The latest labour force survey, showing unemployment down to its lowest level since 2009, is the most welcome of all economic statistics. Employment is the ultimate purpose of all the other measures of economic health - genuine employment that is, in sustainable jobs that provide goods or services people value enough to pay for.
Employment is usually the last factor of production to fall in a recession and the last to rise in a recovery. The fact that unemployment was this low as late as 2009, a year after recession hit New Zealand, bears out the first observation. Firms are reluctant to lay off people if there seems a chance the slump will not last long. They are more likely to reduce their payroll gradually by not replacing staff who retire or leave voluntarily. When a recovery starts, they are reluctant to start hiring again, preferring to wait until they are confident the recovery will last.
It has taken this long for that degree of confidence to return. The economy has been growing strongly since the beginning of last year but unemployment has been stubbornly stuck around 6 per cent. Now, at last, it has come down from 5.9 per cent in the March quarter to 5.6 per cent for the three months to the end of June. It suggests that over that period, a critical number of employers assessed the economic outlook and decided to take the plunge.
Hiring people is a fearful responsibility. The employer has to be sure of providing enough work for them and of selling enough of their product so that they can be paid. Small employers are acutely conscious of the number of people relying on them for sustenance and it is a nervous decision to take on more. It requires confidence not just in the firm's ability to pay but in the outlook for the local economy and, ultimately, of world conditions.
Chances are, employers had sufficient confidence in New Zealand's growth last year but it is only in the past few months that they have seen signs of a sustainable recovery in the United States and Europe.
