Unemployment has risen slightly but underemployment is up at a higher rate. Photo / 123RF
Unemployment has risen slightly but underemployment is up at a higher rate. Photo / 123RF
The job market has turned.
The uptick in the official unemployment figure for the June quarter might look subtle - a rise from 3.4 per cent to 3.6 per cent - but it is a significant shift.
“New Zealand’s labour market is past its peak and is gradually cooling,” saidKatrina Ell, senior economist with Moody’s Analytics.
The modest rise in the unemployment rate masked further softening beneath the headline, Ell said.
“In particular, the underutilisation rate climbed to be just south of 10 per cent in the June quarter, with the largest contribution coming from part-time workers that were available to work more hours than they were offered.”
In other words, there are a lot more underemployed people in the economy, which means an easing of the pressure that employers had been complaining about until recently.
The small rise in unemployment reflected on-the-ground anecdotal evidence being shared by business owners, said Employers and Manufacturers head of advocacy, strategy and finance, Alan McDonald.
“We have been talking to members throughout late June and July, and those looking forward were pretty pessimistic about hiring new people as they noticed a downturn in their forward pipelines for orders and work,” McDonald said.
“Where there have been vacancies our members report more people applying for vacant positions, a significant change from late last year when there were virtually no applicants and interviewees for most roles.”
The quarterly Labour Market data released by Stats NZ showed wage growth, as measured by the Labour Cost Index (LCI), remained steady at 4.3 per cent in the year to the June 2023 quarter.
The unadjusted LCI increased 5.9 per cent in the year to the June 2023 quarter. The unadjusted LCI tends to increase at a higher rate than wage cost inflation since it includes market costs as well as factors like employees’ individual performance or years of service, Stats NZ said.
For example, if an employee received a pay rate increase due to a rise in the cost of living, this would be reflected in both the LCI’s primary measure of wage cost inflation (adjusted LCI) and the unadjusted LCI.
However, if an employee gets a pay rate increase for quality reasons, such as acknowledging good performance, this would only be reflected in the unadjusted LCI.
Average ordinary time hourly earnings, as measured by the Quarterly Employment Survey (QES) in the year to the June 2023 quarter, increased 6.9 per cent to reach $39.53.
This figure is the mean value of wages and salaries paid per hour excluding overtime in jobs measured by the QES, so it can rise or fall as the type of work being done changes.
Alan McDonald, head of advocacy and strategy EMA. Photo / Alex Burton
The labour market was more or less behaving as hoped in response to the Reserve Bank measure to cool the economy, said BNZ head of research Stephen Toplis.
“The RBNZ will be feeling fairly smug that the economy is evolving in the manner that it has forecast,” he said.
“For us, the key number was the 1.1 per cent increase in the private sector wage index. This was actually 0.1 per cent lower than the RBNZ had forecast. We thought there was a significant chance wage growth would surprise the RBNZ to the upside. Instead, the outcome strongly supports the bank’s forecast that wage growth has well and truly peaked.”
But while labour market pressures had eased, the current levels remained “outright inflationary”, said ANZ economist Henry Russell.
“Remarkably, the participation rate increased 0.4 per cent to a fresh record high of 72.4 per cent,” Russell said.
“This suggests cost-of-living pressures continue to draw people into the workforce, but also that tight labour market conditions continue to enable this.
“As labour market conditions loosen, it’s typical to see participation fall as fringe workers become discouraged and exit the workforce. That hasn’t happened yet, suggesting that capacity constraints still linger.”
Ultimately there were “unders and overs” in the data, Russell said.
“The numbers are unlikely to move the dial for the RBNZ one way or the other.”
Economists expect the unemployment rate to keep rising in the coming months, back to more historically normal levels of around 5 per cent.
“It‘s important to not conflate the relative and absolute stories in today’s data,” said Russell.
“The labour market went in the direction the RBNZ requires in Q2, but in an absolute sense, it remained well into inflationary territory.
“It’s a long way back to sustainable levels, and it remains highly uncertain how quickly that transition will occur.”
Liam Dann is Business Editor at Large for the New Zealand Herald. He is a senior writer and columnist as well as presenting and producing videos and podcasts. He joined the Herald in 2003.
