Editorial: With jobs up, task is now to keep pay on even keel

Photo / Martin Sykes

Opinion

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.

Just as the latest national employment figures arrived, New Zealand was also watching dairy prices fall for the sixth successive month. They are now the lowest they have been since late 2012 for milk powder and cheddar. Fonterra has reduced its farmgate price to $6 a kilogram of milk solids, which barely covers farmers' costs of production.

It will mean lean times in rural servicing industries for the next few months but their confidence should not be shaken. Prices will recover. Dairy products remain a good investment when populations in the developing world are getting richer and eating more protein.

New Zealand's temporary stimulus from the reconstruction in Christchurch has contributed most to the increase in employment but its effects could be lasting. The country's economy has caused a turnaround in migration with fewer New Zealanders leaving and more coming back.

The increase in the labour force has matched the increase in jobs, which explains why wages have remained stable. Opposition parties will concentrate their election campaigns on low wages rather than unemployment.

Incomes rose 1.7 per cent in the year to June, marginally ahead of the consumer prices index. If that means employees are no better off, it could be worse if general wage rises trigger price inflation. Wages seldom keep pace with prices when that spiral starts. Non-inflationary growth is now encouraging firms to expand employment at stable wage rates.

The aim from here must be to maintain these conditions so that the rising population continues to find jobs. Employers' confidence is the key and at last it seems they have found it.