Labour-hoarding should keep unemployment down: NZIER

By Pattrick Smellie

Tuesday 3rd March 2009

Firms will seek to "hoard" workers for as long as they can in the current recession after several years of a tight labour market, says the New Zealand Insitute for Economic Research in its latest Quarterly Predictions, released this morning.

NZIER is predicting a "long, slow grind back to economic normality".

"Several years of sub-trend growth lie ahead. Annual growth will slowly move into positive territory of 1.1% growth by March 2010 (or just 0.2% growth in real GDP per capita), before gradually improving to around 3% by 2013."

NZIER is forecasting a recession that is "not yet forecast to be as deep and long" as in 1991, although worse outcomes are possible if the international economy continues to weaken, and "risks abound".

Its outlook for unemployment is considerably rosier than some recent bank economists' predictions, saying the likelihood of a return to double digit unemployment is "extremely low", in part because firms would try to preserve their workforces.

"We forecast New Zealand's unemployment rate to pass 6% by this time next year and to remain around this level until mid-2012. In our view, after the tight labour market of recent years, firms are looking for more flexible ways to manage lower labour needs without losing workers who were only recently so difficult to find.

"Government policy, as demonstrated by the Jobs Summit, is also turning to encouraging and incentivising firms to retain workers as much as practically possible. Over the coming year, we expect some hoarding of labour" as firms cut hours and seek to avoid the costs of finding new staff when economic activity begins to pick up.

Consumer confidence represents a major risk to this prediction, however, "and could cause a more severe deterioration in the labour market than we currently anticipate".

"If the economic outlook worsens further, hoarding labour may become less practical."

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