5 Aug 2020

Unemployment falls to 4%, underemployment up

11:11 am on 5 August 2020

The unemployment rate has improved in the three months to June, falling to 4 percent from 4.2 last quarter, but that does not mean the labour market is improving.

Unemployment has remained above 8 percent in provinces such as Northland, Hawke's Bay and Wairarapa.

Photo: RNZ

While the number technically looked better, Stats NZ senior manager Sean Broughton said it only improved because to be considered unemployed, a person must be actively looking for work, which many could not do during the lockdown.

"Actively seeking work means going beyond browsing job vacancies. It means the person is applying for jobs … submitting their CV or contacting employers," he said.

The unemployment rate is not the same as the number of people receiving Jobseeker Support from the Ministry of Social Development.

Broughton said other figures from the labour market data were more telling.

"About 650,000 people were away from their job, working fewer hours or less than they wanted, or were otherwise less active in the labour market."

This quarter underutilisation rose from 10.4 percent to 12 percent - the largest quarterly rise since [2004]."

The underutilisation rate included those who were unemployed as well as those who were employed but would like to work more, or who were not employed and could work - but were not actively seeking a job.

"This quarter the number of unemployed people fell. At the same time, the number of underemployed people rose by 33,000 and available potential jobseekers rose by 18,900."

Broughton said this was likely because of businesses cutting people's hours and ending their employment during the lockdown.

"Underutilisation is a broad measure of spare capacity and is just as important as the unemployment rate."

The number of people considered not in the labour force - for example retirees and students - rose by 37,000, while the number of people in the labour force also fell.

Combined, the drop in the number of people in the labour force fell to the largest amount since the global financial crisis.

The number of hours actually worked during the June quarter fell sharply with 9.3 million less hours worked than in the March quarter - the largest decrease since this series began in 1986.

Paid hours also dropped 3.4 percent on the March quarter despite many businesses keeping staff on with support from the wage subsidy.

The employment rate also fell with 11,000 less people employed this quarter than last, and a rise in the working-age population.

Stats NZ broke down the unemployment rate by lockdown alert level and while across the board the rate had improved to 4 percent, variance could be seen.

"When the country was in alert level 4, the unemployment rate was slightly less than 3 percent. Towards the end of the quarter, when alert level 1 was in place, the unemployment rate rose to nearly 5 percent [not seasonally adjusted]."

The data also showed over three quarters of businesses surveyed had received a wage subsidy.

Unemployment figure hard to believe - economist

The latest figures were met with surprise by economists.

Westpac senior economist Michael Gordon said despite the distortionary effects of the lockdown, the data held enough information to paint a fuller picture of labour market conditions.

He said the underutilisation rate and hours worked gave a better idea of life under lockdown.

"A key aspect of employers' response to the lockdown was to reduce hours and or pay, an option that was supported by the wage subsidy scheme that was introduced in March. Hours paid fell by 3.4 percent for the quarter, while hours worked fell a hefty 10.3 percent.

"Under the wage subsidy, workers were still paid at least 80 percent of their previous weekly pay, but in many cases their hours would have been cut by more than that."

He said setting aside the issues with defining unemployment, the measures will still less weak than expected.

"We still expect the unemployment rate to rise further this year. The wage subsidy scheme has been a major factor in keeping people attached to the workforce, but more layoffs are likely to be announced as the scheme expires. Currently around 430,000 workers are on the extended subsidy. We don't know what portion of those jobs are at risk once the wage subsidy ends, but they could far outweigh the 11,000 jobs lost to date."

Kiwibank chief economist Jarrod Kerr said at first glance the unemployment figure was hard to believe.

"At first glance the labour market gets off lightly from Covid-19. It's impossible to believe the unemployment rate fell during the greatest crisis since the great depression. It didn't.

"The actual picture differs vastly from the unemployment rate, which suffered from people not being able to actively seek work during lockdown. The underutilisation rate jumped, and total hours worked plunged, by record rates over the quarter."

He said the labour market would deteriorate further.

"The government's wage subsidy is due to wrap up in the coming weeks. At this stage there is no sign the wage subsidy will be repeated in its current form, unless New Zealand is forced into another period of Covid-19 lockdown.

"The sugar rush of post lockdown spending in recent months is likely to fade. And surveys of business confidence still show that more firms than not intend to cut headcount. We expect the unemployment rate will peak at the end of the year."

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