September 01, 2020
Sam Green

Wage subsidy still a lifeline for construction and manufacturing

100,000 construction and manufacturing workers still on the wage subsidy extension

Stock markets are at all-time high, New Zealand's official unemployment is very low, and house prices are continuing to increase.

Stock markets are at all-time high, New Zealand’s official unemployment is very low, and house prices are continuing to increase. Have we dodged an economic meltdown, or has it been delayed?

In an unprecedented crisis, many commentators have noticed that it does not feel like we are in the deepest crisis in living memory, or even recent memory. According to many economic indicators, one could suggest that right now is still an economic boom.

Believe it or not, 2020 saw the start of a pandemic, and New Zealand had months of lockdowns where people were unable to work for months. Some of the positive indicators, particularly the unemployment rate, can be linked to the wage subsidy. Maintaining the link between employers and employees, and providing the needed funds for households to remain afloat allowed businesses to return to work once alert levels reduced.

While the “recession cancelled” narrative has been circling, the ongoing wage subsidy data, gives us a look at what is going on behind the scenes. To be eligible to the wage subsidy extension, employers needed to experience a 40 percent decline in revenue over a 30-day period after 10 May 2020. From 10 May, New Zealand was in alert levels one and two. At these lower alert levels, the industries most affected by restrictions was the international tourism industry.

As shown below, the most affected industry is accommodation and food services, because of the reduced number of visitors. Following tourism, the most affected industries were construction and manufacturing, which are often able to operate with social distancing, though require confident investors willing to invest in their products. 

Source: Ministry for Social Development

100,000 construction and manufacturing workers are supported through this wage subsidy, though this raises a question of the stability of these industries once the wage subsidy ends. Within the construction industry, wage subsidies account for 30 percent of the workers. This is consistent with a reduction in building consents. New building consents for the six months to June were substantially down from the peaks of late 2018.

100,000 construction and manufacturing workers are supported through the wage subsidy extension.

Building consent data also confirms the challenges in the construction sector, particularly for new builds, and often concentrated in Auckland. Annual building consents in Auckland had been growing rapidly since 2011, with 2020 snapping this expansion. In the 12 months to June, the value of new building consents in Auckland decreased $800 million from the peak of $8 billion in December 2019. The month of June has a bit of an uptick, as a result of a post-lockdown catch-up as shown below.

Source: Statistics New Zealand

This could be a signal of a change of pace in the construction sector, with new developments being delayed or cancelled until more certainty returns. Once wage subsidies end, and other supports come to an end, we will see the true extent of economic state of the economy.

In the meantime, many construction workers will be looking forward to the increased demand for their skills in the shovel-ready projects in the Government’s COVID-19 response.