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New Zealand has a decentralised labour market. Enterprise bargaining predominates in the negotiation of the terms and conditions of employment. The Employment Relations Act 2000 provides the statutory framework that supports the building of productive employment relationships. The legislation promotes collective bargaining in various ways, such as providing that only unions and employers can be parties to collective agreements, and giving employees the right to strike in pursuit of multi-employer contracts. It also requires the parties to employment relationships (unions, individual employees and employers) to deal with each other in good faith.

At the same time, individual choice is protected in terms of freedom of association and union membership, and the choice of collective and individual employment agreements. The legislation promotes mediation to assist in the early resolution of workplace disputes.

In 2004 and 2006, the government made amendments to strengthen the Act to ensure it is better able to achieve its key objectives of promoting good faith, collective bargaining and the effective resolution of employment relationship problems. The amendments also provide protective measures for employees affected by the sale, transfer or contracting out of businesses.

A set of minimum employment standards also underpins employment relationships and protects the more disadvantaged in the workforce. Legislation here includes the Minimum Wage Act, the Equal Pay Act, the Holidays Act and the Parental Leave and Employment Protection Act.

Employment grew strongly prior to 2009, with annual growth averaging 2.4% over the four years to September 2008. More recently, the lagged effects of the weakening economy have flowed through to lower demand for labour, with employment contracting 2.4% in the year to December 2009. As the economy cooled, the unemployment rate increased sharply from a record low of 3.5% in December 2007 to 7.3% in December 2009. Unemployment is expected to remain above 7% during much of 2010 before gradually easing, consistent with modest economic growth in the medium term.

The labour force participation rate peaked at 69.1% in December 2008 before moderating to 68.1% in December 2009. As unemployment rises in the near term, workers are expected to leave the workforce, driving the participation rate lower to 66.0% by the end of 2011. Rising employment is expected to flow through to higher participation in later years, although with a lagged effect.

Annual growth in labour productivity peaked in March 2008 at 3.7% before contracting by 3.7% in March 2009. Productivity rebounded sharply in the year to June 2009 (up 1.5%) and is expected to continue to recover in the short term as employers absorb currently under-utilised labour. Further out, productivity growth is likely to slow but remain positive as firms' demand for labour begins to reflect the pick-up in economic activity.

New Zealand's relatively high rate of job turnover and of firm creation and destruction suggests that there are few regulatory and institutional impediments to employment, investment and innovation. Government policy is directed to building up skill levels in the workforce and to addressing skill shortages.

Sources:  Statistics New Zealand
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