More than 85,000 additional people could be in work by the end of next year, forecasters say.
Photo: RNZ
More than 85,000 additional people could be in work by the end of next year, forecasters say – but it’s not reasonable to expect that everyone who is currently unemployed will get a job.
New Zealand’s unemployment rate has risen from a low of 3.2 percent to 5.2 percent.
But the labour market is forecast to improve next year, reducing the number of people unemployed from its current 158,000.
Infometrics chief forecaster Gareth Kiernan said most estimates of sustainable “full employment” were with an unemployment rate of not less than 4 percent. “Even at that rate businesses are struggling to find suitable staff to fill vacancies.”
Kiernan said the leftover 4 percent would usually include people between jobs and those who did not have the technical or work-ready skills to fill available roles.
Earlier this year it was revealed that the longest anyone who is currently receiving JobSeeker work ready support had been on a benefit was almost 44 years. They could have been on a number of different benefit types in that time.
Kiernan said when unemployment was too low it put other pressures on the economy.
“As we saw during the pandemic, unemployment below 4 percent is likely to lead to significant labour cost pressures, thereby generating more inflation, and so not being sustainable over the medium-term.”
He said a rate of 4 percent would mean about 36,400 more people in work compared to the June quarter, assuming that participation stayed the same.
But he said if participation lifted from the current level of 70.5 percent to 70.8 percent, which is the average of the last decade, a 4 percent unemployment rate would mean an additional 48,800 people in employment.
If it lifted back to 71.5 percent, which was the average of the last five years, it would mean an additional 77,800 people in work.
If it reached 72.4 percent, which was the peak in 2023, a 4 percent unemployment rate would mean 115,000 more people in work.
That does not allow for growth in the working age population.
“Put another way, we expect employment by the end of 2026 to be up 86,200 from its June 2025 level, and by the end of 2027 up 136,000 from June 2025 – those forecasts incorporate changes in the working age population, participation rate, and unemployment rate.”
He said growth of 86,000 to the end of 2026 was not outlandlishly strong compared to history but was towards the top end of what might be achievable.,
“The biggest difficulty at the moment is that there’s not really any signs of things improving, so it feels like a big act of faith to say it’ll all be fine by the end of next year – particularly in light of how disappointing this year has been from an economic perspective. So I can see the risks being to the downside in terms of the labour market turnaround, although continued interest rate cuts are now at a point where they should clearly be stimulating the economy.”
Massey University professor Matt Roskruge said unemployment could not go to zero because it would mean some jobs were unfilled.
“There’s always some friction in the labour market, people moving between roles, looking for the right skill fit or location, or taking time to find the right job. Because of that, we usually say that about 2-4 percent unemployment is natural. Below that, we start getting into genuine labour shortage territory.”
He agreed with Kiernan that people moving between jobs and a mismatch between jobseeker skills, experience and location and the available vacancies were part of the natural rate of unemployment.
“From an employer’s point of view, a small surplus of available workers helps keep wages in check. When labour is scarce, workers have more bargaining power, and that can push wages and costs up which can feed into inflation.
“So, it’s not that we want people unemployed, it’s that some turnover and mismatch are unavoidable in a dynamic labour market. I personally think we can comfortably go to around 2 percent – which we did in the 2010s from memory – without issues arising.”
Craig Renney, policy director at the Council of Trade Unions and formerly an adviser to then-Finance Minister Grant Robertson, said there was a significant risk that some people who are unemployed now could be left behind when the market improves.
“Young people have been most affected by unemployment… that’s a real risk.”
He said there was also the possibility that higher unemployment numbers would suppress wage growth particularity for lower-income earners.
“There is also a real risk in the future that we see the emergence of a different kind of economy and people have the wrong skills.”
He said New Zealand did not have a good record when it came to mid-career training and adult education which could hurt labour market progress. Skills mismatching was a problem for the country’s productivity, he said.
Sign up for Money with Susan Edmunds, a weekly newsletter covering all the things that affect how we make, spend and invest money.