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NZ's tight labour market about skills, not capacity, economists say

Wednesday 7th February 2018

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New Zealand's high underemployment rate indicates spare capacity in the labour market, and complaints by firms struggling to find labour are largely due to the mix of skills rather than sheer numbers, economists say. 

Government figures today showed the unemployment rate dropped to 4.5 percent in the three months ended Dec. 31 from 4.6 percent in September. However, underemployment rose 6.3 percent on quarter to a record 122,000 people and pushed up the underutilisation rate, which measures the country's potential labour supply and unmet need for work, to 12.1 percent. 

The rate reflects "about 340,000 New Zealanders with potential to work more," said Statistics New Zealand labour market and household statistics senior manager Jason Attewell. 

"The recent rise (in the underutilisation rate) does suggest there is a bit more spare capacity in the labour market than the unemployment rate on its own suggests," said Capital Economics chief New Zealand economist Paul Dales.

While there is a large pool of people who would like to work more, the December quarterly survey of business opinion from the New Zealand Institute of Economic Research showed firms still find it hard to attract labour, with a net 49 percent saying skilled labour was difficult to find, deteriorating from 46 percent in September, and a net 31 percent finding it hard to attract unskilled labour, compared to a net 27 percent in the prior period.

Economists say it is not the number of available people, but their skillsets. "It's possible that some of that extra supply of labour is not as skilled or in the right industries for employers," said Dales. 

The lift in the underemployment and underutilisation rates "suggests there is still a pool of labour resources available, although perhaps this speaks more to what we suspect is a mismatch between the skills firms are currently demanding and what is available," said ANZ Bank New Zealand senior economist Phil Borkin. 

"It's not just about the number of people available, but it is the type of people and the skills they possess," he said. 

NZIER principal economist Christina Leung also said "a lot of the issue is down to skill matching," noting that many businesses have to resort to importing work to find the skills they need.  

The current Labour government has said attracting skilled migrants is a priority and in December announced seven building-related occupations were being added to the Immediate Skill Shortage List in a bid to address tight capacity in the construction labour market. 

"The government will always ensure that where a genuine skill gap exists our immigration system will support employers to get the people they need," said Immigration Minister Iain Lees-Galloway at the time. 

Weak salary pressures also point to some slack in the labour market as wages inflation has failed to fire despite the low unemployment rate. Stats NZ said private sector wage inflation rose 0.4 percent in the quarter for a 1.9 percent annual increase. Public sector wage inflation was up 0.5 percent in the quarter for a 1.5 percent annual gain, and across both sectors, wage inflation rose a quarterly 0.4 percent and an annual 1.8 percent. In September it lifted an annual 1.9 percent.

"The absence of higher wage growth emphasises that the RBNZ won’t hike interest rates at tomorrow’s meeting, or perhaps at any meeting this year," said Dales. 


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