Rising wages and pressure on household finances are forcing people into the workplace who would prefer to be home with their families or studying to provide NZ a high-skilled workforce
Opinion: The New Zealand labour market is so tight, and inflation so income sapping, that people who might otherwise choose not to work are being forced into employment. This is the main conclusion we draw from this week’s labour market data.
Partial indicators for the September quarter had intimated employment had risen strongly. We chose to moderate our forecasts relative to these indicators as we couldn’t see where these folk could have come from. We shouldn’t have.
As it turns out employment rose a staggering 1.3 percent in the quarter, following three consecutive quarters of no change. This resulted in the employment rate rising to a record high 69.3 percent, amongst the very highest in the OECD.
How could this possibly happen when net migration has been negative and there was no apparent source of supply? The explanation for this can be found in the participation rate which soared from 70.9 percent to an unprecedented 71.7 percent.
The key to this can be found in the huge increase in youth employment and ongoing increase in female participation.
On the one hand, one can consider it great news that the young are finding jobs and women are playing an increasing role in the work force but one can’t but help think that what is happening is not happening for the 'right' reasons.
For some, entering the work force is a very sensible option and the tight labour market will offer a future that might once have felt beyond reach. But, for others, the lure of the dollar will be depriving them of an education that might set them up better in later life. It will also be depriving New Zealand of a higher-skilled workforce.
There is no real proof of this but anecdotally we continue to hear that pressure on household finances is 'forcing' folk into the work place.
In the case of youth the pull is great because the payments being offered are increasingly lofty. With payments often in excess of $20 an hour the returns will feel like a pot of gold for some youth, especially those who have become disenfranchised from the education system. A separation that has been exacerbated by Covid.
For some, entering the work force is a very sensible option and the tight labour market will offer a future that might once have felt beyond reach. But, for others, the lure of the dollar will be depriving them of an education that might set them up better in later life. It will also be depriving New Zealand of a higher-skilled workforce.
More than half the annual increase in employment came from the 15 to 19 year age group! The annual increase in the total participation rate was 0.5 percentage points, the increase in the 15 to 19 year group was 5.6 percentage points!
In the case of the female participation rate, one can’t help but think this reflects the strain on household budgets from rising interest rates, as much as inflation. Hence, the necessity for a double income. Females are still disproportionately the primary care givers in households suggesting heightened pressure on the family unit.
Be that as it may, the surge in the participation rate meant the unemployment rate was unchanged from the 3.3 percent of the previous quarter. At this level the rate was bang on the Reserve Bank’s forecast and adds to the view that the trough in the unemployment rate might be behind us. Nonetheless, had it not been for that surge in participation, the unemployment rate would have been less than 2.5 percent!
Not surprisingly, wages continue to rise aggressively. Private sector average hourly earnings, as measured by the Quarterly Employment Survey, rose 2.6 percent in the quarter to be up 8.6 percent for the year! While this is an average, it does mean there are a lot of people who are being compensated for consumer price inflation. It doesn’t, of course, mean they are also getting compensated for the rising cost of debt at the same time.
The wage measure that the Reserve Bank looks at most closely is the private sector labour cost index. This rose 1.1 percent for the quarter, 3.9 percent for the year. It was actually a tad lower than the Reserve Bank had anticipated.
According to Reserve Bank Deputy Governor Christian Hawkesby, when questioned at this week’s Financial Stability Review press conference, the labour market data were broadly in line with their expectations. It certainly seems that way to us too. Consequently, ceteris paribus, it should provide the Bank with no reason to change its view on appropriate monetary conditions.
That may be so at the headline level but one can’t help but feel that once the Reserve Bank goes through the entrails of the data, it will realise that the extremely elevated participation rate severely limits the chances that the unemployment rate will rise in the manner that the Reserve Bank has assumed. At the margin, then, we see the data as slightly hawkish and, in so being, increases the odds of a 75 basis point increase in rates at the November Monetary Policy Statement.
