Jobs market tipped to ease

By BRIAN FALLOW

Job growth is expected to ease next year as the economy slows, says a Labour Department report.

The labour market outlook for the next 18 months also expects slower growth in the workforce, reflecting fewer migrants.

Firms will continue to have problems finding skilled staff and wages will climb.

Companies are expected to respond by investing more in plant and machinery, which will boost productivity.

The report says companies' hiring intentions and job advertisement levels suggest employment growth will remain strong for the rest of this year, before a slowdown in economic growth takes its toll next year.

Robust job growth of 2.4 per cent in the year to March is expected to fall to 1.5 per cent over the next year.

The report says the source of job growth is likely to change over the next 18 months.

In the past year, employment fell in the external sectors (primary production and manufacturing) but rose 5 per cent in the domestic sectors (construction, utilities and services).

That pattern is expected to flip next year as the construction industry slows and more favourable world demand and commodity prices boost farming and manufacturing.

The increase in the supply of labour from migration has been dwindling.

In the year to September, the net inflow of migrants was 17,800, compared with a peak of 42,500 in the year to May 2003.

During the past six months, the average monthly net gain has been 1000 people and the report expects the annual tally to stabilise at roughly 12,000 over the next year.

Offsetting that, it expects the strong jobs market to encourage more people of working age to join or rejoin the workforce.

The labour force participation rate, which is the proportion of the working-age population who either have jobs or are actively seeking work, has risen from 66.3 per cent in March last year to 66.7 per cent now.

A further increase to 67.2 per cent is predicted over the next few quarters.

The report says the unemployment rate, which is at a 17-year low of 4 per cent, will dip to 3.9 per cent by next March, before creeping back up to 4.2 per cent by March 2006.

That small rise in unemployment and a slowdown in the construction industry are likely to ease skill shortages from their severe levels, but the difficulty of finding skilled staff is expected to remain high.

The tightness of the labour market will give employers an extra incentive to seek productivity gains, says the report.

Investment in plant and machinery rose 23 per cent in the year to last June.

The report is picking a recovery in labour productivity growth to about 1.5 per cent, which it notes is still short of the 2 to 3 per cent rates achieved by countries such as Australia, Finland and Ireland during the past 10 years

"It could be that productivity is the last avenue used by New Zealand firms to expand," says the report.

"In this expansion, firms have preferred to hire people and raise the hours of those working.

"Now that the labour market is so tight and business investment is so strong, we may be in for a dramatic lift in the productivity of the workforce."

Departmental deputy secretary Mary Anne Thompson said that in some workplaces productivity might be improved by lifting the literacy and numeracy of staff.