Is A Drop In Unemployment Figures Enough To Indicate Economic Revival?

Friday, 5 November 2021, 7:14 am
Press Release: Kalkine

Summary

• Statistics New Zealand (Stats NZ) reported that unemployment and underutilization have both declined by 2.4 percent and 9.2 percent, respectively in the September 2021 quarter.
• The decline in underutilisation was largely skewed towards women, as a larger number of females had rejoined the workforce.
• Jobseeker numbers have not decreased as steadily as the unemployment rate, pointing to a diverge in the data and reality.

New Zealand has achieved yet another feat hinting at the nation’s imminent return towards normalcy. The unemployment rate for the third quarter dropped to its lowest in around 14 years, with strong wage growth in the background. The economy’s performance has been better than expected and has been another testament to the nation’s strong recovery from the pandemic induced slowdown. However, in the backdrop of these robust figures is a large sect of people still looking for a job, representing a proportion of the population that has been possibly left out of the statistics.

Statistics New Zealand (Stats NZ) reported that unemployment and underutilization have both shown a decline in the September 2021 quarter. According to the labour market findings, unemployment rate fell to 2.4 percent and underutilization fell to 9.2 percent, while employment rate rose to 68.8 percent. This depicted reduction of 18,000 unemployed individuals, making a total of 98,000 unemployed people currently in NZ.

An additional increase of 54,000 people in the pool of employed individuals also contributed to the overall decline in unemployment rate. Such a large drop in unemployment was last seen in December 2007, when the rate exactly matched this quarter’s 3.4 percent.

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Spare market capacity has decreased

Underutilisation represents the spare labour market capacity and includes those who are employed part time and are available for work as well as those who want jobs but are unavailable. Stats NZ reported that the underutilization rate fell to 9.2 percent from 10.5 percent last quarter.

The decline in underutilisation was largely skewed towards women, as a larger number of females had rejoined the workforce after the economy reopened from the Delta variant enforced restrictions. This quarter also saw the largest growth in the female workforce, as the female employment rate rose to 64.6 percent, up from the previous quarter’s 62.8 percent.

However, at the heart of this declining spare capacity lie the adversely impacted businesses that have been unable to fill the available positions. As immigrations rates have declined, and employment is at its highest, there is an existing dearth of labour force in the economy. With firms resuming business, many new positions have opened, however not enough labour supply is available.

Consequently, wages have risen with the tightening of the labour market. Given the ongoing supply-side pressures on the global front, the labour market could tighten further and thus, future wage increases can also be expected.

Divergence in statistics & reality

Recent reports suggest that the number of people collecting a benefit has not declined, even as unemployment is decreasing. It is a general trend that both unemployment and the number of people collecting a benefit show a decline together. Thus, Jobseeker numbers should ideally be declining under the current context.

At present, around 45,500 people higher than the Household Labour Force Survey are collecting a benefit. The Household Labour Force Survey or HLFS is the official measure of unemployment in New Zealand, collected by Stats NZ.

This divergence indicates that the survey by Stats NZ has failed to capture a percentage of the population. Additionally, many individuals who had been laid off during the pandemic have failed to successfully find a job or recover from the aftermath of the pandemic.

Moreover, many individuals are now compelled to work with lower wages which can possibly explain why benefit seekers have not declined.

In a nutshell, the labour force dynamics point to the economy adjusting to the overall changes caused by the pandemic. With rising wages, inflationary pressures might build up which can might bring along further rate hikes in the months to follow.

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