Background

This report informs you about the Household Labour Force Survey (HLFS) results for the March 2009 quarter. The HLFS was released by Statistics New Zealand on 7 May 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.

Key points

• The unemployment rate rose to a six-year high of 5.0%. This was up from 4.7% in the December 2008 quarter, but at the bottom end of market expectations. There are now 115,000 people who are unemployed.
• Employment fell by 24,000 (1.1%) over the quarter, split evenly between men and women. Usual hours worked fell by 0.4% over the quarter (and actual hours rose slightly) indicating that firms are beginning to cut staff numbers rather than reducing hours.
• There was a significant drop in labour force participation over the quarter, down 0.7 percentage points to 68.4%. This fall was well above market expectations. If labour force participation had not fallen so strongly the unemployment rate would have been higher.
• Most of the fall in employment over the quarter was in part-time employment, down 3.1%, with full-time employment falling by 0.7%.
• The continued weakening in the labour market has hit youth (15-24 year olds) hard with an annual rise in the number unemployed of 14,700 and a fall in employment of 11,300.
• Statistics New Zealand reports that New Zealand’s unemployment rate is the ninth lowest of the 27 OECD nations with comparable data. The OECD average unemployment rate was 7.3%.
• Although the unemployment rate rose in the March 2009 quarter, New Zealand has been less affected by global events and is in a relatively better position than most other countries. This is due to factors such as a strong labour market when the downturn began, tax cuts, an increase in government spending and large reductions in interest rates.
• The outlook for the labour market remains weak. We expect further increases in the unemployment rate over the next year, rising towards 7% by early 2010.

HLFS results show the labour market continues to weaken

The March 2009 quarter HLFS showed the labour market continued to weaken with the unemployment rate rising, and employment and participation both falling. Labour demand was weak with usual hours worked falling, but by less than employment. This indicates that firms have started to cut staff numbers rather than just reducing hours.

Employment declines in line with expectations…

The employment decline in the March quarter was broadly in line with our expectations. Employment declined by 1.1% to 2,182,000 in the March quarter 2009 (Figure 1). Despite the quarterly fall, employment actually rose by 0.8% over the year.

Fig 1: Employment growth

Data Table for Figure 01

Fig 2: Unemployment & participation rates

Data Table for Figure 02

 …and labour demand remains weak…

Total actual hours worked increased to 0.2% in the March 2009 quarter. However, the number of usual hours worked per week decreased by 0.4% in the March quarter. The decline in both full-time and part-time work and hours worked is consistent with firms cutting back on staff and hours worked.

 …while the unemployment rate continues to rise

The unemployment rate increased from 4.7% to 5.0% in the March 2009 quarter. This is the highest rate since March 2003 and means the unemployment rate has now risen 1.5 percentage points from a 22-year low of 3.5% in late 2007. The increase in the unemployment rate over the March 2009 quarter was driven mostly by males. The female unemployment rate rose from 4.8% to 4.9%, while the male rate increased from 4.6% to 5.1%.

The lower than expected increase in the unemployment rate was due to an increase in people leaving the labour force in the March 2009 quarter. It is common for the labour force participation rate to fall as employment declines. People who lose their job may not seek further work and instead turn to other activities such as looking after children or studying. Over the year, there was a 7.6% increase in the number of people participating in formal study. There may also be a discouraged worker effect where people seeking employment give up searching and leave the labour force altogether.

The number of people unemployed now stands at 115,000. The rise in unemployment was concentrated in short-term unemployment (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 ninth lowest of the 27 OECD nations with comparable data. The Netherlands has the lowest unemployment rate at 2.7%, followed by Norway at 3.1%. South Korea and Switzerland are also below 4%. The OECD average unemployment rate was 7.3%, up from 6.5% when the December 2008 quarter HLFS was released.

Although the unemployment rate rose in the March 2009 quarter, New Zealand has been less affected by global events and is in a relatively better position than most other countries. This is due to factors such as a strong labour market when the downturn began, tax cuts, an increase in government spending and large reductions in interest rates. In the United States, the unemployment rate has risen from 4.8% in February 2008 to 8.5% in March 2009. Unemployment has increased in other developed nations, particularly Ireland (to 10.0% in March 2009, from 4.9 % a year earlier) and Spain (to 15.5% in March 2009, from 9.0% a year earlier).

The unemployment rate in Australia has risen from 4.5% in December 2008 to 5.4% in April 2009.

The participation rate declined

The labour force participation rate declined to 68.4% in the March 2009 quarter, down from the record high of 69.1% in the previous quarter. The decline in the participation rate was driven by a significant amount of people leaving the labour force in the March quarter, particularly for those aged 15-19 years and 65 years and older.

The decline in the participation rate over the quarter was driven by a decrease in both the male and female participation rates. The female participation rate declined by 0.7 percentage points to 62.2%. The male participation rate declined 0.6 percentage points over the quarter to 75.0%.

Youth particularly affected by downturn

The HLFS showed a large fall in youth employment from a year earlier. Employment for those aged 15-24 dropped by 11,300, or 3.3%, from the March 2008 quarter. This was driven by an 8.4% drop in employed females. The unemployment rate in the youth age group rose 3.6 percentage points to 15.2%, while the participation rate remained fairly flat. This is consistent with Ministry of Social Development data showing youth aged 18-24 accounting for an increased share of unemployment benefit (UB) recipients, up from 21% of UB recipients to 31%.

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 their low skill and experience levels, 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 15.8% in early 1990 to 21.2% in early 1992.

Mäori 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 March 2009 quarter saw large increases in the unemployment rates for Pacific peoples (up to 13.1% from 8.7% a year earlier) and those in the European/Mäori ethnic group (up to 13.1% from 7.2%). Increases in other ethnic groups were not as pronounced, with the unemployment rate for the Mäori only group up to 11.9% from 10.2% a year earlier and Europeans up to 3.8% from 3.0%.

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 manufacturing (down 18,800), agriculture, forestry & fishing (down 7,100), finance & insurance (down 6,000), wholesale & retail trade (down 5,200) and communications (down 2,700) (Figure 3)

These losses have been offset by substantial annual increases in employment in property & business services (up 19,900), health & community services (up 17,600), a surprising increase in construction (up 5,500) and education (up 4,800).

Fig 3: Employment growth by industry

Data Table for Figure 03

Fig 4: Unemployment rates by region

Data Table for Figure 04

Unemployment rises across most regions

Regional unemployment rates showed significant increases, with rates in the South Island now beginning to show the effects of the recession, and employment drops in the manufacturing industry hitting the three urban centres of Auckland, Waikato, and Canterbury. In Auckland, the unemployment rate was up to 6.5% from 4.7% a year earlier; in Waikato, the rate was 5.8% from 4.2% a year earlier; and in Canterbury, the rate was 4.6% from 2.7%.

Summary

The New Zealand labour market has continued to weaken due to the difficult economic conditions. With real GDP falling for the past year, employment has started to follow suit, falling by 1.1% over the March 2009 quarter. The large drop in part-time employment and the small fall in usual hours worked may indicate that firms have had to start cutting staff numbers rather than reducing their hours.

While the unemployment rate for the March 2009 quarter was more positive than expected by most commentators, this was largely due to a higher than expected fall in participation. Today’s figures have some similarities with those for the March 2008 quarter, which also went against market expectations. 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.

Despite the easing, the labour market has held up relatively well during the economic downturn. Employment is still up by 0.8% over the year, despite the economy being in recession since the beginning of 2008. The unemployment rate has risen to a six-year high of 5.0% but remains relatively low on an historical basis and well below the OECD average of 7.3%. New Zealand has not suffered the large increases experienced in other countries such as the United States, Ireland and Spain.

Outlook continues to be weak

The outlook for the labour market continues to remain weak. The labour market typically lags economic growth by 1-2 quarters indicating the coming quarters will continue to pick up the effects of the global financial crisis. The March 2009 QSBO showed a significant easing in labour market indicators. Firms are finding it easier to recruit staff than at any time in the past 30 years and employment intentions are at their lowest level since 1991. A net 36% of firms intend to decrease staff over the June 2009 quarter.

Economic activity is not expected to increase until the second half of 2009, and with the time lags involved, the labour market is forecast to continue easing until 2010. We expect the unemployment rate to rise towards 7% by March 2010. However a key element to any rise in the unemployment rate is how the participation rate behaves over the coming year. Further falls in the participation rate, due to people becoming discouraged or turning to other activities such as further education, will act to dampen the rise in unemployment rate over the next year.

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 March 2009, 47% of these people were retired, 19% were studying, 16% were at home with children, and 13% were at home not looking after children.

Labour force participation rate:

proportion of the working-age population that is in the labour force (68.4%).

Unemployment rate:

proportion of the labour force that is unemployed (5.0%).

Employment rate:

proportion of the working-age population that is employed (65.0%).

Long Description For Figure 5

Note: figures may not sum due to rounding.

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