Inside Economics: Is AI to blame for pushing unemployment rate higher? Plus Aussies headed for downturn

You have described employment as a lagging indicator both going into and coming out of recessions, but what if this time around, something actually is a little different?

From farmers using drones to monitor their farms, supply chain automation, self-service at supermarkets and even increasing numbers of hospitality businesses using those little beepers to call you to fetch your meal, everywhere businesses seem to be working very hard to bake in headcount reductions and grow activity with less human input.

Maybe unemployment will never come down without job sharing or more part-time work to share the burden of working and paying taxes more evenly.

Cheers,

John Christiansen

A: Thanks, John. It’s an interesting question and one we were discussing in the office last week.

There has been a lot of talk about AI reshaping the workforce. But the extent to which it is already happening isn’t clear.

I looked at recent international research on the impact of AI on the labour market.

According to work by Goldman Sachs in August, the effects are still on the margins and aren’t yet affecting top-line unemployment numbers.

The Goldman research was US-focused but I suspect we’ll follow a similar pattern.

“AI adoption remains relatively low, especially among midsized and small enterprises,” Goldman said.

“While adoption rates have accelerated recently, the vast majority of companies have not incorporated AI into regular workflows. In a recent US survey, only 9.3% of companies reported that they had used generative AI in production during the last two weeks.

“Our economists found no significant statistical correlation between AI exposure and a host of economic measures, including job growth, unemployment rates, job finding rates, layoff rates, growth in weekly hours, or average hourly earnings growth.”

If current AI use cases were expanded across the economy, Goldman Sachs Research estimates that just 2.5% of US employment would be at risk of displacement.

That all sounds a bit like the AI hype is getting ahead of itself. So good news for workers, but it might not bode well for Wall Street and its highly valued tech stocks.

What Goldman did find is that AI is starting to have an impact in the tech sector, with young tech reporters being disproportionately affected.

Unemployment among 20- to 30-year-olds in tech-exposed occupations had risen by almost three percentage points since the start of 2025, Goldman found.

That was notably higher than for their same-aged counterparts in other trades and for overall tech workers as well.

“This corroborates anecdotal reports that generative AI is contributing to hiring headwinds facing recent college graduates in technology.”

Goldman researchers looked at factors such as task repetitiveness, the consequences of errors by AI tools, the connections between tasks, and the value of AI-exposed tasks compared to prevailing wages.

They concluded that occupations at the highest risk of being displaced by AI in the coming years included computer programmers, accountants and auditors, legal and administrative assistants, customer service representatives, telemarketers, proofreaders and copy editors, and credit analysts.

Those at the least risk of being displaced were air traffic controllers, chief executives, radiologists, pharmacists, residential advisers, photographers…and members of the clergy.

I guess ChatGPT can’t yet solve a spiritual crisis.

The upshot of that research is that it seems unlikely that AI is having a material effect on New Zealand’s unemployment rate, for now at least.

On that basis, I’d expect it to come down as part of the cyclical recovery now underway.

Where it settles may be more revealing. If we have good economic growth and still see high unemployment, then we’ll have an issue.

Was it really that bad?

Let’s recap last week’s unemployment release, as it has been something of a political flashpoint.

At 5.4% unemployment was up from the previous quarter (5.3%) and, based on the forecasts of market economists, slightly worse than expected.

But as the Prime Minister has pointed out, it was still lower than earlier Treasury forecasts (5.5%).

Prime Minister Christopher Luxon. Photo / Mark Mitchell

The economists and PM also seem to be on the same page with regard to the overall trend for the labour market.

Employment was up. Around 15,000 jobs were created in the quarter.

The reason unemployment went higher was that more people entered the labour market.

In previous months, the lack of jobs had seen more people leaving the labour market for further training.

An increase in the participation rate isn’t a bad thing, as it suggests that there is more optimism out there.

Economists see the data as consistent with the slow recovery we have underway.

But that shouldn’t be a free pass for the Government.

As I pointed out in my column on Sunday, the first increase in the employment rate for 18 months isn’t too flash in the context of an export boom that has been running for at least as long.

RBNZ back in action

After what some have claimed is too long a summer break, the Reserve Bank returns next week with a new season of Inflation Busters, the popular reality show we all have an opinion on.

The past year was a wild ride with the Official Cash Rate falling from 4.25% to 2.25% and the sudden departure of Governor Adrian Orr, followed by months of controversy about how that was handled.

Despite having a new lead in Governor Anna Breman, don’t expect fireworks from the first episode.

Reserve Bank Governor Anna Breman. Photo / Mark Mitchell

The RBNZ will deliver its first Monetary Policy Statement of the year at 2pm on Wednesday.

The Official Cash Rate isn’t going anywhere for this one.

All the focus will be on gauging how worried the RBNZ is about elevated levels of inflation and when it might see the need to start lifting the OCR.

BNZ’s Stephen Toplis is picking that, after it weighs the state of the recovery, the remaining headwinds and annoyingly persistent inflation, the RBNZ will take a cautious stance.

BNZ is forecasting the first OCR rise will be needed by September but Toplis doesn’t see any reason for the new Governor to show her hand on that.

“We do expect it to acknowledge the pick-up in growth and higher starting point for inflation,” Toplis wrote in his preview.

But the RBNZ would likely still express confidence that inflation will come back to the mid-point of the target band and push back on market pricing, which has a 25-point hike priced by October, he said.

“Specifically, we expect the possibility of an easing to be removed from the Bank’s published interest rate track such that the low remains at 2.25% through to the December quarter,” he said.

“From there on in, we would expect the track to be around 10 basis points higher than previously published.”

So one for the purists perhaps.

Thankfully, we’ll have the first press conference from the new Governor to liven things up – will there be jokes, how will she handle stupid questions from the press pack, and will she pass muster with the online critics who took issue with Orr’s aggressive style?

Aussie slowdown

Australia’s economic performance has been running well ahead of ours for the past few years.

But with annual inflation at 3.8% and the Reserve Bank having begun its hiking cycle last week (the OCR is now 3.85%) there are fears that economic growth will slow dramatically.

Annual GDP growth has been running at 2.1% and the unemployment rate is down to 4.1%.

But the RBA is warning that growth will fall to just 1.6% for the year to June 2028.

The Australian Financial Review describes that as a “dire warning”. I hate to think how they’d describe New Zealand’s recent performance.

Of course, if you don’t count the short-lived Covid crash of 2020, Australia hasn’t had a real recession since 1991.

They don’t know how lucky they are…mate.

Ultimately Australia is facing the same issue we do with slowing productivity growth limiting capacity for economic growth (without causing inflation).

But 1.6% growth would be well below capacity, suggesting Australia is headed into a cyclical downturn out of sync with New Zealand which is projected to see GDP growth of 2.8% in 2027.

That should resolve Australia’s inflation problem but we can expect to see unemployment rise. It’s possible things won’t be quite so rosy for young Kiwis trying their luck across the ditch.

We might finally start to see an improvement in our net migration rate, which could further underpin growth in New Zealand.

Green shoots

I’ve already mentioned the green shoots buried below the surface of the labour market data last week.

Otherwise things have been quiet, but here’s a couple of positive snippets.

Keep on Truckin’

ANZ’s Truckometer rolled into town showing a decent lift in both light traffic and heavy traffic in December, followed by a slight easing in January.

The Light Traffic Index (LTI) eased 1.1% in January but is up a solid 3.6% year-on-year.

The Heavy Traffic Index (HTI) fell 2.4% in the month, but this was off the back of a 3.2% lift in December. It is up 2% y/y, with annual growth trending up.

Nothing to worry about, according to ANZ chief economist Sharon Zollner.

The trend for both remained positive, she said.

Retail rebound

Per-person spending on Westpac-issued debit and credit cards was up 6% in January compared to the same time last year, according to the bank’s latest Retail Pulse survey.

“Households have been spending more on essentials like food, petrol and utilities as the cost of living has continued to rise,” Westpac senior economist Satish Ranchhod said.

More encouragingly, however, there had also been a lift in discretionary spending, he said.

“There have been particularly large increases in spending in the hospitality sector, as well as increased sales of furnishings and other household durables.”

Spending appetites continued to be supported by the strength in commodity export earnings.

Ranchhod noted that many retailers continue to face tough conditions and squeezed margins, but were feeling more optimistic about the outlook for 2026, with an increase in forward orders and plans for hiring.

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. To sign up to his weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide, click here. If you have a burning question about the quirks or intricacies of economics send it to liam.dann@nzherald.co.nz or leave a message in the comments section.