Migrant workers are meeting demand for labour, economist says
The unemployment rate is expected to rise slightly over the June quarter, from 3.4% to a still-near-historic low of 3.5%, helped by an increase in labour supply due to migration.
The comment came from Jarrod Kerr (pictured above), Kiwibank chief economist, ahead of Stats NZ’s suite of labour market data on Wednesday.
“Kiwi firms are still showing strong appetite for labour despite slowing domestic demand,” Kerr said in Kiwibank’s latest publication. “And it’s an appetite being satisfied by a surge in migration.
“We estimate that the June quarter was another strong one for employment growth. A circa 0.7% expansion in the working age population, however, will slightly offset employment growth, hence a lift in the unemployment rate.”
He said the labour market was expected to absorb the flow of migrants, keeping the unemployment rate low – the same as in Australia, where there has been a similar, if not stronger, surge in migration.
“For now, growing labour supply is driving a loosening in labour market conditions,” Kerr said. “We expect the narrative to shift later this year. The labour market lags the broader economy. And in an economic downturn, it’s often the last shoe to drop. Firms tend to cut hours rather than headcount, as they hold onto workers for as long as they can.”
He said the slowdown in activity will eventually hit the labour market and see employment bounce back to more sustainable levels.
“At the same time, we expect to see the unemployment rate reach a peak of ~5.5% late in 2024. The June quarter likely marks the beginning of the climb,” Kerr said.
An outlook on wage inflation
The good news is, inflation has peaked globally, which means New Zealand is now importing less inflation, Kerr said. It remained tough, however, to tame domestic inflation – and a big part of that has come from wage growth.
“Labour shortages and rising inflation expectations saw the private sector Labour Cost Index (LCI) – a measure of pure wage growth – hit a series high of 4.5% at the start of the year,” Kerr said. “And despite filled jobs data suggesting another strong quarter for employment growth, we think wage growth has reached its peak.”
The Kiwibank economist said that after a fall in headline inflation from last year’s 7.3% peak to 6%, inflation expectations have weakened. The difficulty in finding workers, meanwhile, has eased, with rising migration plugging the gap of New Zealand’s labour market shortages.
“So, with both drivers of wage growth easing, we expect to see the annual rate fall to 4.3%, after a 1.1% quarterly rise.”
Use the comment section below to tell us how you felt about this.
