High wages and sky-high living costs are pulling New Zealanders off the sidelines and into the workforce at record rates

About a year ago, reality TV star and beauty mogul Kim Kardashian went extremely viral for complaining that it “seems like nobody wants to work these days”. 

The infamous line was given during an interview with Variety magazine and caught fire in the midst of extremely tight labour markets around the world. 

In the US there was a lot of talk about ‘the Great Resignation’ as workers embraced flexible working arrangements during the pandemic or just straight up retired. 

Participation in the workforce did drop in the early years of the pandemic, but it's back with a vengeance. It was at a record high of 72.4% in June quarter data released on Wednesday. 

Some 10,000 New Zealanders, who were not previously interested in working, put up their hands to say they were now looking for a job. 

Not all of these people found work— which is why the unemployment rate crept up slightly—but it is certainly not true that nobody wants to work anymore. 

More people want to work than ever before in New Zealand’s history. But why? 

Brad Olsen, chief executive of Infometrics, said it was likely due to the combination of higher wages being on offer and the increased cost of living pushing people to seek more income. 

Many of those 10,000 new workers were people who had previously been caring for children, but were now wanting to work. 

“We don't know if it's because of the cost of living or because wage rates are now at a level where people think it is actually really worthwhile to go in,” he told Interest.co.nz

“But it's such a large change, I think it strongly implies there is an element of the cost of living that has shifted people's willingness and requirement to work”. 

Henry Russell, an economist at ANZ, said the record participation rate was likely linked to high consumer prices.  

“This suggests cost of living pressures continue to draw people into the workforce, but also that tight labour market conditions continue to enable this,” he wrote in a note. 

Worker arrivals

Migration has been part of this story as well. A large number of people from overseas have moved to New Zealand and are taking up jobs. 

In the June 2023 quarter, there were another 28,000 people employed which brought the total number of those with jobs up to 2.9 million. Much of this reflects people arriving at the border. 

But Olsen said inflation pressures were undoubtedly contributing to the record numbers of people participating in the labour force. 

“When you have sustained high wages, coupled with high levels of inflation hitting household budgets, people might think it is worthwhile to have the second parent, or whoever, take up some work — because any money they can bring in is going to help that household budget”. 

This might not mean full-time work, and it might be a part-time job taken up by a young person to pay a power bill or for groceries. 

A report by 1news found many school students were working 25 to 50 hours a week to help their families make ends meet. 

It’s a dark side of high participation rates that you don’t see in the data, and has negative effects on students' grades at school where success rates have been falling. 

Some overworked, some underutilised

Notably, the underutilization rate rose to 9.8%, from 9.1%, during the June quarter. It is still at a historically low level, but it has moved up sharply during the first half of 2023. 

Katrina Ell, a senior economist at Moody’s Analytics, said the largest group contributing to the higher underutilization rate was part-time workers that were available to work more hours than they were offered. 

Olsen said this likely included people looking for a few extra hours to cover a few extra costs.

The other factor boosting participation is the actual availability of jobs. People who persistently fail to find work tend to drop out of the labour force. 

However, a high level of vacancies can often pull these ‘discouraged workers’ back into the workforce, as better jobs are easier to get. 

Olsen said some of those in the looking-for-work category could drop back out of the labour force if unemployment begins to increase as has been forecast. 

“You do have job ad numbers in New Zealand that are declining at the moment and returning to more normal levels”. 

ANZ’s Russell said it was typical to see participation rates fall as fringe workers become discouraged and exit the workforce. 

“That hasn’t happened yet, suggesting that capacity constraints still linger,” he said in a note.

The unemployment rate did increase slightly in June, but it was not due to job losses. 

If you add together the 25,000 increase in the working age population and the 10,000 people who are suddenly keen for work, you find roughly 35,000 new workers. 

Of those, about 28,000 found employment but the other 6,000 didn’t. This pushed the unemployment rate up slightly. 

Olsen said this demonstrated how the unemployment rate could rise, as the Reserve Bank would like, without there being widespread job losses.

“As the population grows and there are more people looking for jobs, people are not able to find jobs as easily and some become unemployed”. 

“That is a different scenario than  businesses up and down the country, cutting staff and pushing them out the front door.”