarters of
2001 and 2002. Reflecting the pullback in farming however job numbers there fell 4.9%. The housing boom will have
contributed to a 13.1% rise in employment in the Property & Business Services sector – real estate agents. The proportion of people out of work not actively looking because they
felt “discouraged” edged up to 12.3% in the December quarter from a record low of 9.8% the previous quarter. As the
graph below shows this measure is volatile, but the important thing is that the latest reading is still the second
lowest on record and in our opinion shows that people are aware the labour market is in their favour. The proportion of
people considered not to be in the labour force rose just 2.3% in the December quarter from a year ago. This is not too
important. But what is interesting is the 7% rise in the number out of the workforce because they are studying. The
trend toward staying in education longer will undoubtedly boost human capital, but it deprives employers of extra staff
in the short term. Finally, on average over the past decade gross domestic product has grown 3.5% while employment has
grown 2.5%, giving implied productivity growth of 1% per annum. But with estimated GDP growth over 2002 of 4.2% and jobs
growth on a comparable basis (12 months versus 12 months) of 2.9% the implied productivity growth was a better than
average 1.3%.
This year we are forecasting jobs growth easing off to around 1.8% from late year’s 2.4%. In fact the easing
off has already occurred because the bulk of 2002’s job gains occurred early in the year. In the second half job growth
was a lowly annualised 1.2%.