This section contains archived information that has been retained for reference purposes. To view current reports, please go to the Labour Market Information section.
This report provides an outlook for the labour market over the two years to March 2008. Our forecasts are detailed in the table on the following page, and a table of comparative forecasts is presented in the Appendix.
The New Zealand labour market is expected to remain fairly strong relative to the past 20 years and relative to most developed nations. However, a small reversal of recent labour market improvements is expected because of the slowdown in the wider economy.
The most comparable gauge of labour market strength, the unemployment rate, is predicted to stay among the lowest in the OECD (it is currently equal lowest with South Korea at 3.6%). Also, high labour force participation is forecast to continue along with a rise in labour productivity growth.
Employment growth is expected to ease in line with economic growth…
Annual economic growth fell from 4.3% in 2004 to 2.2% in 2005. The average Consensus Forecast is for a further drop to 1.4% in the year to March 2007 as residential investment declines and growth in consumer spending slows.
Annual employment growth eased to an equal five-year low of 1.5% at December 2005. It is expected to fall further to 0.7% in the year to March 2007 in response to the slowdown in the economy.
The weak employment outlook is confirmed by the National Bank Business Outlook for March 2006. It shows a net 4% of firms expecting a fall in staff numbers in the year ahead, down from a net 13% expecting a rise in staff numbers at March 2005. These figures suggest employment growth will be fairly weak through much of 2006.
A rebound in economic growth to 2.4% is expected for the March 2008 year as export growth recovers (supported by recent falls in the dollar and high growth in the world economy). Rising government spending will support economic growth over the two years to March 2008. Stronger economic growth is expected to gradually lift employment growth.
| Actual | Projections | |||
|---|---|---|---|---|
| Dec 2005 | Mar 2006 | Mar 2007 | Mar 2008 | |
| Number of people (000s) | ||||
| Employment | 2,085 | 2,087 | 2,102 | 2,122 |
| Unemployment | 78 | 81 | 87 | 100 |
| Labour force | 2,162 | 2,168 | 2,189 | 2,221 |
| Working-age population | 3,188 | 3,203 | 3,247 | 3,294 |
| Growth (annual % change) | ||||
| Employment | 1.5 | 1.6 | 0.7 | 1.0 |
| Labour force | 1.5 | 1.4 | 1.0 | 1.5 |
| Working-age population | 1.3 | 1.4 | 1.4 | 1.4 |
| Rates (%, March quarters) | ||||
| Unemployment | 3.6 | 3.7 | 4.0 | 4.5 |
| Labour force participation | 67.8 | 67.7 | 67.4 | 67.4 |
…and the composition of employment growth by industry is set to
change
Weakness in exports has caused a fall in employment in the primary and manufacturing sectors of 24,100 since 2002, but this was offset by growth of 39,500 in construction and 148,500 in services.
The next two years are expected to see some changes in the distribution of employment growth by sector:
Labour productivity growth solid but unspectacular
Strong economic growth in the measured sector1 of 3.6% per annum since 2000 has been underpinned by relatively high employment growth. Labour input (hours worked) in the measured sector grew by 2.1% per annum in the last five years, while growth in labour productivity (output per hour of work) in this sector has been moderate at 1.5% per annum.
However, the amount of output produced for each hour of work in New Zealand remains well below that in Australia and the OECD average. Raising labour productivity growth further is the key to higher growth in the economy and in wages.
Moderate-to-solid labour productivity growth of 1.5%-2% per annum is expected over the next few years. The tight labour market, higher wage costs, and the recent wave of investment in plant and machinery will encourage employers to seek productivity gains.
Hours worked have fallen for the average worker and may fall further
A fall in average hours per worker to a 13-year low of 34.7 in 2005 seems to reflect labour hoarding (reduced hours per worker). This can happen in a slowdown as firms are able to reduce hours easier than staff numbers. The recent period of acute skill shortages and expectations of a rebound in economic growth will likely see this trend continue.
Labour hoarding may lead to higher underemployment (part-timers wanting to work more hours) over the next year. There has been a sharp fall in the number of underemployed workers in recent years. In 2005, 17% of part-time workers wanted to work more hours and 3% were seeking full-time work, down from 29% and 7% respectively in 1999. These measures of underemployment are now the lowest since the series began in 1990.
The drop in hours may also reflect better work/life balance, although this is still an issue. In 2005, the proportion of people in work was at an all-time high and 18% of workers worked at least 50 hours a week.
A small rise in net migration inflows is expected
Annual growth in the working-age population is expected to be boosted by a small rise in the net inflow of permanent and long-term migrants. Annual net migration is picked to lift from 8,300 at February 2006 to 13,000 at March 2008, after recovering from a trough of 6,000 at October 2005.
This lift in net migration is due to a forecast rise in arrivals, supported by high levels of residence approvals and work permits. Growth in arrivals is expected to offset a small rise in departures. Although higher economic growth in other OECD nations is expected to encourage more departures, the relative safety of New Zealand is expected to dampen this increase.
Labour force participation rate has risen sharply, but is expected to ease
Data table for figure 1The labour force participation rate rose to a record yearly average of 67.8% in 2005, after large increases in four of the last five years. The participation rate has been driven up by females and by people aged 55 years and over. People aged 55 years and over have made up 50% of labour force growth since 1999 due to large rises in their participation rate and the ageing of the population (see figure).
The participation rate is forecast to fall slightly over the next two years. Easing job prospects are likely to discourage some people from entering the labour force, although robust wage growth is expected to keep labour force participation high at 67.4% in the March 2008 quarter. Before December 2004, a participation rate this high had never been recorded.
Unemployment rate has stopped falling and is set to rise
The unemployment rate is expected to rise slightly from the equal 20-year low of 3.6% in the December 2005 quarter due to the forecast easing of employment growth. Unemployment fell steadily in the 1999-2004 period, was fairly stable during the past year, and is now picked to slowly trend upwards.
The unemployment rate is expected to be 4.0% in the March 2007 quarter (87,000 unemployed people) and 4.5% in the March 2008 quarter (100,000 unemployed people). This forecast rise is approximately half of that seen during the downturn of 1997 and 1998, and would only reverse a small part of the improvement over the last six years. Even with this increase, an unemployment rate of 4.5% would still be as low as that recorded in the tight labour market of the second half of 2003.
Skill shortages are easing but wage pressure likely to remain high
Skill shortages have recently eased due largely to slowing economic growth. The Quarterly Survey of Business Opinion (QSBO) shows a net 26% of firms had difficulty finding skilled staff at March 2006, down from a net 60% a year ago. However, the QSBO also shows that a shortage of labour was still the main constraint for a large proportion (19%) of firms at March 2006.
High skill shortages have pushed up wage growth to reasonably high rates, particularly among some professionals and trades workers. Although the recent easing of skill shortages may have removed some wage pressures, wage growth is set to remain high over the next year as a lagged response to the tight labour market of 2004/2005.
1 New official productivity measures provide productivity data for the 65% of the economy that can be reliably measured (which excludes education, health, government, property, and business services).
| Forecasts | Date | 2006 | 2007 | 2008 |
|---|---|---|---|---|
| Department of Labour | Apr-06 | 2.3 | 1.4 | 2.4 |
| ANZ | Mar-06 | 2.1 | 1.5 | NA |
| ASB | Apr-06 | 2.1 | 1.3 | 2.4 |
| Bank of New Zealand | Apr-06 | 2.0 | 1.0 | 1.7 |
| BERL | Mar-06 | 2.3 | 1.9 | 2.4 |
| NZIER | Mar-06 | 2.0 | 0.7 | 2.8 |
| Treasury | Dec-06 | 2.9 | 1.7 | 2.5 |
| Reserve Bank1 | Mar-06 | 2.5 | 1.5 | 2.0 |
| Westpac | Apr-06 | 2.0 | 0.7 | 1.8 |
| Consensus forecasts2 | Mar-06 | 2.3 | 1.4 | 2.4 |
Notes:
| Forecasts | Date | 2006 | 2007 | 2008 |
|---|---|---|---|---|
| Department of Labour | Apr-06 | 1.6 | 0.7 | 1.0 |
| ANZ | Mar-06 | 1.5 | 0.7 | NA |
| ASB | Apr-06 | NA | NA | NA |
| Bank of New Zealand | Apr-06 | 1.7 | 0.5 | 0.5 |
| BERL | Mar-06 | 1.91 | 2.51 | 2.51 |
| NZIER | Mar-06 | 1.5 | 0.0 | 1.2 |
| Treasury | Dec-06 | 2.82 | 0.42 | 0.62 |
| Reserve Bank3 | Mar-06 | 1.75 | 0.25 | 0.25 |
| Westpac | Apr-06 | 1.8 | 0.3 | 0.9 |
| Consensus forecasts4 | Mar-06 | 1.9 | 0.5 | 1.0 |
Notes:
| Forecasts | Date | 2006 | 2007 | 2008 |
|---|---|---|---|---|
| Department of Labour | Apr-06 | 3.7 | 4.0 | 4.5 |
| ANZ | Mar-06 | 3.8 | 4.1 | NA |
| ASB | Apr-06 | 3.8 | 4.6 | 5.0 |
| Bank of New Zealand | Apr-06 | 3.7 | 4.1 | 4.2 |
| BERL | Mar-06 | 4.11 | 4.41 | 4.71 |
| NZIER | Mar-06 | 3.7 | 4.4 | 4.2 |
| Treasury | Dec-06 | 3.4 | 3.8 | 4.1 |
| Reserve Bank2 | Mar-06 | 3.75 | 4.5 | 5.0 |
| Westpac | Apr-06 | 3.7 | 4.6 | 5.0 |
| Consensus forecasts3 | Mar-06 | 3.8 | 4.4 | 4.6 |
Notes
