Gareth Morgan, Director of Gareth Morgan Investments
Last week’s news that the HLFS (Household Labour Force Survey) unemployment rate was 11.1% rather than nearer 12% which all the forecasters had predicted, looked good news. It confirmed a slowing trend in this statistic which began 3 months earlier. Beneath the good news headline, lurks a more sobering reason for the plateau in the unemployment rate.
It didn’t fall because employment rose. Far from it, the employment is still declining, and at a faster rate than a year ago. Unemployment fell because of a drop in the participation rate – the ratio of people of working age either in or seeking, paid employment. The participation rate now stands at 63.7%. When the HLFS survey began in 1987 it was 66.4%. It is common experience in other countries that long term unemployment engenders a drop in the participation rate – people displaced from the workforce and unable to get back into it, lose work skills and withdraw from actively seeking employment. They “disappear” from the HLFS-defined labour force. They need not disappear from the registered unemployed though, but chances are they will if their spouse has paid employment and they don’t qualify for this support.
The statistics look even less cheery if we remember the HLFS survey considers as “employed” anyone who is paid for one hour’s labour per week ! This generously defined employment has shown far stronger growth over the last 5 years than the employment of full time workers, and is still growing. If “real work” is defined as substantially more than one hour per week, the loss of jobs is more dramatic, given that 22% of the labour force is in part time work now compared to 16% in 1986.
Then there are various government subterfuges employed which manipulate the unemployment statistics. Subsidised job creation programmes now have 15,000 on the books; eradication of youth dole has seen secondary school rolls burgeon under the weight of disguised unemployment; the repeal of the national superannuation entitlement for those over 60 but not yet of qualifying age, has been softened by phasing in of “learner super”, ensuring the participation rate of this cohort is reduced; government has backed away from introducing the work test for single parents whose children are at school allowing them to stay out of the work force; and suddenly we are seeing fewer public servants turfed out of work than were contemplated only a few months ago – the 500 rather than 900 from the Housing Corporation being a case in point. Presumably the lucky 400 are still surplus to requirements but saved by government’s allergy to allowing the labour market to adjust.
The fiscal cost of the government’s endeavours to dampen unemployment via the above myriad of schemes forms a substantial part of their back pedalling on fiscal reform and avoidance of facing up to the structural budget deficit. There’s no free lunch of course, with the cost of their manipulation likely to be higher real interest rates, crowding out of private sector investment and job creation. Political savvy at the cost of economic dereliction.