Kiwi businesses, operating in a complex economy with rising inflation and a tight labour market, are facing fresh challenges – and need to have a plan to navigate through them, says Mark Smith, ASB Senior Economist.
In addition, firms will need to be more creative in holding and attracting staff to combat the tightest labour market seen in New Zealand for more than 30 years.
"We've been saying for some time that the labour market and wider capacity pressures are likely to get tighter before they get any better, and that's certainly the case now."
The unemployment rate ended last year at a record low of 3.2 per cent, down from 3.3 per cent in the previous September quarter. It was the lowest level since the Stats NZ Household Labour Force Survey began collecting data in 1986.
New Zealand's unemployment rate is among the five lowest in the OECD and more than half that of Canada (7.72 per cent) and Europe (7.2 per cent). The OECD average is 5.8 per cent. Smith says New Zealand's rate is likely to grind lower over the next few months – though the lifting of border restrictions will see some relief for employers and workers around mid-2022.
Labour market statistics show that, during last year, the employment rate rose 3.7 per cent. Neither full-time nor part-time employment changed substantially in the December quarter but there were still strong annual increases, due to growth in the previous three quarters.
The number of people in full-time employment increased 3.2 per cent to 2.27 million, while those employed part-time increased by 5.7 per cent to 567,000.
Young people had the biggest jump in filled positions, with a 14.1 per cent increase in jobs for 15- to 19-year-olds, followed by people aged between 30-34, up 5.3 per cent.
Job numbers rose in retail, healthcare, social assistance, public administration and safety. But the number of filled positions in primary and goods-producing industries was down.
Smith says the labour shortage is now more broad-based across different sectors of the economy and across different regions – so it's no longer any one sector in particular that is really suffering from worker shortages, he says.
"Attracting and holding onto workers is the key challenge for businesses. They have to be a lot more creative in terms of employee benefits.
"There is a whole bunch of things out there. I'm a working parent and I really appreciate the additional flexibility I have for childcare so that I can actually do my job and still look after the kids.
"Anything that encourages working parents to remain engaged with the labour force is a positive."
The latest government statistics showed average ordinary time hourly earnings rose 3.8 per cent during last year to reach $35.61. A bigger share of workers are now seeing wage increases, with 20 per cent of roles receiving a 5 per cent or higher annual rise – similar to 2007.
It means that wage inflation, as measured by the Labour Cost Index, was 2.6 per cent last year.
Smith says the inflation rate is expected to move above 6 per cent this year (it is presently at 5.9 per cent) and this will erode the spending power of consumers: "It will put household discretionary spending under pressure and businesses will need to offer more value to customers.
"Another thing is that workers may seek compensation for the rising cost of living through salary increases. That's going to put pressure on businesses' margins and could well lead to higher prices, as well as higher wages," Smith says.
With the workforce expanding at the slowest rate for 30 years, due to border restrictions, wage pressures will spread across the economy as employers compete hard for a limited pool of workers. However, with the border rules relaxing from late February for Kiwis abroad, then other nationalities around mid-year, there is relief in sight for businesses looking to grow their talent pool.
In the meantime, New Zealand's tight labour market means many employees are likely to stay put, however, there are opportunities and choice for workers.
For more business insights, tips and tools visit the ASB Business Hub: asb.co.nz/businesshub.
