12,000 headline-grabbing redundancies 'tip of the iceberg'

Wednesday, 27 May 2020

Many small businesses are quietly struggling and their job cuts won't make news, Brad Olsen says.

Almost 12,000 people have been made redundant or have their jobs on the line as part of headline-grabbing restructures prompted by the Covid-19 pandemic.

Stuff has compiled a list of the high-profile redundancies and restructure proposals that have made news over the past two months – and there are warnings they are only the tip of the iceberg of a wave of job losses.

Among them are 4000 jobs gone at Air New Zealand, 1000 at Fletcher Building, 900 at Sky City, 600 at Virgin Australia, 910 at Millennium and Copthorne Hotels, 290 at Bauer and a proposed 130 at MediaWorks.

The latest Jobseeker data shows an extra 53,000 people have signed up for the benefit since the week of March 20. There are another 40,000 special needs grants being issued each week.

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The first tranche of the wage subsidy is believed to be supporting about 60 per cent of the country’s labour force, although that will taper off in the coming weeks.

Economist Brad Olsen, of Infometrics, said 80 per cent of the total job losses in New Zealand would come from small businesses – most of which will never be widely reported.

“Reported job losses from large firms are still considerably lower than JobSeeker Support requests, and for many reported job losses, those jobs haven’t actually ceased yet - and so won’t show up in the JobSeeker numbers. Small business losses are hiding in plain sight, with multiple conversations from the community and businesses about the quiet demise of many businesses and the increase in workers being laid off.

'There’s a huge amount of suffering occurring as businesses make tough decisions about their workforces. Having navigated levels 4, 3, and the early stages of level 2, many businesses are now turning their minds to what the new economic environment looks like moving forward, and the writing is on the wall that the levels of economic activity cannot sustain current workforces.

'The rapid rise in job losses announced over the last week seems to confirm that a second wave of unemployment is likely to occur in the next few weeks, with the wage subsidy ending, businesses assessing how level 2 is affecting their operations, and as uncertainty continues to squeeze businesses.”

NZIER predicted this week that unemployment would peak at 8.1 per cent next March – a more optimistic forecast than Treasury’s expectation of a peak of 9.6 per cent next month.

But principal economist Christina Leung said NZIER expected a significant 'discouraged worker effect' as people disappeared from the statistics as they gave up looking for work.

Economist Tony Alexander said it was too hard to pick.

“None of us have economic models well able to handle shocks such as this. The key point to note is that the spike in the unemployment rate will be temporary. The rate will fall quickly, but the real issue is after the initial decline around the turn of the year, how quickly will jobs growth really pick up?

'There is a huge stimulus coming from monetary and fiscal policies. But we do not know how fast the world economy will improve. We don’t know when the borders will re-open. We don’t know how quickly tourists will return. We don’t know when bankers will come out of their shells and embrace lending again. We don’t really even know to what extent the current high level of sales being experienced by some stores, flooring for instance, will prove temporary.”

But he said the impact of small business job losses could be smaller than Olsen’s estimate.

“According to the 2019 Business Demography Statistics release from Statistics NZ, firms with fewer than 20 employees account for 28 per cent of jobs in New Zealand. They are classified informally as small businesses. Those with 20-49 employees are informally classified as medium-sized businesses, and they account for another 14 per cent of employee numbers. It’s true that many hospitality businesses are small, but many retail and tourism businesses, including aviation and hotels, are big. On that basis I can’t yet see reason for believing other than that 42 per cent of job losses will come in the SME sector.”