The HLFS data came out yesterday, and once again they made sobering reading .
The unemployment rate was up a bit further to 6 per cent.
I don’t usually pay much attention to the table at the back of the HLFS release, which compares New Zealand’s unemployment rate with those in other OECD countries. Since New Zealand’s labour market is generally regarded as more flexible than those of most OECD countries, our unemployment rate has typically been quite low by OECD standards. But we aren’t looking so good now. There are 34 OECD countries, and 14 of them now have lower unemployment rates than New Zealand does.
And what about the increase in the unemployment rate? I downloaded the OECD data since 2000. I’ve previously done the comparison between the current unemployment rate and the low prior to the 2008/09 recession. Only fixed exchange rate (euro area) countries have had more of an increase than us. But people could (reasonably) object to that comparison, as perhaps we just had a bigger boom at peak than most other countries. Other indicators, such as output gap estimates don’t suggest so, but as a cross-check I compared the current unemployment rate with a somewhat longer-term average. This chart shows the current unemployment rate for each OECD country less the average for the 9 years 2000 to 2008.
A depressingly large number of countries have higher unemployment rates than they averaged through those years. But the New Zealand experience is particularly bad. Only countries that have no domestic monetary policy (either in the euro or pegged to the euro) have done less well than us. And, of course, the euro area itself has largely exhausted conventional monetary or fiscal capacity.
It is well-known that fixed exchange rate regimes tend to handle adjustment less well than floating exchange rates. Our exchange rate fluctuates quite considerably, and yet we now have an unemployment rate near that of the median OECD country, and materially above what we managed over 2000 to 2008. It continues to baffle me that so many of the New Zealand elite seem to want to believe that New Zealand has done quite well over the last few years. We’ve had very little productivity growth, not much income growth, and haven’t even been able to get the unemployment rate back down again.
Too often, unemployment rate numbers roll glibly off the tongues of economists. But it is worth remembering what a 6 per cent rate means. If everyone spent 40 years in the labour force, and spent one year of that time unemployed, that would still only generate an unemployment rate of around 2.5 per cent. A 6 per cent unemployment is, in effect, every person in the labour force spending more than two years officially unemployed (not on a welfare benefit, but officially unemployed). These are really large numbers. And recall that these are HLFS definitions – to be unemployed, you have to be actively looking for a job and available to start work straightaway. There will always be some frictional unemployment, but most people leave jobs to move into another one: not many voluntarily leave to become what the HLFS would define as unemployed.
And bear in mind the possibility that the normal, non-inflationary rate of unemployment may itself have been falling. Among other considerations, bear in mind that people aged over 55 made up barely 10 per cent of the labour force when the HLFS began in 1986. That share is now 23 per cent of the labour force, and still rising. And people aged over 55 have only around half the unemployment rate of the labour force as a whole (3.5 per cent at present)
A 6 per cent unemployment rate should be treated as something much more serious – as a failure of some mix of stabilisation and structural policy – than it currently seems to be.