The labour market isn't working

Our labour market indicators are all pointing to a big problem

In economics, labour market indicators are often referred to as ‘lagging’. That means they tend to change after other indicators. First GDP falls, then – after a lag – unemployment rises. There has been a suite of indicators in the past few weeks suggesting the labour market is facing challenges not seen for a few years. The kind that sees 15,000 applicants for 500 jobs, or 1,000 applicants for 1 job as an Administrative Assistant in Southland.

Let’s start with the basics. Unemployment has risen steadily since its low in March 2022 of 3.2%, and its now 5.1% and forecast to rise a little further. According to the IMF “NZ will have the highest rate of joblessness of all Asia-Pacific countries over the next two years with the percentage remaining static until 2027”. The number of filled jobs is down 38,463 from April last year. Nearly every industry has fewer jobs than this time last year:

• construction – down 6.5 percent (13,522 jobs)

• administrative and support services – down 6.7 percent (7,547 jobs)

• professional, scientific, and technical services – down 3.3 percent (6,257 jobs)

• manufacturing – down 2.3 percent (5,475 jobs)

• retail trade – down 1.5 percent (3,184 jobs).

If you do find yourself out of work – the length of time that you spend unemployed is also rising. The percentage of people who were unemployed for between 6 months to 1 year was 12.4% in Q1 2023. Its now 23.9%, nearly double. The numbers for those spending 3-6 months unemployed show a similar pattern – rising from 13.7% to 20.87%. Interestingly, the numbers spending more than a year unemployed have remained largely the same.

Figure 1: Duration of Unemployment (%)

Source: Authors Analysis of Stats NZ Data

That likely means that people are trading down in terms of work – taking jobs out of desperation. This leads to a phenomenon called wage scarring – where people take any job to pay the bills, but it traps them in lower paid work which affects their earnings for a significant period of time. MBIE found that “New Zealand workers tend to bear more significant income and employment “scars” than workers in other OECD countries”. The high-level data suggests that we are likely setting up another round of wage scarring right now.

Supporting that theory is the rising number of young people who are out of work. When there is pressure in labour markets, young people often find themselves first out of a job. In May 2025 there are 22,707 fewer jobs being filled by 15-24 year olds than a year ago. There has been a 41% increase in Jobseeker Support claims for 18-24 year olds over the past two years. The entry level jobs are likely being filled by those newly unemployed – meaning it gets harder and harder to get ‘into’ work for the first time.

The number of jobs being advertised by Seek has fallen by 8% this year, and has halved since 2022 to levels seen in 2013. Job ads are down 13% annually in Auckland, 10% in Taranaki. 19% in Marlborough, 25% in Hawkes Bay, and 26% in Gisborne. According to the MBIE jobs on-line index “There have now been annual falls for the last 10 quarters in the advertised vacancies”. On the SEEK measure there were the highest number of applicants per job on record.

As my friend

Ganesh R Ahirao

pointed out to me the other day, New Zealand has for the past few decades had a safety valve when it comes to unemployment – migration. If things are tough here, Kiwis leave, and they find work in the UK or Australia. And that is certainly what is happening now. 70,800 New Zealanders migrated long-term overseas – the last time it was this high was in the aftermath of the Christchurch Earthquake sequence. That is one leaving every 7 minutes and 30 seconds.

Figure 2: Annual Out-Migration, NZ and Other Citizens

Source: Authors Analysis of Stats NZ Data

If we included everyone leaving NZ (NZ Citizens and others) this would be the highest out-migration from New Zealand since 2001 – and probably ever. That loss of population (124,400 – or 2.3% of our population) will almost certainly be keeping the unemployment rate much lower than if they had stayed.

And the reason that they are leaving? In a word, confidence. The Westpac McDermott Miller Employment Confidence Index was at 88.8 – a level below 100 indicates that there are more households who are pessimistic about the outlook than those who are optimistic. Employment confidence was only positive (i.e. above 100) in Southland – everywhere it was negative. Employment confidence was below average in every region of the country.

Personal job security was rated at levels last seen at the depth of COVID-19 and worse than during the GFC. Expectations of job opportunities in a year’s time fell by 5 points to -24.6, again at levels last seen during COVID.

Figure 3: Personal Job Security Index

Source: The Westpac McDermott Miller Employment Confidence Index

The number of people expecting a lift in earnings over the year has “remained at historically low levels over the last year”. This accords with the Labour Cost Index showing that 48% of workers got a pay rise less than inflation (i.e. less than 2%) last year. When you add in real terms cuts to the minimum wage for the past two years, removing the Living Wage from government contractors, and 127,000 people wanting more work but not being able to get it – it’s clear all is not well.

Recent GDP growth (0.8% this quarter) has come primarily from export growth. This in turn has masked domestic weakness – any warmth from that growth has yet to reach workers or their families. According to the latest Ipsos Mori Issues Monitor, 15% of the population says unemployment is “one the three most important issues facing New Zealand today”. That rises to 23% for 18-34 year olds. Its above education, taxation, and immigration as a key concern. At the election it was only a concern for 4% of the population.

So when someone says that the unemployed should just get off the couch. Or when someone says that they had it worse than jobseekers do now, have a little empathy. It is a brutal labour market at present. All the data tells us that the labour market is “pretty Hunger Games“ right now. There is nothing from the government to support workers - only sanctions. We need a better approach.