Unemployment: age matters

Despite the reaction of the foreign exchange market, there didn’t seem to be much new in the suite of labour market data the other day.  Sure, employment was down a touch, and the participation rate fell back.  Then again, it had been hard to take entirely seriously the reported strength of the participation rate over the last year or so.  And the unemployment rate did keep edging downwards (although at this rate it will take another two years until the unemployment rate is back to where it was when the current government took office) and hours worked, in both the HLFS and QES, grew quite strongly.   And there wasn’t much sign of any pick-up in wage inflation.  So unless you had been determined to believe the data was  just about to confirm an overheating economy, probably not too many surprises.  We’ll see next week what the Governor of the Reserve Bank makes of it.

But, largely prompted by a question in Parliament yesterday, I downloaded the age breakdowns in the HLFS.  Unemployment rates are very very different by age cohort.

Here are official unemployment rates for the latest year, by age.

U rates by age

People aged 15-24 and people aged 65 and over make up roughly the same share of the total working age population (about 18 per cent each).    But people in the young cohort make up 45 per cent of the total number of people unemployed, while over 65s make up 1.5 per cent of the unemployed.

And that difference isn’t something new.  Here are the average shares of the total number of people unemployed, by age cohort, for the entire history of the HLFS.

U by age avg

The age patterns shouldn’t be terribly surprising.    At one end of the spectrum,  young people are often in part-time work, dropping in and out of jobs (voluntarily or not), in transition between school, work, and further study, even in the course of a single year.  And, of course, they are just starting out –  finding out what they might be good at, or might enjoy, and proving themselves (or not) to employers.   High minimum wages (relative to median wages) hit younger people harder than other age groups.

Every OECD country has an unemployment rate for 15-24 year olds materially higher than the overall unemployment rate –   although as I was confirming that I was a little surprised to discover that although our overall unemployment rate has been consistently below that of the median OECD country, our unemployment rate for young people is now as high as that in the median OECD country.

U 15 to 24

At the other end of the age spectrum, by contrast, work is typically much more of a choice.  Almost everyone living here aged 65 or over is entitled to NZS, the state pension.  If old people are working, they probably aren’t changing jobs very often –  their circumstances are rarely changing as rapidly –  and if for some reason they lose their job, they may not be particularly aggressive in looking for a new job. Recall that the official definition of unemployment involves actively searching for work and being available to start right away.  With a stable income buffer, that search of active search is likely to be less imperative for most than it will be for young people just starting out.

It is relatively easy to understand why there are quite high unemployment rates for young people and quite low ones for old people.  But these differences can matter for how we think about the overall unemployment rate if the importance of different age cohorts in the labour market has been changing over time.  It has.

age shares of lab force In the early 90s 5 per cent of old people were in the labour force (working or actively seeking), and now that figure is almost 25 per cent.  By contrast, the labour force participation rate for 15-24 year olds is now only around 63 per cent (it was 74 per cent when the HLFS began).    (Frankly, the drop in youth participation rates surprises me a bit given that (eg) university fees are much much higher than they used to be, and that one has to work only an hour a week to be counted as employed so, for example, after school jobs should be captured.)

The change in the age structure of the work force does then affect how we think about any particular rate of unemployment.   The natural rate of unemployment for young people –  normal frictional stuff –  is materially higher than that for old people, so that a 5 per cent aggregate unemployment rate means something different than a 5 per cent unemployment rate does today.

One way of illustrating the point is shown in this chart.  It shows the actual reported unemployment rate, and also an artificial unemployment on the assumption that each age cohort had the same unemployment rate is actually had, but that the relative size of the various age cohorts was the same as it was in 1987 (the first year for which there is data).

U rate age adj

For the last year, the actual unemployment rate was 5 per cent.  With constant age chort shares, it would have been 6.2 per cent.    It isn’t an effect that makes much difference from year to year, but over time it can materially affect how we look at any particular unemployment rate.    In effect, and all else, the change in composition of the labour force –  more old people, fewer young people, –  appears to have lowered the NAIRU.

As one final chart, here is the change in the unemployment rate (in percentage points) for each age cohort, from the year to June 2008 (the previous cyclical low point) to now (year to June 2017).

U chg by age

The overall unemployment rate is still 1.4 percentage points higher than it was then.   There has been almost no change in the unemployment rate for the over 65s –  which isn’t surprising as, for reasons outlined above, there is very little cyclicality in that series. On the other hand, it is quite sobering how large an increase in the unemployment rate for 15 to 24 year olds there has still been.   Some of that is cyclical, and some will likely reflects the effects of higher minimum wages, but whatever the cause it should be cause for disquiet, given how important it is to get a start in the labour market and to stay connected.

 

 

28 thoughts on “Unemployment: age matters

  1. Remember saying this before but it does seem hard to actually define employment/unemployment.
    Taking my own situation for example. In my fifties I chose to become a self-employed IT contractor mainly working from home. Clearly initially I was employed. Reaching 65 my skills became antiquated, my programming earnings declined and most of my programming work was for amusement not profit. But I was claiming a fraction of my household expenses as business costs (not substantial but who says no to reducing their tax) so it was my understanding that I had to state I was employed over 20 hours a week which on average was true. When my work reduced and I could no longer honestly admit to 20 hours work I stopped claiming the household expenses but not the computer expenses. And now I have closed my business down and never intend invoicing for IT work again. The process of moving from full time employment to full time unemployment took years.

    The fact that a young adult can work one hour and be considered employed makes a mockery of employment stats. Is this criteria the same for all the OECD countries you use in your comparison?

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    • Yes, they are standard definitions. But in fairness to the statisticians they also ask people working part-time if they are content as they are or are wanting more hours. They also have questions about people who might not count as officially unemployed (didn’t “actively search” – which has a specific meaning- last week, but would be keen to get a job.

      I was amused to realise that I last week counted as officially employed – an outfit with resources offered to pay me for something I’d happily have done for nothing – but fortunately, although my household is in the HLFS at present, it wasn’t survey week last week.

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      • Never been surveyed but if I had been a couple of years ago at the sound of the statistician at the door I would have toggled my screen from reading blogs to database programming. Doesn’t matter how many times you are told your information is confidential a rational person will never act upon that belief.

        Certainly not actively searching but if Auckland libraries wanted assistance analysing or restructuring their database I would be there in a flash and as you say happy to do it for nothing but even happier to be paid.

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  2. No one seems to be commenting on the increase in Maori unemployment (from 10.4% to 11.1%, admittedly within margin of error).

    Factor that out and NZ has, what, sub 4% unemployment?!

    The Maori Party don’t seem to be getting hammered for this.

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    • I hired a Maori team to complete my concrete road works. They would only work for cash. So not entirely sure how reliable that unemployed statistics actually is. They do a very good job of being able to work manually. Big strong chaps. Where most contractors would use a pump to move concrete around a slope. These guys did the job with Wheel barrows. The only problem I had learned was never to give them cash on Friday for a promised job completion in the weekend. That cash disappears on Friday night drinks and there is no availability if they are drunk and asleep there goes the weekend and the rest of next week as they have run out of cash.

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      • Do you mean to say you paid a cash amount – got no receipt and were charged no (and paid no) GST? Isn’t that illegal?

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      • Yes it is illegal for the contractor not to have declared his income to IRD. It is not illegal to pay a contractor cash. Cash is still legal tender Katherine. Hope you are not in the financial sector if you are not aware of this.

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  3. “”In the early 90s 5 per cent of old people were in the labour force (working or actively seeking), and now that figure is almost 25 per cent. “”

    Is this simply a change in the definition of ‘Old’? If defined as over 65 then it is misleading since we probably live about 5 years longer than we did in 1990. Define old as the last 10 years of an average life and you will get a less dramatic result. A second factor will be a decline in physical work – hard physical work usually wrecks the body and even if fit for your age a 70 year old accountant is more likely to hold down his job than a 70 year old brick layer.

    However given NZ’s fairly generous superannuation it is surprising that people work once they qualify for it. Maybe proof that a UBI may not destroy our economy?

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    • Yes, in both cases the same 65+ threshold.

      On your final para, I’d read it the other way. A UBI means, in this case, is associated with a large proportion of people choosing not to work, despite – eg – the improvements in typical health. With a working age UBI, I don’t suppose anyone thinks most people will stop working – most people want more income than a UBI could offer, but perhaps 5% of people would choose not to work. I’d regard that as unfortunate (and in the same way, I’d raise the NZS eligibility age to perhaps 70, since it isn’t obvious why the state should pay a universal income at a relatively young age (65)).

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      • Logically NZS eligibility should be X years less than life expectancy. That is average life expectancy at present but with the potential of maybe expensive life-extending medicine (eg extending the length of telomeres on chromosomes) even that might be altered to an individual or group basis. A reasonable value for X would be 15. Other blogs can be quite ageist when it comes to NZS and baby boomers; this is the best answer.

        I’m waiting for a good analysis of UBIs.
        Superannuation works; it stops old people dying of poverty and it is accepted as fair (although I mildly object to being better off if my wife and I decided to live separately).
        Without any argument other than gut feeling I believe a return to a generous universal child benefit would be superior to current targeted benefits and WFF. If sufficiently generous it would reduce child poverty and be an investment in NZ children and increase the average number of children per family. It may also reduce family breakup and parents breaking up is the single most significant social problem in child rearing leading to mental health issues, drug dependency, crime, etc. There does seem to be a popular objection to giving millionaires any benefit but it doesn’t bother me. It would It would be expensive and require an unpopular increase in Income tax – certainly unpopular with my many childless friends.
        The third UBI is TOP’s proposed $200pw for 18 to 23 year olds. I found their argument persuasive [ http://www.top.org.nz/targeting_vs_unconditional_welfare_5_questions_to_ask_yourself ] but have worries about the starting (at 18 my son was still at school) and the shock of the stop. My memory of being 18 is of fear about applying for jobs (fear of failure) and suspect many kids would never actually try working or if they are only working a few hours a week would just stop working.

        The joy of UBIs is minimal bureaucracy. But if such a good idea why isn’t it implemented anywhere (not much of an argument in a country that trialed women’s suffrage).

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  4. I think the Human Rights Act’s banning of a compulsory retirement age 18 or so years ago is likely to have had a lot to do with the jump in the number of over 65s working since the 90s to now (response to Bob Atkinson).

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  5. NZS at 70, sure.
    And people like you who choose not to work despite being of working age would receive a haircut on the NZS at age 70 to reflect your lack of contribution to our nation’s fiscal resources over your working life? No free-riding now!

    Nana Chen
    (whose parents were immigrants and 2nd class citizens by decree of M Reddell)

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    • I’m not sure what is bugging you. I’ve never suggested anyone is a second class citizen, altho i do think we are working against the interests of all NZers now by continuing to bring in so many immigrants.

      As for how my family organises itself, I’m not sure it is remotely relevant. My wife works, and I look after the kids. Earlier, I worked and she looked after the kids.

      But a universal NZS – which i support for practical reasons – is a second best solution, but one that on average works particularly well for people from low income backgroundsl especially those who don’t have long-term employment histories.

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    • Nana Chen.
      I am an immigrant and my children and grandchildren are the children of immigrants. I’m proud that I and my children and grandchildren are NZ citizens. Our passport is the same as every other New Zealanders.

      Now I am in I want the drawbridge raised. The government ought to be far more selective in future. Sufficiently selective that someone like myself (experienced, good but not exceptional computer programmer) should not be granted permanent residency. NZ should be training its own programmers or offering wages that will get the many good Kiwis programming abroad back home.
      When I applied for residency in NZ in 2003 I would not have been accepted by the USA or Australia. Why is NZ taking in people who would not be accepted in other countries?

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      • Sorry top of the list of highly skilled migrants are actually chefs and front desk managers. Recently I have been advertising for an accounts assistant but instead I got 60 applications from highly qualified Masters degrees from new migrants.with at least 10 years work experience and for the first time I have received a dozen applications from Australians. All this screaming for highly skilled migrants is just nonsense. We actually need the not so skilled ones and not the highly skilled ones. There are no jobs for highly skilled migrants. They just end up being highly skilled Masters degree and PHD’s who have to become UBER drivers or cab drivers.

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  6. Now your are in you want the drawbridge raised Mr Atkinson?
    How incredibly selfish.
    My mother was sexually abused in our nation of origin and NZ accepted us in our time of need.
    Now we are in, people like Mr Reddell talk up the hatred – my parents have copies of this blog put in their letterbox and my Mum is distraught when a neighbour reads it to them.
    Why are people like Mr Reddell so damn nasty. We have done everything we can to be good people here.

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    • Nana Chen. People can be cruel. My son is called ‘Nigger’ but when it happened on the rugby field his team mates stood up for him (lets say their tackles had extra intensity). So there is good and bad in NZ as in every country.

      If you arrived as a refugee then this blog is irrelevant. It often mentions immigration but I’ve never noticed any pro or anti refugee comment.

      There has certainly never been anything in this blog that should bother your parents if they have their permanent residency. It is other blogs that specify which ethnicities they would let in. I think I am entitled to say we have sufficient immigrants from the UK because that is where I am from. By the way that remark about the drawbridge I first heard said by an elderly Chinese immigrant.

      I’m willing to say we should reduce the number of immigrants; so does Prof Paul Spoonley and Andrew Little. So what number of immigrants do you think we should let in each year?

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      • Gross resident visa migrant arrivals is around 15k a year. That number has not changed for the last 20 years. Michael is touting a change in the resident visa target from 45k to 15k a year. My argument is that the target is 45k in order to actually only get 15k a year anyway. The target is flexible anyway. It is a practical target as it considers the high churn rate in NZ as most new migrants may not actually stay for more than 5 years due to its small cities and therefore a lack of head office and corporate oppotunities with the larger salaries.

        Until NZ hits a critical mass of more people perhaps around 15 million people we will continue to see young people head overseas to get their higher salaries and a corporate ladder to climb.

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      • Unfortunately, the police does not respond to such minor incidences. Anyway, if there is a problem with neighbours, perhaps move into Mt Roskill or Howick where Asians dominate. These days you can also add Mt Albert, Balmoral, New Lynn, St Luke’s and the entire length of Dominion Road as Asian dominated communities.

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    • As a quite serious question, could you please identify anything “nasty” or examples of “hatred” – on this blog – that you are referring to here? Mine has always been an economic argument – that high levels of immigration aren’t good for NZ citizens, and that immigration policy should be made in the interests of NZ citizens – and I have been at pains to point out that none of this is a criticism of individual immigrants, who are presumably only doing what all of us seek to do; seeking the best opportunities for themselves and their families.

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    • Say what ? Do people really put copies of this blog in their letterbox ? Maybe your mom is interested in Reserve Bank issues ? If the neighbour annoys your mom just tell them to go away. NZ is running the biggest immigration programme in the world, all this blog argues is that this isn’t to the economic benefit of the average citizen. It never says anything racist or argues that immigrants are bad people or don’t work hard. I know many immigrants and nearly without exception they are of good character and work hard. However it doesn’t mean it is helping NZ economically – productivity, tradeables GDP per capita are all flat or declining. There is zero real income growth. Large numbers of young people are not in training or work. Schools and hospitals are overcrowded. We also have a massive housing shortage with people living in cars, tents, garages etc. Is it responsible for the NZ government to be acting against the interest of their own citizens to help the citizens of other countries ? If all the immigrants were contributing a massive per capita benefit to our economy – productivity and GDP per capita would be shooting up and we could afford to spend up large on infrastructure. However all the current programme does is make the average citizen worse off.

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      • It also has the largest emigration of young New Zealands living overseas with 600,000 3rd class New Zealanders living in Australia and in total around a million that lives overseas. Therefore the migrant population is required to look after the aging New Zealanders ignored and drooling on carpets forgotten on streets and in rest homes.

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      • Air BnB has around 20,000 residential homes registered for Tourists. This housing issue is not caused by migrants but due mainly to a booming tourism sector needing accommodation space.

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  7. Now that you have raised the issue Nana Chen we would need to know the nationality of your neighbour, the age of your neighbour, did your mother put the letter-box flyer aside for you to read and so confirm the message contained in the flyer was (a) in fact a direct reproduction of a croaking cassandra article or (b) was it transcribed from somewhere else, and (c) mis-construed, and (d) was the neighbour being mischievous, why does your mother need to have the article read to her, how long have you been here, how old are you, how old is your mother, can your mother speak english, is she learning how to speak english

    Liked by 1 person

  8. An election is nigh – you need to see the flyer

    This smells like a political shit-stirring propaganda flyer letter-box drop being distributed into an ethnic enclave by an upcoming candidate. Logical suspect would be the National candidate who are the most immigration-friendly party going around whereas most other parties are offering a reduction of permanent residents down to between 10000 and 15000. Croaking Cassandra is one of the few independents promoting similar numbers as a solution. Every chance someone has plagiarised stuff from a CC article on immigration, integrating it with some other inflammatory stuff and letter-box-dropping

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    • It is quite interesting that as Andrew Little ratcheted up the rhetoric on driving the down the Work migrant visas by 20,000 he was driving a wedge between the Labour party and its voter base forgetting that Indians have a natural affinity for Unions. And the largest Red Labour Party in the world happens to be Chinese. Therefore bye bye Andrew Little.

      Like

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