February 04, 2021

Unemployment falls despite wage subsidy ending

Strong December quarter employment figures continue to signal a strong recovery

New Zealand’s seasonally adjusted unemployment rate dropped to 4.9 percent in the December 2020 quarter, from 5.3 percent in the September 2020 quarter. The September 2020 quarter unemployment rate of 5.3 percent followed the largest increase observed in a single quarter since the series began in 1986.

The relatively strong unemployment figure was a surprise for many economists who were expecting unemployment to increase following the end of the government’s wage subsidy scheme on 1 September 2020.

Following stronger than expected GDP results in the December quarter the strong employment result provides further evidence of the New Zealand’s strong economic and health response to, and recovery from, COVID-19.

Before the September 2020 quarter, the unemployment rate had been trending downwards from a peak of 6.7 percent in the September 2012 quarter. The December 2020 quarter's unemployment rate sees a return to rates observed over three years ago in the March 2017 quarter, when the unemployment rate was also 4.9 percent.

Source: Statistics New Zealand

The seasonally adjusted number of unemployed people fell by 10,000 in the December 2020 quarter, to 141,000. The decrease was split evenly between men and women. The employment rate was 66.8 percent in the December 2020 quarter, compared with 66.4 percent in the September 2020 quarter, and 67.6 percent in December 2019 quarter.

Despite the December quarter’s drop, unemployment is still higher than it has been in a few years. This time last year, the unemployment rate was at 4.1 percent. The number of unemployed people is still 25,000 higher than it was in the December 2019 quarter when the total number of unemployed was 116,000.

Source: Statistics New Zealand

The increase in unemployment has impacted female employment greater than male. An additional 15,000 women were unemployed in December 2020 compared with the December 2019 quarter while there were an additional 11,000 unemployed men.

Focusing on employment, the seasonally adjusted number of people in work rose by 17,000 over the December 2020 quarter. This follows falls in the previous two quarters of the household labour force survey (HLFS), by 7,000 in the June 2020 quarter, and 19,000 in the September 2020 quarter.

Although there are still expected to be difficult times for employment compared to the recent history there are a number of positive signs. The decrease in unemployment was not the result of more people giving up looking for work. At times of economic uncertainty a number of people leave the labour force. However, this has not been the case in the December quarter. The number of people classed as "not being in the workforce" fell by 3,000 over the quarter and there was a net increase of 4,000 in the working age population.

The "underutilisation" rate, which measures whether people are working as many hours as they want to, fell to 11.9 percent from 13.2 percent in the September 2020 quarter. Like unemployment, underutilisation had been trending downwards prior to COVID-19. Although there has been a quarterly fall, the rate is still higher than this time last year, when it was 10.1 percent.

For men, the underutilisation rate fell to 9.7 percent, down from 10.5 percent and for women, the underutilisation rate fell to 14.3 percent, down from 16.1 percent. This means there are 14,000 fewer underutilised men and 25,000 fewer underutilised women.

Underutilisation is a broad measure of spare capacity in New Zealand’s labour market. This decrease is a positive sign for potential employees looking to pick up work as it reduces competition for jobs. However, for employers it reduces the talent pool available to fill vacant positions.

Additionally, people are more confident in their employment. This is a positive sign for the economy and household expenditure in particular. Feelings of job security have improved since the September 2020 quarter, with 79.1 percent of people in December 2020 quarter saying there was almost no chance or a low chance that they would lose their job or business in the next 12 months, compared with 74.3 percent in the previous quarter. This is a good sign that the economic stimulus from the Government and the Reserve Bank is having an impact to maintain employee confidence, thus boosting consumer confidence to spend and promote economic activity.

Overall employment has increased since last year. Since the December 2019 quarter, the number of seasonally adjusted employed people had a small increase of 19,000 (0.7 percent). This annual growth is lower than seen in recent pre-COVID years. Not all industries have fared evenly in that time with construction up, and tourism-related industries down.

Nationally, the household labour force survey (HLFS) showed an annual increase of 21,000 people whose main job was in the construction industry, up to 278,300 people in the December 2020 quarter. The growth in the construction industry across 2020 reflected an increase of 13,200 people employed in construction services.

Despite the strong recovery there are still risks to employment as the recovery continues. Domestic tourism has been heavily promoted since New Zealand moved into alert level one. This has kept many tourism employees in employment over the spring and summer period. However, it remains to be seen if the tourism industry can continue to retain the same level of employment without international visitors. Looking ahead to the March and June 2021 quarters the lack of international visitors is expected to see tourism businesses face further struggles as the summer holidays come to an end for many and people return to work. After the strong initial recovery if this occurs it could see unemployment increase again and employee confidence fall. The Reserve Bank and the Government will face pressure to keep unemployment low and reduce it further.