The New Zealand Institute
| Grade | NZ Rank | Trend | Latest Value | 2015 Target | |
|---|---|---|---|---|---|
| C | 12th of 34 | Equal | 6.5% | 4.0 | Doing well overall but neglecting the young |
Unemployment can be a source of problems throughout society. Individuals, households, and the overall economy are affected immediately and there are future consequences as well. For individuals, unemployment is associated with serious problems including reduced self-esteem, higher rates of depression, more risk of illness, a greater likelihood of committing crime and higher risk of suicide.
Young people are especially vulnerable to unemployment because they are not already established in the workforce and have not yet developed the skills needed to compete with older workers. If young people are not in education or employment they are not learning skills they will need in later life. The resulting social and skill deficits may affect them for a long time and reduce the contribution they make to New Zealand’s community and economy.
Unemployment that causes households to draw on government transfers increases the number of beneficiaries. In September 2008 almost 30,500 people aged 18-64 years plus a few parents aged 16-17 years were receiving the unemployment benefit with an annualised cost of just over $500 million. By the June 2010 quarter the number of people receiving the benefit had more than doubled to 62,085. At the end of September 2011 the number of unemployment beneficiaries had declined to 55,661.
Reduced income as a result of unemployment leads to less spending in the economy. Businesses may lose revenue so they in turn reduce their workforce to lower their costs, further increasing unemployment.
Over the past decade, New Zealand has had an unemployment rate well below the OECD average (Figure 1). From 2003 to 2007 New Zealand’s unemployment rate was about 60% of the OECD average. In the past few years New Zealand’s relative performance has deteriorated so the unemployment rate was three quarters of the OECD average for 2010. For the June 2011 quarter New Zealand had an unemployment rate of 6.5%, lower than the OECD average of 8.2% but much higher than the roughly 4% rate for 2004 to 2008.
Based on labour market strengthening in the first half of 2011, the Department of Labour expects a gradual recovery with the overall unemployment rate falling below 6.0% in the first half of 2012.
New Zealand’s unemployment rate ranks it 12th out of 34 OECD countries (Figure 2). Performance close to the top third of countries is not unusual for New Zealand and is the envy of countries which struggle to provide sufficient employment opportunities for their population. However, the story for youth unemployment in New Zealand is different. Figure 3 shows that one quarter of New Zealand youth in the labour force aged 15-19 were unemployed in 2010 and the rate rose to 27.6% in the June 2011 quarter.
In New Zealand young people make up a very large proportion of unemployed people. In the year to June 2010 10.7% of youth aged 15-24 were not in employment, education or training (NEET). This declined to 9.8% for the year to June 2011 but is still a substantial number. Modest improvement occurred among 20-24 year olds while the 15-19 year olds experienced falling employment and rising unemployment. The Department of Labour attributes this to more young people choosing to stay in or enter education as labour market conditions remain challenging. Policy proposals to provide additional support to the 16-17 year old NEETs and other young people transitioning to further training or work have been released as part of the 2011 election campaign.
Figure 4 compares the share of the labour force aged 15-24 with the share of the total unemployed aged 15-24. If the youth share of unemployment is the same as the youth share of the labour force a country would be positioned on the 45 degree angle line shown; a country below the line would have youth under-represented in unemployment and above the line means the unemployment rate is higher for youth than their share of the labour force.
New Zealand is above the line, and above all other OECD countries. New Zealand youth bear a greater share of the unemployment burden than youth in any other OECD country. New Zealand has one of the highest proportions of workers aged 15-24, 16% of our labour force. Young workers represent almost half (43%) of all New Zealand’s unemployed. In 2010, youth aged 15-19 were 7% of the labour force but represented 25% of the unemployed.
These numbers are concerning and when disaggregated further reveal inequalities within the youth population. The Equal Employment Opportunities Trust stated:
“There is a dichotomy in New Zealand between youth who are highly skilled and qualified and in demand in a global market and those who have low or no skills or qualifications and are disengaged from work, education and training. The first group is mostly European and Asian, while Māori and Pacific youth are overrepresented in the second group.”
The EEO Trust research observes that some trends are likely to reduce pressures in this area, including a declining number of young workers and fewer unemployed youth becoming long term unemployed, and it provides examples of efforts to address the issues. However there are other trends that will exacerbate the problem: youth unemployment is particularly affected by recession; there is evidence of discrimination particularly in relation to ethnicity, gender, and disability; and there will be an increase in the proportion of youth from Māori and Pacific populations.
At the outset of the recession in New Zealand the average hours worked per week reduced from 35 to 33. What could have been a 4% increase in unemployment was instead shared across the workforce as reduced hours. Many businesses made efforts to avoid making workers redundant by reducing working hours, in part to look after their workers but also to retain the capacity and capability to grow again once economic conditions improved.
A nine day fortnight was introduced. It was initially aimed only at businesses with 100 or more employees but was later extended to those with 50 or more. Uptake within the programme was limited, but the evidence above indicates businesses may have reduced working hours independently. Government also introduced a ReStart transitional relief scheme to help people who have been made redundant from full-time work or lost full-time self-employment work. That programme assisted 7,096 people since 2008.
From March 2009 businesses with fewer than 20 employees could hire new staff on a trial basis for up to 90 days and dismiss them without risk of a personal grievance claim. A Department of Labour evaluation after 12 months (2010, June) indicated that some employees may have been getting a chance they might not have had prior to the legislation change. The policy was extended to all businesses in April 2011.
From September 2010 unemployment beneficiaries were required to reapply for the benefit every 12 months to ensure they remain eligible. By August 2011 this resulted in 7,400 coming off the benefit: half did not reapply; more than 2,000 had reapplied but had found work; 1,400 had either left the country, were studying or failed the work test.
In August 2009 the government announced the Youth Opportunities Package designed to add training places or create job opportunities.
In addition the government has spent $13m on the Youth Transition Service through the Mayors’ Taskforce for Jobs, extending funding for a further year to the end of June 2012. The Taskforce’s proposal for a universal scheme to track all school leavers and enable referrals to local services if they had not found work or training has not yet been adopted by government but policies released by political parties for the November election may lead to universal tracking in the future.
The Institute’s discussion paper, More ladders, fewer snakes: Two proposals to reduce youth disadvantage, provides more detail about youth unemployment along with the need to retain student
engagement in schools and improve the school-to-work transition in New Zealand (see http://www.nzinstitute.org/index.php/social/paper/more_ladders_fewer_snakes_two_proposals_to_reduce_youth_disadvantage/).
New Zealand entered the recession in the March 2008 quarter with an unemployment rate of 3.6%. Since then unemployment has risen and in the June 2011 quarter was 6.5% compared to the OECD average of 8.2%.
While the unemployment rate is still relatively low compared to other OECD countries, New Zealand’s overall grade is C due to poor performance in youth unemployment. Youth unemployment rates are much higher than adult rates and have been above the adult rates for many years. The Youth Opportunities Package was introduced to avoid diminishing the potential of a generation of New Zealanders but has not been sufficient to reduce youth unemployment rates.
In March 2010 it was stated that a grade of B would be awarded if New Zealand’s rank in the OECD improved or if action to improve outcomes for youth has a positive effect. Although some improvements are being seen New Zealand’s rank is unchanged. New Zealand youth still bear a greater share of unemployment than youth in other OECD countries, so the grade remains a C.
The target is for New Zealand to reduce unemployment rates to the level experienced from 2004 to 2007; between 3.7% and 4.0%.
The unemployment rate is the number of people aged 15 years and over who are not employed and who are actively seeking and available for paid work, expressed as a percentage of the total labour force.
The labour force is defined as the population aged 15 years and over who are either employed or unemployed.
The unemployed are defined in the Household Labour Force Survey as those who are without a paid job (or unpaid work in a relative’s business) and who have actively sought work in the four weeks before the survey, who are available to take work or who have a new job to start within the next four weeks. “Actively seeking” includes any actions such as contacting an employer, asking friends and relatives and contacting an employment agency or Work and Income but excludes those who have only checked newspaper advertisements.
Persons temporarily absent from their jobs with no formal job attachment that were currently available for work and seeking work are regarded as unemployed along with students, homemakers and others mainly engaged in non-economic activities who satisfy the criteria mentioned above.
This information is collected by Statistics New Zealand as part of the Household Labour Force Survey. The international comparison data is from the OECD.
Figure 1: OECD.StatExtracts Key Short-Term Economic Indicators, Harmonised Unemployment Rate, retrieved 28 July 2011 from http://stats.oecd.org/Index.aspx.
Note: OECD average calculated is an unweighted average of reporting countries.
Figure 2: As for Figure 1, retrieved 13 September 2011.
Note: Date of data varies as follows: Greece (March 2011); Switzerland (March 2011 quarter);
Turkey, UK (May 2011).
Figure 3: OECD.StatExtracts Labour Force Statistics by Sex and Age-indicators, retrieved 17 February 2011 from http://stats.oecd.org/Index.aspx.
The 2010 youth data was sourced from Statistics New Zealand (2010) Household Labour Force Survey, December 2010 quarter, Table 4, retrieved 17 February 2011 from http://www.stats.govt.nz/browse_for_stats/income-and-work/employment_and_unemployment.aspx.
Figure 4: OECD.StatExtracts Labour Force Statistics, Share of Unemployment and Share of Labour Force, retrieved 18 August 2011 from http://stats.oecd.org/index.aspx.
Limitations: The definition of the unemployed excludes some people who regard themselves as unemployed, including the “discouraged unemployed” – those not meeting the “actively seeking work” criterion. This group is classified in the “not in the labour force” category.
Further information links for unemployment
Department of Labour, Employment and Unemployment- June 2011 Quarter report available at http://www.dol.govt.nz/lmr/lmr-hlfs.asp.
EEO Trust (2011, March). Youth labour force trends, issues and solutions report available at http://www.eeotrust.org.nz/research/index.cfm.
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