Just covering the labour market with my A2 class and New Zealand at present gives some good examples of labour market imperfections. You would think with the commencement of the major rebuild in Christchurch would have positive effects on the New Zealand labour market. Economists had forecast unemployment to drop below 6% at the end of 2012 however the December quarter had the rate at 6.9%. The Westpac Economic Overview came up with some reasons as to why employers have been reluctant to take on more labour.
1. Employers are increasing the hours that labour is working rather than taking more on. After the GFC a lot of employers kept labour but reduced their working hours so when the economy starts to grow there is a tendency for them to increase the working hours rather than employing new staff.
2. There has a lack of geographical mobility as workers have been reluctant to move away from areas of New Zealand that have weak growth to those that require more labour – eg. Canterbury. Since late 2010 job vacancies in Christchurch have increased dramatically and employers have found it increasingly difficult to find labour = wages have risen faster in Canterbury than most of New Zealand. The RBNZ reported that this two-speed labour market is suffering from the lowest matching efficiency – the speed with which job vacancies and additions to the labour force translate into jobs. This implies higher wages and higher unemployment than normal.
3. The high NZ$ make imported capital cheaper and there has been an increase in a firms’ intentions to invest in plant and equipment (form overseas) but a reluctance to spend money on new buildings or labour.