Wage subsidy 'completely masked' true state of labour market, top economist says

Wednesday, 16 September 2020

An unemployed Hamilton man wants a seat in parliament to give other beneficiaries a voice.

More than 60 per cent more people are now receiving Jobseeker Support work-ready benefits than the same time a year ago – and the number of people aged under 24 on the benefit has leapt 80 per cent.

The Ministry of Business, Innovation and Employment has detailed the increase in its quarterly labour market report for June.

It said while the number of people employed did not increase dramatically in the June quarter, the labour market was showing strain. More people were under-employed and there was a fall in labour market participation.

To be classified as unemployed, a person must be actively seeking work, which many found difficult due to the lockdown.

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More than 80 per cent more young workers are now on benefits than a year ago.

The underutilisation rate rose to 12 per cent in the June quarter, up from 10.4 per cent the previous quarter. This is the largest quarterly rise since the series began in 2004.

For women, the underutilisation rate rose to 14.9 per cent, up from 12.7 per cent. For men, the underutilisation rate rose to 9.4 per cent from 8.3 per cent.

Salary and wage rates rose by 0.2 per cent over the quarter. This increase was driven by the minimum wage increase in April, but was the lowest quarterly rise since December 1994.

MBIE said unemployed people were now more likely to move to the “potential labour force” or to be classified as “not in the labour force” than they were before Covid. Underemployed people were less likely to gain full employment and people in the potential labour force were less likely to enter the labour force.

ANZ chief economist Sharon Zollner said she expected the labour market to continue to deteriorate. Applications are now closed for all three tranches of the wage subsidy scheme, which she said had been so large and generous that it had “completely masked” the true state of the labour market.

ANZ still expects unemployment to peak just under 10 per cent.

A bounce in economic activity after the lockdown was based on unsustainable fiscal stimulus, she said.

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That was being removed, the lack of international tourists would be felt over summer and migration had dwindled to zero – all of which meant the labour market was not in the clear yet, she said.

As at July 24, 1.65 million jobs had been covered by the original wage subsidy scheme, and 450,000 by the extension scheme. Some jobs will have been covered by both schemes.

Government analysis has shown that just under 60 per cent of all jobs in New Zealand (excluding the self-employed) were covered by the original scheme.

If a business claimed the subsidy for an employee, they were required to protect that job whilst the subsidy was in effect.

The construction industry had the highest proportion of supported jobs from the Wage Subsidy, with virtually every construction firm receiving a payment. The arts and recreation services industry had the highest proportion of supported jobs from the scheme’s extension (48 per cent). Younger workers were more likely to be working jobs that were supported by the wage subsidy.

Twenty-five per cent of all workers reported an almost certain or high chance, or medium chance of losing their job or business in the next 12 months.

In July 2020, 355,640 people received a main benefit, an increase of 61,400 since the same time last year and an increase of 2200 over the month.

A further 20,020 people received the Covid-19 Income Relief Payment, which is not included in the main benefit total, although only 2920 recipients had transferred from Jobseeker Support

“Benefits are primarily a measure of how many people require income support rather than how many people are unemployed, but since 2008 the number of Jobseeker Support recipients has aligned closely with the number of unemployed individuals,” MBIE said.

“We are measuring All Main Working Age Benefits here to cover additional circumstances in which someone could need additional income – as a better proxy for the underutilisation rate, which is a more useful measure of slack in the labour market than unemployment alone.

“MSD and MBIE are continuing to investigate the relationship between benefits and underutilisation in the labour market. By region, the percentage of the population receiving benefits has a similar distribution to regional unemployment rates, while the regional growth in benefit recipients is more tied to the main industries present in the region.”

Gareth Kiernan, chief forecaster at Infometrics, agreed there would be more job losses as the wage subsidy support ran out.

The effect could be felt over a longer period than initially expected, he said. Spending had recovered better than expected in some areas and some businesses might try to hold on to their staff through to Christmas.

“Generally I expect to see Jobseeker numbers pic up over time. It’s just a question of what time frame that is.”

He said the big increase in young people on benefits probably indicated the demographic make-up of the hard-hit retail, tourism and hospitality sectors.