Slump-hit firms cling to workers

There are 138,000 unemployed people in New Zealand. Photo / Martin Sykes

Bad as it was, the June quarter's jobs data would have been worse still but for the fact that six quarters into the recession firms are still hoarding labour.

Combined with the weak wages figures released on Tuesday, yesterday's household labour force survey implies firms are cutting hours and freezing wages rather than resort to lay-offs, if they can.

Even so, the unemployment rate jumped to 6 per cent. It is the steepest quarterly increase for 20 years pushing the unemployment rate to the highest it has been since September 2000.

The number of unemployed jumped 24,000 or 20.6 per cent over the quarter to 138,000, the highest level in 10 years.

While the unemployment figures were worse than market economists were expecting, the employment numbers were better - at least on a headcount basis.

The number of people employed dropped by 10,000 or 0.4 per cent. But the drop in full-time employees was 1.1 per cent, offset by a 1.3 per cent rise in part-timers.

Much of that rise in part-time employment may have been involuntary. The number of "underemployed" - part-timers who want to work more hours - has climbed to the highest level since 2002.

And while the number employed fell 0.4 per cent over the quarter, and 0.9 per cent over the year, hours worked fell 1.9 and 3.5 per cent respectively.

Tuesday's wages data showed the weakest quarterly growth in 10 years and the highest proportion of people with no pay increase in the past year for six years.

Employers and Manufacturers Association (EMA) chief executive Alasdair Thompson said long before the official subsidised nine-day fortnight scheme launched in March, the EMA was getting a lot of requests from employers, mainly medium-sized firms, for assistance with arranging shorter working weeks or fortnights.

"But that has slowed down now," he said. "It's a sign that we have bottomed out. Hiring will start next year, I reckon."

Westpac research economist Dominick Stephens said the middle two quarters of this year were expected to be the period when unemployment rose most sharply.

Despite signs the economy has entered a recovery phase in its early stages, firms were more likely to increase hours for existing workers who had their hours cut, Stephens said.

ANZ National Bank economist Philip Borkin said while firms had hoarded labour during the first leg of the recession, the sheer length of the downturn and the pressure on profits meant firms now had to look hard at costs, including labour.

The bank's monthly surveys of business sentiment showed an improvement in employment intentions since February but they were still at a level suggesting job losses, just at a slower rate, Borkin said.

Deutsche Bank chief economist Darren Gibbs said the employment numbers suggested the flexible policies adopted by employers and employees had been reasonably successful in moderating job losses despite a large decline in economic activity.

"This is important as job losses pose the biggest threat to the stability which now appears to be returning to the housing market."

One reason the unemployment rate was higher than expected is that the labour force participation rate has held up, rising to 68.4 per cent from 68.3 per cent in March - almost unchanged from its level a year ago or a year before that.

Typically when the labour market deteriorates some of those out of work withdraw from the market altogether. The weakness of that "discouraged worker effect" this time could reflect the higher level of debt households are carrying, ASB economist Jane Turner said.

Australian employers unexpectedly added workers in July, keeping the jobless rate steady at 5.8 per cent. The number of people employed rose 32,200 from June, the statistics bureau in Sydney said.

ON THE JOBS

* Unemployment rises to a 10-year high of 138,000.
* Employers are spreading the pain by cutting back on hours and wages as well as headcount.
* The unemployment rate is expected to get worse before it gets better.