One other dimension of economic performance since 2007 is the labour market. Using the IMF WEO database, which reports only annual data, here are the changes in advanced country unemployment rates from 2007 to 2014.
New Zealand is almost the median country on this measure. The unemployment rate was 1.7 percentage points higher in 2014 than in 2007, almost identical to the increase in Australia, and slightly worse than for the US (of course, the US unemployment rate rose far higher and has subsequently fallen more rapidly). On this chart, I’ve coloured red the countries with floating or flexible exchange rates. It is pretty starkly obvious how the worst increases in the unemployment rates are concentrated in the euro-area countries, which have had no domestic policy flexibility. On the other hand, once the fixed exchange rate regimes are allowed for, it is uncomfortably apparent that of the flexible exchange rate countries New Zealand has had the third largest (really second-equal) increase in its unemployment rate. (And yet, for some reason, we were the advanced economy whose central bank was raising its policy rate.)
There has been a tendency in some circles to downplay the continuing high unemployment in New Zealand, by noting that participation rates have been increasing. But here are the participation rate changes since 2007, this time just for OECD countries (I couldn’t quickly see comparable data on Eurostat).
It is certainly true that participation rates have been rising in New Zealand, but not to any greater extent than in other OECD countries. Again, New Zealand is about the median country in this group, and the increase here is just slightly more than in the euro-area as a whole, and just slightly less than in the EU as a whole. Rising participation rates in most countries, at a time when unemployment rates are still above pre-recession levels in most countries is an interesting phenomenon – and somewhat unexpected given that participation rates typically tend to fall when unemployment is rising and rise when it is falling (thus the weak Irish participation rate is little real surprise). The countries that struck me most forcibly were Greece and Spain, which have had huge increases in their unemployment rates and yet have seen labour force participation rates increasing. Without anything more concrete to go on abouto what has happened in these two countries, I can only assume it is something around things being so tough that absolutely everyone is having to look for any work they can get, even if the probability of finding it is quite small.
Overall, then, the labour market remains another area of disappointing economic performance for New Zealand, It is, of course, one that is more readily amenable to the ministrations of macroeconomic policy. Easier monetary policy over recent years – which there was demonstrably room for, given core inflation outcomes relative to the midpoint of the target range – would have helped reabsorb the people who are unemployed more quickly than is currently in prospect.
Of course, one counter-argument to this line of argument is that the New Zealand labour market was unusually overheated in 2007. Perhaps, but as we’ll see tomorrow there is nothing in international agency estimates to suggest that New Zealand’s economy was more stretched than most other advanced countries were just prior to the recession.