August 06, 2020
Mark Cox

Ignore the unemployment rate

The drop in total hours worked better reflects the true state of the labour market

To the astonishment of many of those who were brave (or foolish) enough to make a prediction, the unemployment rate in New Zealand dropped from 4.2 percent in the March quarter of 2020, to 4.0 percent in the June quarter. However, this figure can safely be dismissed as disguising the true – and worrying – state of the labour market and the wider economy.

The total number of hours worked by people in employment decreased by 10.3 percent, which was the largest decrease on record. Despite the number of people in employment decreasing by 11,000 (or by 0.4 percent) in the June quarter, the unemployment rate dropped because 37,000 people exited the labour force.

The total number of hours worked by people in employment decreased by 10.3 percent, which was the largest decrease on record

The underutilisation rate increased to 12.0 percent. In addition, the total number of hours worked by people in employment decreased by 10.3 percent, which was the largest decrease on record.

The fact that hours worked decreased by 10.3 percent, while employment decreased by only 0.4 percent, implies that many people were working reduced hours. Indeed, many are likely to have been working no hours at all, while still remaining technically employed because of the wage subsidy scheme. Sadly, a large number of those working reduced or zero hours will lose their jobs when the scheme comes to an end at the beginning of September.

The September quarter labour market figures will still be heavily distorted by the wage subsidy, so it will not necessary become clear just how many will lose their jobs until February 2021, when the December 2020 quarter data is released. And, even then, the number of people categorised as unemployed is unlikely to increase to the same extent that employment decreases. Many of those who lose their job will simply leave the labour market because they see no prospect of finding a new job.

Sadly, a large number of those working reduced or zero hours will lose their jobs when the scheme comes to an end at the beginning of September.

On top of all this, the end of the wage subsidy scheme will result in consumer spending power being withdrawn from the economy. In addition to some people no longer seeking employment, others who lose their jobs, and are seeking employment, will not necessarily be eligible for Jobseeker Support, if they have a partner in employment. The effect of this reduction in consumer spending power will be to reduce employment further.

The worst is most definitely to come, and it is not alarmist to say that whichever party leads or forms the government after the election could have to tackle one of the worst economic crises the country has faced in generations.