No easy pickings in job market

Employers looking for easier pickings in the labour market as the economy slows may be disappointed.

The consensus forecast among economists is that the number of jobs will rise only 0.5 per cent over the year ahead and 1 per cent the year after.

But even such anaemic jobs growth would push the unemployment rate back up to only 4.5 per cent - meaning that workers will remain hard to find.

That low level is also probably still below the rate at which unemployment ceases to put upward pressure on inflation and interest rates.

It would be only about half the increase in the number of unemployed that occurred in 1997-98 in the wake of the Asian crisis, and from a much lower base. During that downturn the unemployment rate climbed from 6 to 7.5 per cent.

New Zealand, in short, has entered this economic slowdown with a much tighter labour market than in previous ones.

Even the March quarter's rise in the unemployment rate from 3.6 to 3.9 per cent leaves it the second lowest among developed countries. And the labour force participation rate - the percentage of working-age people who either have jobs or are actively seeking them - is very respectable by international standards.

All of this suggests that the tightest labour market in a generation is not just a passing cyclical phenomenon. It reflects structural changes that businesses will have to recognise and adjust to.

They are - no surprise here - the ageing of the population and the increased international mobility and contestability of the work force.

What makes these factors particularly challenging for New Zealand employers is another thing they cannot change: the past and in particular the gap which has opened up between incomes in New Zealand and in other developed countries, particularly the one across the Tasman.

As the population ages the rate at which the labour force increases will slow.

Over the past five years the labour force has increased by 143,000. Over the next five years Statistics New Zealand projects the increase to be 100,000, then 60,000 in the five years after that, and so on until it starts actually shrinking in 20 years' time.

These projections assume medium rates of fertility, mortality, labour force participation and a net gain of 10,000 people a year from migration.

The median age (at which there are as many workers older as younger) is rising, too. It is 40 years and eight months now, five years older than in 1991, and is projected to keep rising.

The proportion of people over 65 still in the workforce is expected to rise from 8 per cent in 2001 to 13 per cent in 2011.

The steep rise in labour-force participation - from 65.3 per cent six years ago to 68.5 per cent now - has been driven by increases in the proportion of women and over-55-year-olds working.

Employers and Manufacturers Association chief executive Alasdair Thompson expects that trend to continue.

"Whenever I say that there is a shortage of workers I get inundated with emails and phone calls from older folk who would love to work but say it is hard to. I think if older people thought there was a show of getting a job they would enter the labour force."

There was still some ageism around, Thompson said. "But it is a heck of a lot better than it was five years ago and unbelievably different from 10 or 20 years ago."

As well as getting older and more feminine, the workforce is likely to contain a higher proportion of immigrants.

In the year ended March the net inflow of 9700 immigrants was the result of 80,100 people arriving in the country intending to stay for at least a year, offset by 70,400 leaving for at least a year.

The arrivals include around 25,000 returning New Zealanders.

The cumulative effect of such flows is that some 14 per cent of people born in New Zealand live overseas, while about 20 per cent of the resident population were born overseas.

The net loss of population to Australia was 20,700 in the latest March year.

Incomes across the Tasman reflect a per capita gross domestic product that is about 30 per cent higher than New Zealand's and Treasurer Peter Costello has just cut income tax again.

His New Zealand counterpart, Michael Cullen, has made it clear nothing like that is in next week's Budget.

Cullen argues that if he cut income taxes he would either have to cut back on health, education and other forms of social provision - creating a different set of reasons for people to leave for Australia - or ramp up borrowing, leaving a pile of debt for the next generation of taxpayers to cope with along with the burdens of an ageing population.

Thompson said New Zealand was losing a lot of tradesmen to Australia, even though demand for them was high on this side of the Tasman too and they were well paid.

There was a mismatch between parents' and school-leavers' focus on a university education and the jobs where the demand for people - and prospective incomes - were greater.

For employers seeking relief from a lack of workers there is scant comfort to be found in the latest job-market figures.

The unemployment rate rose, to be sure, but only to 3.9 per cent - and only because a remarkable increase in the labour force outstripped a remarkable jump in the number of jobs.

Remarkable because the 23,000 extra jobs generated in the first three months of the year occurred against a background of anaemic economic growth.

It looks as though employers are reacting to recent years' acute shortages of labour, especially the skilled variety, by hoarding the workforce they have.

Bank of New Zealand chief economist Tony Alexander says that in the past when weak conditions beckoned companies tended to shed staff.

"That is not a viable option this time around because if a company lays off 10 per cent or 15 per cent of its workforce it will have major difficulty getting people back again when the economy eventually picks up," he said.

The number of jobs grew 1.1 per cent in seasonally adjusted terms in the first three months of the year.

"That is not what one would expect if firms were engaging in widespread layoffs. Businesses are choosing to get their cash flows under control by reducing what have been quite high levels of capital expenditure recently rather than laying off valuable staff."

Keeping the labour market relatively tight and job security relatively high is good for consumer confidence, retail spending and the housing market. It should help to moderate the slowdown.

But cutting back capital expenditure is the last thing the economy needs from a longer-term perspective.

Some of the jump in employment in the March quarter was catch-up from the December quarter, when the statisticians detected no increase in jobs at all.

Over the six months ended March 31, while the number of people employed rose 1.1 per cent the number of hours worked declined, by 1.1 per cent in the December quarter and 1 per cent in the March quarter.

Some economists regard the "hours worked" data as too variable to be relied on, but taken at face value and set beside ongoing growth in the number of jobs, they provide further evidence of labour hoarding.

The Labour Department says average hours worked have fallen to a 13-year low of 34.7 hours a week.

"This can happen in a slowdown as firms are able to reduce hours more easily than staff numbers."

Labour Force Growth

Past five years - 143,000
Next five years - 100,000
Five years after that - 60,000
In 20 years time - workforce starts shrinking

Workers' median age:
1991: 35 years.
Now: 40 years 8 months.