EMPLOYMENT AND UNEMPLOYMENT - DECEMBER 2008 QUARTER - Archive
Background
This report informs you about the Household Labour Force Survey (HLFS) results for the December 2008 quarter. The HLFS was released by Statistics New Zealand on 5 February 2009. All figures refer to the working-age population (15 years and over) and are seasonally adjusted unless otherwise specified. Terms are defined in the appendix.
HLFS results mixed but show labour market conditions easing
The December 2008 quarter HLFS showed the labour market continued to ease at the end of 2008 with the unemployment rate rising from 4.2% to a 5-year high of 4.6%. The unemployment rate is a reliable summary measure of labour market conditions and shows a softening in the labour market in the December 2008 quarter reflecting the downturn in the economy. Labour demand also weakened with a large fall in hours worked in the quarter.
While today’s results should be interpreted as a softening of the New Zealand labour market, the easing is not as severe as the market expectations (a 0.7% fall in employment and a rise in the unemployment rate to 4.7%). While the December 2008 quarter results were more positive than expected, the outlook for the March 2009 quarter remains weak. We expect further increases in the unemployment rate over the next year, rising above 6% by early 2010.
Employment surprises by rising strongly…
Despite the economic downturn, employment rose by 0.9% to 2,191,000 in the December 2008 quarter (Figure 1). Annual employment growth was also 0.9% after employment had remained essentially flat over the first three quarters of 2008. The rise in both quarterly and annual employment was driven by an increase in part-time employment of 3.5% over the quarter and 3.9% over the year.
In the December 2008 quarter, growth was driven by both male and female employment, up 1.1% and 0.8% respectively. Male employment growth was entirely the result of increases in part-time work while the rise in female employment was in both part-time and full-time work.
…but labour demand remains weak…
Although employment rose, labour demand remains weak with a sharp decline in actual hours worked of 1.9% in the December 2008 quarter. This caused average weekly hours per worker to fall to 32.5, the lowest figure recorded since the HLFS began in 1986. Firms appear to be holding on to staff but reducing their hours in response to weaker demand. Over the past year, hours are down 2.8%, the largest annual fall since the 1991/92 recession.
Fig 1: Employment growth
Fig 2: Unemployment & participation rates
…and the unemployment rate continues to rise
The unemployment rate increased from 4.2% to 4.6% in the December 2008 quarter. This is the highest rate since December 2003 and means the unemployment rate has now risen 1.2 percentage points from a 22-year low of 3.4% in late 2007. The increase in the unemployment rate over the December 2008 quarter was driven by both males and females. The female unemployment rate rose from 4.1% to 4.7%, while the male rate increased from 4.2% to 4.4%.
The number of people unemployed now stands at 105,000, the highest level and the first time above 100,000 since September 2002. The rise in unemployment was concentrated in short-term unemployment (ie, 26 weeks or less) as expected in a weakening labour market.
Unemployment has risen across the OECD
Statistics New Zealand reports that New Zealand’s unemployment rate is the tenth equal lowest of the 27 OECD nations with comparable data. The Netherlands and Norway have the lowest unemployment rate at 2.7%, with South Korea, Switzerland and Austria also below 4%. The OECD average unemployment rate was 6.5%, up from 6.0% when the September 2008 quarter HLFS was released.
New Zealand has so far not been affected as much by the global financial crisis as some other countries. Furthermore, it is in a relatively better position due to a strong starting point, fiscal stimulus and large decreases in interest rates. In the United States, the unemployment rate has risen from 4.8% in February 2008 to 7.2% in December 2008, a 15-year high. Unemployment has increased in other developed nations, particularly Ireland (to 8.2% in December 2008, from 4.7% a year earlier) and Spain (to 14.4% in December 2008, from 8.7% a year earlier).
Australia has so far been relatively unaffected, with their unemployment rate rising from 3.9% in February to 4.5% in December 2008. With the New Zealand unemployment rate rising to 4.6%, this is the first time our rate has been above Australia’s since June 1999.
The participation rate rises to a new record high
The labour force participation rate rose to 69.3% in the December 2008 quarter, up from 68.7% in the previous quarter. This is the highest rate of labour force participation in the 22-year history of the HLFS. The rise in the participation rate is surprising given that people generally leave the labour force when jobs become more difficult to find. It is possible that the tough economic environment and the high cost of living has put a strain on household budgets and kept more people in the labour force.
The rise in the participation rate over the quarter was driven by an increase in both the male and female participation rate. The female participation rate rose by 0.6 percentage points to a new record high of 63.2%, while the male participation rate rose 0.7 percentage points over the quarter to an equal 20-year high of 75.8%.
Youth particularly affected by downturn
The HLFS showed a large fall in employment for those aged 15-24 years old over the last year. Employment fell by 12,800[1] , or 3.5%, over the last year for this group and their unemployment rate has increased to 11.1% for the year to December 2008, up from 9.7% in the previous year. This is consistent with Ministry of Social Development data that show unemployment beneficiary numbers rising 34% over the last year with growth weighted toward those aged under 25 years.
Youth are often the most at risk during a recession and their unemployment rate is expected to rise further over the next year. This can be attributed to them having low levels of experience, but also because those aged 15-24 years old are two to three times more likely to be unemployed in general. In the early 1990s recession, the unemployment rate for 15-24 year olds rose from 13.3% in early 1990 to 19.5% in early 1992.
Maori and Pacific workers are also expected to be affected by the downturn. These groups have a greater proportion of youth relative to Europeans and also tend to be disproportionally employed in low-skilled and semi-skilled occupations, which are often more affected in a recession.
The annual average unemployment rate for the year to December 2008 is highest for the MELAA[2] only group (11.8%) followed by Maori only (9.2%), Pacific peoples only (7.8%), European/Maori (6.7%) and Asian only (5.5%). The lowest rate is for European only (3.1%).
Employment growth has slowed across a range of industries over the past year
Compared to a year ago, there have been decreases in employment in the primary sector (down 8,000), finance & insurance and accommodation, cafes & restaurants (both down 7,000), manufacturing (down 6,000) and construction (down 4,000) (Figure 3).
The fall in employment in many of these industries is in line with the correction in the housing market. Falling commodity prices and a further deterioration in New Zealand’s trading partners growth, has meant a dampened demand for New Zealand manufactured goods and production of agricultural products and therefore has had an impact on employment related to this sector
These losses have been offset by substantial increases in employment in education (up 11,000), a surprising increase in property & business services (up 9,000), transport & storage (up 8,000), wholesale & retail trade (up 7,000) and health & community services (up 6,000).
Fig 3: Employment growth by industry
Fig 4: Unemployment rates by region
Unemployment remains particularly low in the South Island
Regional unemployment rates continue to remain low, with 10 of the 12 regions below 5% unemployment in the year to December 2008. Unemployment rates were particularly low in the South Island with Southland the lowest in the country at 2.5%. Gisborne/Hawke’s Bay and Northland had the highest unemployment rates at 5.6% and 5.4% respectively in the year to December 2008 (Figure 4).
Summary
The New Zealand labour market has continued to show its resilience in the face of difficult economic conditions. Despite a fall in real GDP over the first three quarters of 2008 and a further fall expected in the December 2008 quarter, employment has held up, rising by 0.9% over the year. Firms are being flexible and are reducing worker’s hours instead of laying staff off. This evidence of labour hoarding may also reflect the difficulty firms had in recruiting staff in recent years and are now reluctant to let go of workers.
While the December 2008 quarter results were more positive than expected by most commentators, it remains evident that the labour market has softened. Labour demand was weak with a large fall in hours worked and the unemployment rate has risen to a 5-year high of 4.6%. Today’s figures also showed the continuing volatility and unpredictably of the HLFS, particularly in terms of employment and participation rates, and reinforces the importance of the unemployment rate as the most reliable indicator of labour market conditions. This picture of an easing in the labour market is consistent with other surveys showing a reduction in skill shortage indicators, slowing wage growth and negative employment intentions.
Outlook worsens
The outlook for the economy has deteriorated significantly over recent months. World growth is expected to slow by more than previously thought, unemployment has risen, and confidence has declined. As a result of the weakening economic outlook, we expect the labour market will continue to ease over the next year.
While the December 2008 quarter HLFS results were stronger than expectations, the March 2009 quarter is expected to show continuing weakness. Anecdotally, the labour market has started to ease more significantly over recent months. Some of this is as a result of the downturn in early 2008 and the lags between the economy and the labour market. However, the March 2009 quarter will also be the first quarter to be fully affected by the global financial crisis. The Quarterly Survey of Business Opinion showed a net 32% of firms intend to decrease staff over the March 2009 quarter, the worst figure since 1991.
Unemployment will continue to increase over much of 2009 and the unemployment rate is expected to rise above 6% by March 2010. However, in the current environment there is still much uncertainty about how global events will impact on the New Zealand economy and there are considerable downside risks to the outlook for the labour market.
APPENDIX: TERMS AND DEFINITIONS
The following is a list of the main terms that we use to describe the labour market, together with definitions of these terms. The table below illustrates how the terms relate to each other.
- Working-age population:
- usually resident non-institutionalised civilian population aged 15 years and over.
- Labour force:
- number of people who are either in work or are available and actively seeking work (that is, employed or unemployed as defined below).
- Employment:
- number of people in work of one hour or more per week.
- Full-time/part-time employment:
- full-time workers usually work 30 hours or more per week, and part-time workers usually work less than 30 hours per week.
- Unemployment:
- number of people who are not in work, but who are available for and actively seeking work.
- Not in the labour force:
- number of people who are not in work and are either not available or not actively seeking work (that is, they are not employed and not unemployed). For example, in the year to December 2008, 49% of these people were retired, 12% were studying, 16% were at home with children, and 12% were at home not looking after children.
- Labour force participation rate:
- proportion of the working-age population that is in the labour force (69.3%).
- Unemployment rate:
- proportion of the labour force that is unemployed (4.6%).
- Employment rate:
- proportion of the working-age population that is employed (66.2%).
Note: figures may not sum due to rounding.
Endnotes
1 Regional, ethnic, and age data are not seasonally adjusted and are averaged over a year to reduce seasonal variation and sample error.
2 MELAA – Middle Eastern, Latin American and African.