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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.
I am grateful for many helpful comments and assistance with data from Nick Carroll, David Rea, Brendon Riches, Penny Mok and Siobhan Austen.
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.
Table of Contents
- Executive Summary
- 1 Introduction
- 1.2 The regulatory environment in the New Zealand labour market
- 2 The evolution of unemployment
- 2.2 A disaggregated perspective
- 2.3 Sources of changes in the rate of unemployment: A labour force decomposition analysis
- 2.4 Sources of changes in the rate of unemployment: A flows perspective
- 2.5 A framework for analysis of the causes of differences in the rate of unemployment
- 3 The influence of GDP
- 3.2 Okun’s relation
- 3.3 Comparison with Australia
- 4 The influence of structural factors
- 4.2 Matching efficiency
- 4.3 Beveridge curve
- 4.4 Matching function
- 4.5 Long-term unemployment
- 4.6 Summary on matching
- 5 Summary