Reports about the credit crunch, looming global recessionand stock market volatility have dominated economic reports over the past fewmonths. But for most New Zealanders the question will be what does it mean itfor me? At its simplest: how safe is my job?
While many of our younger workers have only known boom timesin New Zealand those who were working (or out of work) in the post-1987 stockmarket crash years will be feeling ill at ease. The economy haemorrhaged jobs inthe post-1987 crash years and unemployment reached a peak of nearly 11% in1991. With the international financial market meltdown being dubbed thebiggest international economic event to hit New Zealand since the 1973 oilshock, many Kiwis will be wondering if history is about to repeat itself.
Unemployment reached 4.2% in the September quarter from anall time low of 3.4% late last year. But despite the rise it is still low byhistorical standards. Not so long ago we regarded an unemployment rate of 5%as being full employment, a level at which we thought that most people whowanted to work could find a job. But after four years of unemployment ratesbelow 4% our perception of what is high and low has changed.
Some of the indicators of employment intentions and ease ofrecruitment are back to levels last seen in the late 1990s when unemployment washovering around 7%. But it is unlikely that during the current recession unemploymentrates will reach the levels of the early and late 1990s. The New Zealand economy is better placed to weather the storm than it has been in the past. Perhaps most important is the increased breadth of our export markets. Withless reliance on demand from the UK, the US, Europe, Japan and Australia we can now benefit from the relative strength of non-Japan Asia.
In addition to the greater resilience of our economy thereare a number of labour market factors which may prevent the unemployment rate climbingto the levels seen in the early and late 1990s.
Instead of retrenching many employers are likely to reducethe number of hours their staff work each week. Until very recently New Zealand employers experienced extreme difficulty in finding both skilled and unskilledlabour. Memories of staff shortages being their major constraint on expansionof their businesses will linger. With the knowledge that staff may bedifficult to find again when economic times improve, employers will think twiceabout letting staff go. There is already some evidence of labour hoarding. The latest Household Labour Force Survey shows that the number of people employedin the September quarter was about the same as the previous quarter but thetotal number of hours worked declined by about one percent.
A sizeable number of people will voluntarily bow out of thelabour force. This group of people are highly mobile, moving between jobs andin and out of the labour market. They will work if pay or the type of work isattractive, but most do not have to work. The behaviour of this group has beenunpredictable in the past and their movements into and out of the labour forcehas contributed to volatile labour force participation rates. But with toughereconomic conditions ahead they will probably increasingly choose to withdrawfrom the labour force and not be counted in the unemployment statistics. Instead of joining the jobless queues they will go back to studying, homemaking,voluntary work or indulging their interests.
Australia always offers a back door for Kiwi workers and amove across the Tasman will become especially attractive to those who losetheir job or feel vulnerable. The outflow of lower skilled workers to Australia (while being replaced with higher skilled migrants) has probably contributed to New Zealand being able to achieve a lower unemployment rate than Australia for most of the lasttwenty years. Although the Australian economy is slowing it is still likely togrow by two or three percent over the next few years, somewhat higher than mostother developed countries. With the New Zealand economy in recession the lureof the Aussie dollar will be strong and recent record levels of outflows ofKiwis to Australia are likely to be maintained or exceeded.
Of course in volatile times it is not difficult to imaginescenarios worse than our current predictions. Although the New Zealand economy and most of our businesses are in good shape some of them still dependon finance from the international banking sector. Our outlook is based on thepremise that international banks keep the finance flowing. If the bankingsector freezes up then even some of our best businesses will struggle.
Even if the current labour market downturn is not as severeas previous downturns there will be pain aplenty. Lower skilled workers aremost vulnerable and low income households will again feel the brunt of therecession. That there are fewer layoffs than in previous downturns will provideno comfort to those joining the jobless queues.
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