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%.