When New Zealand went into level 4 lockdown on March 25th last year, we were sailing into uncharted waters.
Treasury officials were tasked with analysing what effects a prolonged lockdown could have on the economy. One scenario, projecting the effect of a year-long level 4 lockdown showed unemployment could rise to 25 percent.
Bank economists unanimously forecast unemployment hitting 8 percent, and some predicted it would creep up over 10 percent.
A year on, the worst didn’t materialise. In fact, on the surface, it wasn’t even close.
Labour market figures released last week by Stats NZ show unemployment at 4.7 percent – comparable to the 4.2 percent it was at before Covid came along.
But does that sunny number mask vulnerability lurking beneath the surface?
On today’s episode of The Detail, Emile Donovan speaks to RNZ social issues reporter Sarah Robson and economist Tony Alexander about what the numbers tell us about the state of the economy, whether the headline number masks wider issues, and why forecasters got their predictions so very wrong.
“Economics is a social science”, says Tony Alexander.
“We are theorising about: if this thing changes, what will that do to people’s willingness to work, or to spend?
“Everybody thinks it’s about forecasting where things are going, [but] it’s more about [asking]: if you change this tax rate, what’s the impact going to be? If you change this interest rate?”
But he says there have been so many changes in the market in the last few years that factoring in everything has made forecasting problematic. Then factoring in a pandemic …
“[It was] pure guesswork.”
As it turns out, the guesswork – mercifully – proved wrong.
Alexander says the wage subsidy turned predictions on their head.
He says when lockdown came, businesses were asking themselves if they should be shedding staff. But they didn’t lay people off because they were getting the wage subsidy, which made them hold off on those decisions.
“And this is where the wage subsidy scheme was fantastic policy. Because it removed that pressure for businesses to immediately slash costs, immediately react by laying people off. It bought time for businesses to remember, ‘labour shortages’, and to see light at the end of the tunnel.
$14 billion has been spent providing that support to businesses, shoring up more than 1.7 million jobs. Employers have been able to keep staff on the books, although some are on shortened hours.
RNZ’s social issues reporter Sarah Robson says the numbers have somewhat defied expectations, but other figures don’t paint such a rosy picture.
“I guess in the initial stages of the pandemic no one sort of knew how bad it would get,” she says.
“Before the wage subsidy was implemented, that’s when those initial forecasts were made, no one sort of knew how much government support there would be for those who would potentially lose their jobs.”
Unemployment is a crude metric when assessing the situation, and we are increasingly looking for the under-employed, a far broader measure. It doesn’t have any great implications for monetary policy but it does have implications for families trying to stretch their budgets.
It might be someone working part time in a café, who had 20 hours before covid and now has 10.
“Can you imagine having your wages cut back from what you were earning at 20 hours a week versus what you were getting at 10 hours a week? You’re getting half the money. So where do you make that up?”
Robson says that’s reflected in food bank demand, and an increase in hardship benefits and welfare loans, emergency housing and food grants.
“Many, many more households are facing a really big squeeze.”