The miracle of full employment

By Eugene Bingham

Early last year, Janine Dowding pored over the set of figures before her and couldn't quite believe what she was reading.

According to the document, the number of registered unemployed people in the Nelson, Marlborough and West Coast region to the year ended December 2006 had hit 1000 - less than a third of what it was five years earlier when the number began to track down, down, down.

"I thought, 'it can't go any lower - surely it's going to plateau'," says Dowding, the region's Work and Income commissioner. "I really thought it couldn't go any lower."

How wrong she was. By the end of last year, the number had more than halved again, down to 475. "It's just amazing."

Dowding is not the only one pinching herself. For more than three years, New Zealand has lived an unemployment miracle. In February, Statistics NZ revealed that the unemployment rate had fallen to a record low of 3.4 per cent in the December 2007 quarter, ranking us fifth among the 27 OECD nations with comparable data (behind Norway, The Netherlands, South Korea and Denmark).

The rate has hung below 4 per cent for more than three years as the insatiable economy has devoured the country's dole queues.

Of course, the unemployment rate has plunged amid the most sustained period of economic expansion New Zealand has seen since World War II. But population is a significant ingredient too, so much so that even if the world's recent economic problems deepen, unemployment won't necessarily take off again. In fact, work done by the Department of Labour reveals low unemployment is likely to be around for generations to come. Just as well, then, that signs are emerging of structural changes within the labour market as employers come to grips with an environment in which it's hard to find staff.

FOR employers, the unemployment miracle has become something of a headache. For economists, though, it has been an intriguing phenomenon which they have observed keenly.

"It is very positive," says Associate Professor Sholeh Maani, an Auckland University economist. "It is the lowest unemployment rate we've had since the 1980s and what is interesting is that it has persisted for 14 quarters below 4 per cent. That makes New Zealand the only country in the OECD countries to have that record.

"It places us among seven countries that have unemployment rates below 4 per cent - so this is historically quite interesting.

"This has happened despite the fact that labour participation rates have increased, so it's not that fewer people want to work. It is a result of greater employment and greater labour force participation."

In other words, there are more jobs than ever and more people of working age are diving into the workforce.

Overall, 68.8 of the working-age population (those aged 15 plus) are either working or actively looking for work, the highest participation rate recorded; women are taking on jobs at a greater rate too - their participation rate is 62.4 per cent; among Maori, the participation rate is at a record 68 per cent.

As of the end of December, more than 2.17 million New Zealanders had a job, with employment growth for the year having surged 2.5 per cent, the most since June 2006. Interestingly, the last quarter's growth was through full-time employment, a change from recent periods in which part-time employment has been the driving force.

Those with long memories will know we have been here before. In the post-war boom years, unemployment was virtually unheard of (see page 19). But in the late 1980s and early 1990s, unemployment became a persistent problem, reaching a record 10.58 per cent in 1992.

Double-digit figures like that seem a long, long time ago. It has taken a decade of steady decline to get to this point - the annual rate has been dropping since 1999 (when it was at 7.46 per cent), initially slipping slowly before dropping below 5 per cent in 2003, then - the unemployment watershed - below 4 per cent in 2005.

HOW and why has it happened? In essence, the answer is sex and money. Fertility rates dropped to below replacement levels for much of the past three decades. Since 1980, fertility has been almost constantly below 2.1 births a woman (the level required for a population to replace itself in the long term, without migration). The exceptions were last year (2.17) and 1990 (2.18).

Compare those figures with the period from 1947 to 1973, when the rate was consistently above three births a woman, peaking at 4.3 in the early 1960s. The first of those baby-boomers are soon due for retirement. In short, there are fewer people around to fill the jobs left vacant by those hitting 65. On the money side of the deal, New Zealand's situation is a reflection of what is happening in developed countries everywhere. World economies have swung along gleefully, gobbling up more and more workers, and New Zealand has enjoyed the benefits too.

Globally and domestically, more New Zealand products are needed, more services required - someone's got to make and provide them. It's the same the world over - expanding markets, and new markets, are demanding more and more - a win for workers.

New Zealand, though, has seen its unemployment rate dive more than most. Maani says that is partly because our workforce is in demand globally. "For some time, New Zealand consumers have recognised that we're competing in an export market for the best pears and cherries and so on," she says. "Well, when it comes to the employment of New Zealanders with skill or higher education, we're in an export market too."

The structure of the economy has also played its part in our unemployment success. Maani says the reforms of the 1980s and 1990s escalated global market forces in New Zealand and increased the flexibility in the labour market.

Initially, the changes sent unemployment soaring - from 1986, the unemployment rate grew annually for six years. Since then, apart from the shock of the Asian crisis of the late 1990s, it has been in decline.

"So it can be interpreted that now the effect of the shock of the [1980s and 1990s] reforms has passed and now the economy is operating in a different environment which is much more part of the global economy with a more flexible labour market," she says. Investing in education has been a significant factor too.

"Given all of these effects, you're not now seeing the high unemployment there once was," says Maani. "New Zealand is doing very well in terms of employment, by international standards, and I believe it's a combination of a very active economy, active labour market, and the fact that we now have greater skills to do well in a global economy."

Along the corridor from Maani at the university's economics department, Dr Debasis Bandyopadhyay has been taking a close look at the way unemployment affects different parts of the labour force.

He and two colleagues produced the latest edition of the economics textbook, Principles of Macroeconomics in New Zealand late last year. But already Bandyopadhyay wishes he could update it.

"There's a new phenomenon about unemployment which is that we have two types," he says. Type one is among the people who are well-educated and highly skilled; type two is the unskilled or people who may even have a strong general education - maybe even a degree - but who have not specialised.

"What is happening in this particular cycle is that these two types are receiving two types of fate," says Bandyopadhyay.

Traditional economic rules have said that when output rises, unemployment falls. But Bandyopadhyay now says that is a principle which applies far more to those without specialist skills. "Type one" workers are far less likely to lose their jobs, even in an economic slowdown.

For that reason, he believes, the natural rate of unemployment - the figure around which economists expect the unemployment rate to fluctuate - should be split. Since 2000, economists have put the figure at 4 per cent. But Bandyopadhyay now argues there should be two natural rates of unemployment - for skilled and unskilled workers. "For skilled workers the rate may be 2 per cent and for unskilled maybe 5 per cent."

Maani, too, has noticed that the unemployment miracle has not yet helped all workers. "As far as youth are concerned, the record low unemployment rate has disguised some of the issues," she says. "For 15- to 19-year-olds, the unemployment rate is 14 per cent, and the rate is especially high for 15- to 19-year-olds who have left secondary school without qualifications."

It is an area where training is crucial, especially if the country is to find a skilled workforce for the future. "We can make some ground with long-lasting effects," says Maani.

SOCIAL scientist Ottilie Stolte thinks the issue of who is missing out on the unemployment miracle is a far deeper concern. In fact, she sees not so much a miracle, as a mirage. Stolte, whose PhD studies looked at how training policies affect the disadvantaged, believes the unemployment rate only identifies a narrow band of people, overlooking too many people alienated from the workforce. "We simply do not know how many people are in this group because there are no exact measures," she says.

She points out that the Household Labour Force Survey (HLFS) counts as "employed" someone who has worked for merely one hour in the preceding week. While this measure is based on International Labour Organisation conventions, she thinks it doesn't take account of those in "insecure, casualised or seasonal contracts".

"It is not constructive to have a measure that assumes that one hour of work is sufficient, and not an issue worth recording more accurately."

Another issue, she believes, is the criteria required to count as unemployed: respondents must be ready to start straight away (which excludes those who would have to sort out childcare or transport issues), and have actively sought work. The survey method also excludes many unemployed, she believes: it does not count those who live in "non-private dwellings" _ boarding houses, hostels, caravans and under bridges, for example - and since it is a phone or computer survey, if you don't have a landline or a computer, you cannot be included either. "This population is more likely to be unemployed. Regardless of the low unemployment rates, the continuation and entrenchment of unemployment in New Zealand society is apparent, especially to those living in relatively isolated towns.

"The consequences of the high levels of unemployment in the 1980s and 1990s are still being felt around the country as particular groups, especially rural, low-skilled and Maori populations have failed to be reabsorbed in the new efficient economy following economic restructuring."

It is among these people where the biggest challenge lies. Stolte says the inter-generational impacts of joblessness are making it harder and harder to lever these people back into working society. "From anecdotal evidence, certainly in the organisations I have dealt with, we are now seeing children and grandchildren of the people who have opted out of the work culture. It's so much harder to work with these people than it was 20 years ago."

Turning around their lives would be the greatest challenge - but one that needs to be tackled for their good and the benefit of society at large, she says.

"Having a disaffected group of people living on the margins of society has a high cost in terms of individual health and wellbeing, but also in terms of costs to the health, welfare and criminal justice systems."

Council of Trade Unions secretary Carol Beaumont has a more positive view of the figures - but is still concerned that complacency has set in. "We can't sit back and say, `Well, we've done that'. There's still disparity, still people looking for more hours and quality of work."

The HLFS reveals that of the 490,000 part-time workers, 88,000 wanted more hours. Though it is an improvement on a year ago, Beaumont is concerned that too many people are relying on part-time or casual work. "We look at that area of the labour market as precarious." The CTU remains committed to full employment.

"I know there are some people who start to act like unemployment is as low as it will be or should be. They say if it goes any lower it puts too much pressure on the economy. We say let's remember this term full employment. We still think it's an important policy objective."

At the Department of Labour in Wellington, there's no chance of Monique Dawson being underemployed. As a deputy secretary with responsibility for "work directions" - making sure the workforce is responding to the constraints and opportunities before it, and tracking the workforce of the future - she has more than a fulltime job on her hands.

"It's just as well [Sunday night medical drama] Grey's Anatomy is no good this season," Dawson jokes.

From her analysis of the unemployment landscape, she has no doubt that what New Zealand has gone through is far more a miracle than a mirage. The figures, she says, are not lying. "We're seeing jobs growth and they are real jobs. We know jobs are being created and people are going into these jobs."

Like Beaumont, though, Dawson is not prepared to let New Zealand sit on its laurels, content we have reached an unemployment nirvana. "This is the time we can make that last little push," she says. "Now is the chance for us to say, `Previously our aspirations were for everyone to get a job'. Now we can say, `It's great everyone's got a job, we now need to be concerned about whether that job is a good job'."

Productivity will need to improve and employers will need to become even more flexible, ensuring they get the best staff - and keep them. "You can't just tempt people with wages any more," she says.

Dawson is delighted, however, that benefits have been spread along ethnic lines and across the country. Most regions have seen unemployment rates plummet. Between December 2006 and 2007, the rate in the Bay of Plenty dropped from 4 per cent to 3.3 per cent. All regions in the South Island were below the national average. The highest was Manawatu-Wanganui at 5.1 per cent.

Within those regions, some individual centres are doing spectacularly well. Marlborough, part of the Nelson-Marlborough-West Coast region, has fewer than 30 people claiming the jobless benefit.

But don't expect the Work and Income office to close its doors, says commissioner Janine Dowding. "You have to keep in mind that there might be only 30 people receiving the unemployment benefit, but there are many times that again that we are helping into jobs." The past few years have seen a big change in the way the department operates, she says. "It's been a real shift for us as well as the people we deal with. Instead of talking to them about benefits, we're talking to them about opportunities in the region."

In fact, finding enough people to fill the vacancies is tough. Hundreds of people are referred into seasonal work each year, with most of them using it as a stepping stone to full-time jobs. And Work and Income staff are having to work with employers to help them come up with ways to accommodate people who want to work, but have issues limiting their availability.

"It may be a question of support that needs to be in the workplace for someone with a disability, or it might be 9-3 hours for a single parent. We are now moving on to people with health and disability issues and sole parents. They are a huge proportion of our labour pool and if we don't tap into it, we're missing out."

OUT in the business community, there aren't too many champagne corks popping to celebrate record low unemployment.

"Overall, it tends to be a brake on growth," says Phil O'Reilly, chief executive of Business NZ. "Our surveys show that the number one or two constraint on business is shortage of skills. That has a wider impact on growth capability of the whole economy."

The direct impacts on companies have been an inability to find staff with the right skills, and employers "banking" skills - keeping someone on when they don't necessarily need to, because they know how difficult it was to hire them.

But O'Reilly sees a silver lining. "On the positive side, the skills shortage, allied with the high dollar, is driving more employers to invest in capital plant. They might be doing it for the wrong reason but I think that has overall benefits long-term for New Zealand because that is what drives productivity growth.

"For a long time New Zealand employers used labour as a resource and that is good and it's had the wonderful economic payoff that everybody who wants one has a job.

"But the old answer of putting on a Saturday shift or getting the guys to work overtime or hiring some more folk to run what was probably inefficient machinery is now increasingly difficult and, allied with the dollar, companies are starting to invest in that piece of machinery instead."

Nick Tuffley, ASB's chief economist, agrees that switches to more capital-intensive workplaces are inevitable, as most of the labour market has been "mined" already. "We will see people seeking ways in some industries to become less labour intensive, investing in more labour-saving technologies.

"But from the point of view of the labour market it's still going to be an employee's market for a continued period of time."

And that's even in spite of the growth slowdown. "During slow times in the past the orthodoxy is, you see the unemployment rate grow, you also tend to see people being discouraged about going out and seeking work, and labour participation rates drop.

"Going into this slow period, we may find labour force participation stops increasing, but it's coming at a time when we're not getting strong growth in the working age population as well. You still get the feeling that the issue we have with employment growth is, it's not necessarily that demand is slowing dramatically, it's finding the people."

All of which means that job security - for most people - will be good, says Tuffley. For how long? His pick is that the unemployment rate will remain about 4 per cent for the next few years. Longer than that, it gets difficult to predict. "You start getting into questions about whether immigration will pick up, and whether people will stop going to Australia ..."

Monique Dawson believes the rate will remain relatively consistent for at least five years. "We would probably take a punt and say longer than that but we can't be held accountable. Unless there is a major shock, the sorts of shock no one can ever forecast like 9/11 or Asian flu ... we would expect these conditions to continue for as long as we can reliably see."

In fact, forecasting done for the department on the working age population presents a worrying scenario. "It's a pretty alarming figure when you get out to 2030, 2040 and 2050. The amount of labour declines quite markedly because of the ageing population."

The figures, based on medium fertility and mortality rates and a net migration of 5000 people a year, show that growth of the working age population will grind to a halt - from 1 per cent in 2008, to 0.6 per cent in 2030, 0.3 per cent in 2040, 0.1 per cent in 2050. The rate hits zero in 2058.

Treasury forecasts predict that by 2050, about 26 per cent of people in New Zealand will be over 65.

"We are focused very much on helping to get the workplace ready with equipment and technology driving productivity."

Dawson warns that companies need to start thinking about the issue now, even if there is no "burning platform" yet.

She sounds like a Doomsday prophet. It's a warning employers will not welcome, particularly those already struggling to cope with the so-called miracle before them now.

- NZ Herald

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