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.
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
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.