Recent Unemployment Experience in New Zealand (WP 14/01)

Abstract

This paper discusses the recent history of the rate of unemployment in New Zealand. The rate of unemployment in New Zealand increased by about 3.5 percentage points between late 2007 and late 2009, and then has remained relatively steady to early 2013. Compared to the most recent previous downturn in the late 1990s, this episode in the late 2000s has involved a larger increase in the rate of unemployment and much smaller subsequent reduction. This paper argues that changes to the rate of New Zealand unemployment can be explained entirely by economic growth outcomes, and do not seem to reflect any structural change in the labour market. This suggests that there are not any impediments to the rate of unemployment falling back to levels that existed in the mid- 2000s. Of course, should the rate of unemployment remain at its current level for a prolonged period, hysteresis effects associated, for example with a growing incidence of long-term unemployment, may have some influence.

Acknowledgements

I am grateful for many helpful comments and assistance with data from Nick Carroll, David Rea, Brendon Riches, Penny Mok and Siobhan Austen.

Disclaimer

The views, opinions, findings, and conclusions or recommendations expressed in this Working Paper are strictly those of the author(s). They do not necessarily reflect the views of the New Zealand Treasury or the New Zealand Government. The New Zealand Treasury and the New Zealand Government take no responsibility for any errors or omissions in, or for the correctness of, the information contained in these working papers. The paper is presented not as policy, but with a view to inform and stimulate wider debate.