Why Key is right, and wrong, about job numbers – and why it matters

John Key

Prime Minister John Key’s claim that New Zealand has more employed people than ever is true – so far as it goes.

Mr Key devoted a fair chunk of his post-Budget speech in the House to the issue, noting that, “yes, the unemployment rate in New Zealand is higher than we would like, at 6.7%,” but also saying that “more people have jobs in New Zealand than ever before in our history”.

“More people are employed as a percentage of the population in New Zealand than in Australia … there are a touch over 50,000 people on the unemployment benefit in New Zealand at the moment, which is 14,000 fewer than 18 months ago.”

He also made the – slightly different, and more important – claim that the rate of employment, or the proportion of the eligible workforce actually in work, is at historically high levels.

The first claim, about the actual number of people in work, has been seized on by a few Labour-aligned commentators as being true but largely meaningless, the higher numbers in work being simply a reflection of a larger population.

That is true. The rate of employment, though, is another question entirely – and this is a more interesting and more economically important – story.

New Zealand does have a very high employment rate – better than almost anywhere else.

But the significance of this goes beyond some petty political point-scoring. It has economic implications for growth and also political implications for the government, and these are less favourable.

The proportion of the eligible workforce which actually has work has not fallen much over the past few years. It took a hit, as you would expect, not long after the country went into recession at the end of 2007.

But, as work from Bank of New Zealand economists has shown, the percentage of New Zealanders actually remaining in work – 64.2% of the eligible workforce – is better than almost anywhere.

New Zealand is about the same as Australia, which is not quite the same as what the prime minister said, and Germany has a higher rate.

But everyone else is lower.

“The New Zealand employment rate has settled well above that seen following the 1998 recession and miles above that which was experienced following the early-1990s recession,” Bank of New Zealand senior economist Craig Ebert says.

The country’s early 1990s employment rate – about 55-56% of the working-age population – is about where the rest of the developed world is.

“New Zealand, in contrast now has one of the highest employment rates in the world – testimony to its relatively high participation rate, coupled with a high rate of placement into jobs,” Mr Ebert says.

The reason is, he says, complex, but the country’s regulatory settings are a big factor.

“You’d have to say it’s the policy settings in the labour market, its flexibility and some of the other reforms that have come in and helped that,” he told NBR ONLINE.

“What has stood us in good stead in the recession, and particularly in the global financial crisis, was there were mechanisms in the market which gave the right signals.”

The implications of this though are somewhat sobering.

It means the capacity for a pick up in economic growth is more limited than it would otherwise be.

Normally, there would be a large “spare capacity” of labour to be picked up and help fuel growth as the economy picks up steam.

Not this time, which means inflation is going to become an issue much earlier in the cycle than in previous recoveries.

Nominal wage growth is already hitting to around normal levels, Mr Ebert says.

“If the jobs market was really as slack as the 6.7% jobless rate implied then we’d expect wage growth to be running below average.

“The difference is important, as it gels with our fundamental belief that the New Zealand economy has less slack than most people appreciate.

"And that it won’t take much in the way of expansion before inflation becomes a problem all over again.”

While people might hope for the kind of sharp rebounds in growth New Zealand has seen coming out of the last two downturns, he says, this would “run us into an inflationary brick wall”.

The government appears aware of this.

Economic Development minister Steven Joyce told the Grant Thornton/National Business Review post-Budget breakfast on Friday he expects to see skills shortages emerging over the next 12 to 18 months, and told businesses they need to start planning for this now. 


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12 Comments & Questions

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It's a little odd that Labour folks like Rob Salmond poke Key for citing raw figures on numbers employed. If you look at Hansard, Shearer had been poking Key about the increase in the number of people unemployed since Key took office. Is it that surprising that Key replied to pokes about numbers unemployed with figures on the number employed?

http://offsettingbehaviour.blogspot.co.nz/2012/05/unemployment-lenses-sa...

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The only reason NZ has low unemployment figures is due to our whatever-its-called agreement with AU that means kiwis can work over there.
I'd love for someone to publish "real" unemployment figures which took this migration into account.

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40 000 TIMES SAY 4 OR 5, = 160 000 OR 200 000 EXTRA

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What figures the people who migrate are mostly employed, you want to add them to the figures of those that remain and go on benifits for what end. I can tell you would be surprised how many NZers commute to work 5 weeks on two off or similar schedules in australia Malaysia Indonesia Papua New Guinee. Why do you think there is so much vitreol towards benificiaries. So many have got off there bums and sought good incomes requiring life changes and family disruption. They chose not to languish on a benifit in NZ. we have the best of both worlds in tough times, I see it as very fortunate that as a country we have that option to maintain financial family strength, goals, and savings for retirement, until the economy turns and you can consider more life friendly options.

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I always wondered about data I had seen showing New Zealanders worked long hours, in addition to having low GDP/capita, compared to other OECD countries....i.e. we seem to wrok harder for less return. Now I see why, a larger proportion of our population, almost 20% more, is working...so GDP/hour worked is very low relative to OECD countries. That is a big problem.

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All the above may be true however I am near retirement age and for family reasons am stuck in this country for at least another year. Never in all my working life have I known so many friends and large number of aquaintances either left for greener pastures or most especially one or other working partner either part time or full is now out of work.
Something is fundamentally wrong with the numbers as calculated. Just my gut feel.

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Yeah, its bizzare!. As world leaders with an ETS, it's crazy wierd people are running away from NZ. Perhaps the numbers are as big a hoax as Key said the ETS was.

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Despite the caution in these numbers, improving productivity will allow non inflationary growth, the question is can NZ achieve this????

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I have never known somany people either unemployed or in part time work. Significantly people who are in uneconomic small business is high too.
I think uneconomic small business(not paying a living wage) and parttime workers are a significant skew in the data.

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It seems that Key has at last realised that ETS stands for Emissions Trading Scam and hopefully now that the chief climate change wizard,Smith, has departed he will maintain his new position.
Willie Getonwithit

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The biggest issue we have is the sectors that people work in. During the boom times when we had large tax revenues due to people borrowing on inflated house prices and spending on stuff from China, we built up the public sector - all doing good things I am sure but paid for out of tax. Equally we built up the retail sector so we could sell more stuff to those with borrowed funds in their pocket. What we need now is job growth - this is true better that people can be in work if they want to but most importantly we need to build up the external sector - being exports, tourism and external services. So Tourism is coming to the party and in terms of primary produce we seem to do relatively well on exports (could be better I know) - we can't compete on manufacturing, but may be pre-processed primary produce, but the big one missing that I think we need to focus on is External services - companies like Orion etc. With the govt and other parties enhancing our Internet and Internet pipes we have scope to do this, but it will take time to foster so need to start now so we make immediate use of the new Internet facilities. New Zealanders in general have a work hard work smart ethic, and our exports of skills is second to none in quality - always in demand overseas - so why not encourage that remotely. Perfect place of overnight support and development for Europe being 11-13 hours time difference. We are small so small gains in this sector will help - plus the model solves many internal infrastructure problems as you don't need to be in any city or location in particular to do this. I was doing it from Waiheke Island.

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How do we define "employed"? How many hours per week? If we want to compare, we need to compare apples to apples.

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