NZ labour shortage could be a permanent challenge for business

By NZPA

Friday 18th October 2002

Ask anyone statistically-inclined and they will tell you New Zealand is in the grip of a major labour shortage.

So severe, in fact, that one economist sees the current situation as a structural shift in our labour force.

"It's not cyclical, as in the economy slows down and suddenly everything's okay," says Bank of New Zealand chief economist Tony Alexander.

"It's a new permanent structural shortage of labour in New Zealand and it requires businesses to change the way they plan expanding their businesses, in particular."

Latest figures show New Zealand has the lowest unemployment rate in 14 years, 5.3 percent, and job numbers have soared by 3.5 percent in the past year.

This month's Quarterly Survey of Business Opinion (QSBO) by the New Zealand Institute of Economic Research showed that a net 11 percent of companies planned to take on new staff in the next three months.

Because of a lack of both skilled and unskilled workers, labour was listed as one of the key factors holding back already stretched companies from expanding.

"The nature of the labour market problem has shifted from the employee to the employer," says Mr Alexander.

A less official gauge, the ANZ job ads series, has seen ongoing growth in the labour market based on the number of advertised jobs.

"I think overall for the labour market in New Zealand, it can arguably be described as cyclically the strongest in the world at present," ANZ chief economist David Drage says.

"No other country can say that it has its unemployment rate at 14-year lows at present, and that's undoubtedly played an important role in the big turnaround in migration over the past 12 to 18 months.

"It's been attracting migrants here, it's been attracting New Zealanders home and it's been dissuading New Zealanders from leaving."

The last "market participation" rate back in August showed 66.7 percent of New Zealanders over the age of 15 were either employed or actively seeking employment.

"Now that's -- from a historical point of view -- an extremely high level, and that in itself has in some way slowed the rate at which the unemployment rate has fallen," Mr Drage says.

"If it had instead been back at the 65 percent levels where we've tended to see it in previous years, the unemployment rate would be well under 5 percent."

A longer term labour shortage is good news for the long-term unemployed, says Tony Alexander, and could entice school pupils to leave early.

It could also see employers dipping into the large pool of over-50-year-olds not working.

"There's a whole group of very skilled, experienced people and that resource should be tapped by businesses."

Mr Alexander also encourages businesses to upgrade existing staff's skills and invest in more labour-saving technology.

"The chances are the labour market will get tighter -- (although) not aggressively so in the next 12 months... and interest rates being relatively low will encourage many businesses to invest in machinery and capital rather than hire people."

Businesses are also going to have to consider helping with basic education, particularly literacy, says Mr Alexander.

They're "going to have to take on less skilled people and help train them up -- reading, writing, arithmetic -- and consider what it would mean for their business if they lost two or three key people. "

However, Mr Alexander says the burden is also on the Government to contribute to a more literate workforce.

This month the Government signed a memorandum of understanding with local mayors to tackle youth training.

The aim is to have all 15- to 19-year-olds in employment and training by 2007, using a variety of schemes including apprenticeships, funding and other projects.

According to the Ministry of Social Development, a third of the workforce was still without school qualifications in 2001.

It acknowledges that getting young people into jobs is not the total solution, as without further education they are likely to remain in lower paid work.

So what's caused this shortage?

Mr Alexander says lower wages and a deregulated labour force have borne fruit quietly but steadily over the last decade.

"Ten years ago the unemployment rate was almost 11 percent. Now it's 5.1 percent so New Zealand's been very successful in the past decade in creating jobs and businesses have found it easy to expand."

While growth in wages and salaries in New Zealand has been relatively low by the standards of Australia, Britain, and the United States, companies were encouraged to hire more people rather than paying more to existing staff.

This situation is unlikely to remain static, although wage rises are expected to be gradual. Supply and demand saw salaries and wages (including overtime) rise 2.1 percent in the June quarter compared to a year ago.

The fact that other countries are also heading into skill shortages means more New Zealanders are likely to be lured to bigger salaries offshore.

That trend has been evident for years in terms of health workers, and the resulting shortages are going to make immigrants even more important.

Mr Alexander forecasts a "more finely-focused migration policy that is going to have to be very forward looking and focusing on areas in which our professional people are being attracted into labour market gaps overseas".

TMP, one of the country's largest human resources agencies, regularly surveys employers about their staffing needs.

In June it published a survey showing the number of employers optimistic that staff numbers would rise in the next six months increased 9.2 percent, to 39.2 percent, compared with the previous half-year survey.

But TMP Worldwide New Zealand general manager Denis Horner says the labour shortage is not being felt equally in all sectors.

"The whole employment market... is reasonable fragile. We've had a pretty good year to date, we had a sensational September as far as our revenues were concerned, but again it's only a gut feel."

The slowdown in the world economy, which economists now believe won't improve until late 2003, could also have a dampening effect on those good hiring and investment intentions.

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