The New Zealand labour market has recovered better than anyone expected from the economic contractions brought about by COVID-related lockdowns. In fact, with a record low unemployment rate of just 3.2%, the talk now is of an overheated economy with very little spare capacity in the workforce. These labour constrants are leading to concerns about the inflationary effects of wage pressures.

Yet these pressures are a better problem than mass unemployment, and there are reasons to feel upbeat about current labour market conditions. Every economic recovery has its own characteristics in terms of the types of jobs being created. Here, we look behind the headlines of the latest Household Labour Force Survey (HLFS) results to examine how this economic recovery is taking shape. Despite parts of the workforce remaining underutilised, there has been strong growth in full-time, highly skilled work. And NEET rates are falling because increasing numbers of young people are working and studying.

The past three quarters have seen sustained increases in full-time work (see Chart 1). However, looking at the past two years as a whole, there has been a trade-off between full-time and part-time work. Part-time work has generally increased strongly during periods of weaker or falling growth in full-time work, and vice versa. Part-time work suits many people, but further growth in full-time work is needed to reduce the sections of the workforce that are under-employed. More on under-employment later.

Perhaps one of the clearest trends evident in the current labour market statistics is that job growth has been almost exclusively in managerial and professional occupations (see Chart 2). Growth in managerial jobs is skewed towards males. Growth in professional jobs is skewed heavily towards females. If this trend of higher skilled roles is true, it is good news. Highly-skilled jobs tend to be highly productive, high-paying jobs – which is good for the employer, the worker, and the economy as a whole. Although these kinds of jobs may be out of reach for lower-skilled workers that currently find themselves out of work.

The trend that we see in Chart 2 is the continuation of a much longer-term trend in the Household Labour Force Survey which shows, over the past 19 years, managerial and professional jobs growing strongly.

The activities of young people are another reason to feel positive about current economic conditions. The Not in Education, Employment, or Training (NEET) rate (a measure of economically vulnerable youth) has fallen from 12.4% in the December 2019 quarter to 11.3% in the December 2021 quarter. The falling NEET rate has been caused by a strong increase in the number of young people employed and in education (see Chart 3), which has been supported by government subsidisation of vocational training through the Trades Training and Apprenticeship Fund (TTAF) scheme and other programmes. The rise has coincided with a drop in the number of young people not in the labour force, but studying – that is, young people studying but not in a job or wanting a job. Aside from the attraction of subsidised training, perhaps the disruptions caused by COVID-19 such as social distancing rules and a switch to online delivery have lessened the appeal of full-time classroom-based learning at tertiary education providers. The increasing cost of living might also be forcing young learners to get a job to help pay their way.

Spare capacity does still exist in the workforce, in the sense that there’s still people without a job that might want one. That’s not to dispute employers’ claims that labour and skills have been harder to find than any time in living memory. Underutilised workers need to be located in the regions where employment demand is occurring, and have the skills employers need – factors that aren’t always the case.

A concern with any economic recovery is the extent to which some workers are left behind. Long-term unemployment is a useful, albeit incomplete, measure of the inclusiveness of economic growth. The longer people remain unemployed, the harder it is for them to find work as their skills atrophy, and they become discouraged. Long-term unemployment is an incomplete measure because discouraged unemployed people can sometimes stop looking for work or making themselves available for work, therefore becoming classified as not in the labour force rather than unemployed.

As of the December 2021 quarter, 35% of unemployed males and 30% of unemployed females had been unemployed for 6 months or more (see Chart 4). Long-term unemployment was a much bigger problem in the early 1990s when the proportion of unemployed who had been unemployed for 6 months or more peaked at 54%. However, the current proportions are high by recent standards. It is important to get these people into work as soon as possible. In addition to offering financial support such as the Jobseeker Support benefit, Work and Income also provide assistance to people looking for work such as help writing CVs and preparing for job interviews.

In the December 2021 quarter, male and female unemployment were almost the same. The male unemployment rate stood at 3.1%, the female rate 3.3%. In contrast, the broader female underutilisation rate of 11.1% was much higher than the male rate of 7.4%. This gap between male and female underutilisation has persisted since it started to be measured in 2004 and is mainly because female underemployment has been consistently higher than male underemployment throughout this period. A person is underemployed if they are working part-time and want to work more hours. In the December 2021 quarter, 68,000 females working part-time wanted to work more hours, compared with 34,000 males (see Chart 5).

The male/female underemployment gap may close when the hospitality sector starts to grow again. Female part-time employment is concentrated in hospitality and hospitality employment demand is set to remain weak until international tourists return, and domestic consumers feel confident enough to eat out without the fear of either contracting COVID-19 or becoming a close contact of someone who has, therefore having to self-isolate. However, given that the gap in male and female underemployment has persisted for so many years, it appears that shifting the dial may require a more fundamental change in how females are employed – particularly the industries they work in, and their employment status – to close the gap.

The Māori underutilisation rate remains stubbornly high at 16.2% in the December 2021 quarter, compared with 13% for Pacific Peoples and 8.7% for NZ Europeans.

Unpacking the components of underutilisation shows that

• Māori and Pacific Peoples unemployment rates are much higher than that of NZ Europeans.
• Māori underemployment and available jobseeker rates are also higher than that of NZ Europeans.
• But Pacific Peoples underemployment and available jobseeker rates are almost the same as those of NZ Europeans (see Chart 6).

Available jobseekers are available for work but not actively seeking work. To be classed as unemployed a person must be actively seeking work and available for work.

Strategies to improve the utilisation of Māori therefore need to be much more broad brush than for other groups, addressing not just unemployment, but discouraged worker effects, as well as looking for ways to increase the hours of some Māori already in work. The government recently released the Māori employment action plan. It’s these kinds of structural issues relating to Māori underutilisation in the workforce that the plan needs to address.

Looking forward, there’s no guarantee that the trends we have seen in the past few quarters will continue. It’s hard to see how growth in highly skilled work can continue apace given that measures of difficulty finding skilled labour are at their highest levels in living memory. As the hospitality sector begins to grow again, we may see a reduction in female underemployment, but this will depend on how employers decide to structure their workforce in terms of full-time and part-time staff. Unfortunately, higher underutilisation of Māori and to a lesser extent Pacific Peoples is an endemic problem. Alongside Work and Income, tertiary education providers and iwi, Regional Skills Leadership Groups and Workforce Development Councils will undoubtably focus their efforts on addressing this problem. A tight labour market can be damaging for the economy. But it is also ripe with opportunities to make the economic recovery as inclusive as possible.