The unemployment rate remains at low levels…
The Government's successful focus on protecting lives and livelihoods during COVID-19 can be seen in our employment outcomes. Following the initial impact of COVID-19, the employment rate fell more swiftly than during the GFC. However, the success of investments like the Wage Subsidy, Resurgence Support Payment and Jobs for Nature programme meant that more New Zealanders remained connected to their jobs during the crisis. The unemployment rate peaked at 5.3 percent in the third quarter of 2020 and has since fallen considerably below its pre-pandemic level.
Unemployment fell to a record-low 3.2 percent in the December 2021 quarter and held at that level during the March 2022 quarter, as more New Zealanders benefitted from more jobs due to the strong economy. Unemployment levels have consistently remained lower than Treasury forecasts, which anticipated a peak of close to 10 percent at Budget 2020, followed by forecasts of nearly 8 percent unemployment at the Pre-election Update 2020. Treasury now forecasts unemployment to fall further to 3 percent, before rising towards the end of the forecast period (Figure 3).
The labour force participation rate increased from its pre-pandemic level to 71.1 percent in December 2021 quarter, as more New Zealanders have been drawn into the labour market. This aspect of our employment outcomes contrasts strongly with many other OECD countries. In the likes of the United States and United Kingdom, labour force participation has remained down on its pre-crisis level (Figure 4). New Zealand's stronger participation rate is improving social outcomes and providing many vulnerable New Zealanders who were left behind during previous recoveries with an increased stake in society and a greater sense of wellbeing.
Figure 3 - Unemployment rate
Sources: Stats NZ, The Treasury
Figure 4 - Change in labour force participation rate between December 2019 and 2021 quarter
The strength of the economic recovery from COVID-19 means that the labour market is exceptionally tight. Domestically, sectors that are more reliant on international visitors or students have experienced a more prolonged impact of COVID-19. This is starting to turn around as New Zealand reconnects with the world. BNZ-Seek Job advertisement data for April showed the two hardest-hit sectors, tourism and hospitality, posting a 30 percent increase in job ads during the month as confidence improved off the back of the country's move to Orange in the COVID-19 Response Framework, and the reopening of the international border.
The fact that strong headline employment indicators have coincided with ongoing sectoral impacts suggests that other parts of the economy have experienced growth at a level that has more than offset the lower activity seen in pandemic-affected areas. Patterns of employment have seen workers moving toward sectors such as construction, health care and social assistance, and electricity, gas, water and waste services.
The success of our economic and health response to COVID-19 has also supported population groups that are historically over-represented in our unemployment data. Māori unemployment was 6.3 percent in March 2022 quarter, down from its COVID-19 peak of 9.1 percent. Pacific peoples' unemployment was 6.7 percent in the March quarter, versus its COVID-19 peak of 10.4 percent. While these are substantial improvements, both rates remain high, hence Budget 2022 targets investments towards continuing the downward trend in these numbers.
The strong bounce-back from the initial shock associated with COVID-19 puts us in a strong position to deal with any further disruption due to the impacts of the Omicron outbreak. Export prices remain high, demand for exports is solid, unemployment is at a record low, and the opening of the border is expected to ease labour market constraints and boost tourist sector incomes as we reconnect with the rest of the world. On the other hand, high global inflation, skills shortages, and global supply disruptions weigh on business and consumer confidence.