Brian Fallow on the economy

Brian Fallow is the Herald's Economics Editor

Brian Fallow: Fate of youth gloomiest stat of all

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Jobs recovery slow but increasing number of firms are finding it harder to attract calibre of staff they need

The unemployment rate rose to 6.8 per cent. It has wobbled around a flat trend line of 6.5 per cent for three years now. Photo / Thinkstock
The unemployment rate rose to 6.8 per cent. It has wobbled around a flat trend line of 6.5 per cent for three years now. Photo / Thinkstock

Large lay-offs have run like a drumbeat through the news lately: Solid Energy, New Zealand Aluminium Smelters, Norske Skog and the Port of Timaru.

Bank economists, meanwhile, report mounting nervousness among their business clients as concerns about Australia's outlook add to a patchy and tepid domestic recovery, renewing a focus on costs including payroll.

Anecdotal evidence, however, can give a misleading picture. That is why statistics are gathered (and why the chore of responding to surveys is worth a business person's effort).

So what are the data telling us?

Unfortunately it is not a particularly cheerful story either.

The household labour force survey recorded a drop in the number of people employed in the June quarter compared with the preceding quarter. Over the year employment grew just 0.6 per cent, not enough to keep pace with growth in the population or the workforce.

The unemployment rate rose to 6.8 per cent. It has wobbled around a flat trend line of 6.5 per cent for three years now.

And the participation rate, which is the proportion of the population over 15 either employed or actively looking for work, fell.

The Ministry of Business, Innovation and Employment, which incorporates the former Department of Labour, expects employment growth to rise and unemployment to fall - but only gradually.

This is not, it assures us, a jobless recovery. Unlike the recession in the late 1990s, when employment recovered much more slowly than output, the period since the trough of the 2008/09 recession has seen employment grow more or less in line with gross domestic product.

Unfortunately that is not very fast. This recovery has been a slow, footsore affair.

"Given the weak pace of the current economic recovery, the elevated employment rate is likely to be due to cyclical rather than structural factors," the ministry concludes.

The impact of any mismatch between demand and supply in the labour market is likely to be small compared with the impact of the weak recovery from recession, it says.

It is not, of course, dismissive of skills mismatch as in issue. It is important in the information and communications technology sector, for example, and in quake-ravaged Canterbury.

Job vacancies have declined there but that has not, at least not yet, translated into any marked increase in the numbers employed or the unemployment rate.

Nationwide, NZIER's quarterly survey of business opinion has been recording for some time a growing proportion of firms saying it is getting harder to find both the skilled, and to a lesser extent the unskilled, staff they need - though not nearly as hard as during the years before the recession.

The ministry expects employment growth to rise from 1.4 per cent in the year to last March to 1.8 per cent this year - which would represent 40,000 more jobs - and 2.1 per cent in the year to March 2014.

That would bring the unemployment rate down to 6.2 per cent in March next year and 5.9 per cent a year later.

Over the past three years the two sectors to lose the most jobs have been construction and manufacturing.

The former is likely to go from famine to feast as the rebuilding of Christchurch gathers pace and pent-up demand in Auckland flows through, at least to the part of the market the construction sector is geared to catering to.

But what of manufacturing?

Employment in the sector over the past year has been 20,000, or 7 per cent, down on where it was four years ago.

Adjusted for the size of the population that is similar to the drop of just over 100,000 in manufacturing jobs Australia has suffered in the same period.

But in its case it has had to contend with a bad case of the Dutch disease pushing the Aussie dollar above the US dollar.

While the kiwi has been uncomfortably high against the US dollar, the cross rate with the aussie has been favourable, which is helpful when Australia is our largest market for manufactured goods.

But the differentials which have underpinned that - in export commodity prices, interest rates and economic growth - are narrowing.

The BNZ-Business New Zealand performance of manufacturing index's employment series has dropped into contraction territory, the July reading being the weakest since October 2009.

Despite a more overcast outlook for the Australian economy, the ministry does not expect the net flow of migrants (a loss of 3800 in the year ended July) to turn positive again until 2014.

A pronounced trend on the supply side of the labour market in recent years has been the greying of the labour force.

Over the past five years, recession notwithstanding, the number of people aged 55 or older in the workforce has grown by 40,000, representing nearly a third of the labour force increase in that period.

Among the reasons for that, the ministry believes, are that firms often keep experienced workers when demand falls sharply, older workers are more receptive to working fewer hours and younger workers tend to lack the experience and capital to become self-employed.

It is a very different story at the younger end of the working age population.

The official number of 15 to 24 year olds unemployed, which means they must be actively seeking a job, has risen by 20,600 to 61,700 over the past four years.

Worse, the proportion of that age group not in employment, education or training is 13 per cent, including 23 per cent of young Maori and 18 per cent of young Pasifika.

Some actuarial modelling released by the Ministry of Social Development yesterday, based on the experience of the past 20 years and current policy settings, indicates that 16 and 17 year olds on a welfare benefit are on average likely to cost the taxpayer nearly $200,000 over their lifetimes, in net present value terms.

Businesses have a double interest, both as employers and as taxpayers, in seeing effective interventions targeted at that group, and contributing to it directly if they can.

- NZ Herald

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