KEY POINTS:
It has been a good 10 years or more since New Zealand had to worry about unemployment. The rate began to decline in the 1990s, levelled off after the Asian financial crisis of 1997 and was heading down again at the change of government in 1999. Since then it has remained below 4 per cent, the figure economists generally regard as full employment because the count will catch some people between jobs at the best of times.
The figure is still below 4 per cent, though it has risen in the first three months of this year. More worrying, the latest quarterly employment survey suggests the number of people in jobs has declined on a scale unseen since 1989. The drop in employment can be greater than the rise in unemployment because the latter excludes people who are not actively looking for another job.
So long as those people are not urgently in need of a paying job - the greater number of them are women and the decline follows a rise in the "working for families" benefit - the figures are less of an economic concern and may even be a plus for the economy in present circumstances.
It has been no secret that a tight labour market has been the biggest single inflationary force worrying the Reserve Bank in its response to the international credit crisis of the past nine months. It has kept interest rates high to offset projected inflation from fuel, food and other commodity prices and the rates have kept the dollar high against the declining US currency in which our exports are traded.
So the latest employment survey has been greeted as cause for the bank to relax interest rates sooner rather than later, possibly at its next scheduled review in July. But that seems optimistic. Governor Alan Bollard will probably want to see hard evidence that wage demands have relented between now and then, and it is hard to see how the March quarter employment statistics alone will discourage high wage claims for households facing punishing petrol prices and food bills.
The labour market remains tight for employers seeking skilled staff. The latest figures, showing few of the newly unemployed were actively seeking another job in those three months, suggest the tightening is worse for employers and favourable for wage claims.
Ultimately, though, it is the level of activity in the economy that determines wage settlements, employment prospects and everything else. The latest job survey is more evidence the economy has slowed markedly this year, as could only be expected from the slump in property prices and the international credit crunch. The construction industry shed 11,300 jobs in the year to March, most probably in the past three to six months.
Manufacturing under the high dollar has lost 5900 jobs over the year while the booming primary industries have created more work, as has the distribution and financial sectors. This is a much healthier picture than 19 years ago when the country last saw employment figures of this order.
Then the economy was in the depths of a drastic restructuring, with long-sheltered industries contracting under international exposure, investors in shock from the 1987 crash, post-freeze inflation slowly coming down, wages negotiated by compulsory unions adhering to anti-competitive agreements.
Now the labour market is more fluid, people are more prepared to move in and out of activities as conditions fluctuate. The property and building boom that carried the economy through the last slump in export prices has ended and extraordinary dairy returns should now pick up the slack. Already the employment figures suggest that is happening. They give no cause for despondency.
