The unemployment rate lifted to 4.6 percent in June. File photo. Photo: 123RF
New Zealand's unemployment rate is rising - and there is a warning that job loss could have a lasting impact on workers via "wage scarring".
Data on Wednesday showed the unemployment rate lifted to 4.6 percent in June. While that was slightly less than economists had been expecting, it was the highest level in three years.
ASB economists said it was likely that the rate would continue to rise to 5 percent by the end of the year and potentially higher next year.
"There is the risk that the labour market could weaken significantly from here and this could cause longer-term economic damage if the Reserve Bank keeps as much pressure on the monetary policy brakes."
Economist Shamubeel Eaqub said workers could lose their jobs through business closures, which have increased in number, or downsizing. He said recruitment companies had reported seeing people combining roles to reduce the number of staff, or reducing the number of hours that people worked.
"Four-day weeks, or not doing overtime they have been consistently doing for the last two years. People are doing everything they can to right-size their businesses because labour is such a big cost."
A report by the Productivity Commission in February showed that the earnings of workers who found new employment after being laid off took almost three years to return to their previous level.
Eaqub said the scarring could have many elements.
"When a business closes you've lost all the knowledge and systems and processes. When someone loses a job, we know that when not in work soft skills in particular can atrophy quite quickly and it can be hard to get back into work in the same level, same industry, same occupation. It creates an extra amount of churn and makes it hard for people to continue to grow as they would if they stayed in the job."
He said New Zealand also had a problem because it tended to export younger workers when there was a downturn.
Net migration numbers for New Zealanders were "deeply negative", he said, because people were leaving for opportunities elsewhere.
"It's going to look like the unemployment rate isn't picking up much because some people might be losing jobs but exiting the country. Once we lose them they never come back… they might have specialist skills that can be hard to replace. When you lose the niche skills that has a lingering and long-term effect that adds to costs."
NZ Council of Trade Unions policy director and economist Craig Renney said New Zealand had a "long and dishonourable history" when it came to wage scarring.
He said OECD data showed New Zealand had some of the worst wage scarring anywhere in the developed world.
"When people don't have any income at all… when you're desperate for income, you lose your job, you don't get any support because your partner is in work or because you've got assets above the threshold, you take the first job that's available.
"That might well be something that doesn't use your skills well, it's just something that's available rather than something you want to do or something you're good at. The skills mismatching ends up creating long-term wage scarring."
A discussion document for the previous government's proposed income insurance scheme said if 100,000 working people were displaced over a year, the cost could be $15.4 billion per year over the first five years, including both wages lost by workers while unemployed and lower wages when they are re-employed.
"Assuming we see unemployment rise, which all forecasters are telling us we're going to see, it's very likely we'll see wage scarring occur," Renney said. "The difficulty is that wage scarring for some groups has a much stronger impact, for young people being out of the labour market tends to have lifetime impacts much more than for older workers."
He said active labour market programmes to help people back into work as quickly as possible were needed.
"New Zealand has historically hugely underinvested in active labour market programmes…. we can make sure pushing people in the direction of training that has genuine long-term skills gaps so we are creating the workforce of the future that has the ability to have good sustainable work."
He said if people left New Zealand due to loss of jobs, it would hurt the country's productivity and mean there was a much higher chance of inflation increasing again when things improved.
