Wednesday, May 15, 2013

Working our way back to recovery?

Last week, lost in the media frenzy surrounding Aaron Gilmore, Statistics New Zealand announced that as of March unemployment had reached its lowest level for 3 years. This of course has been taken as further evidence that the economy is improving by all the usual suspects and the government. Glorious Leader Minister of MoBIE, Steven Joyce, perhaps optimistically, appears to still believe the economy will create 170,000 jobs by 2015. Whew! For a while there it looked like all those beneficiaries being chucked off welfare might have to sit on Queen Street and beg.

Oh, they are? What's going on?

For a start, saying New Zealand has the lowest unemployment rate for three years isn't saying much. This long drawn out slump is now into its 6th year. Graph 1 shows the unemployment rate going back to 2000 (for no particular reason). In 2000 New Zealand was emerging from a short but quite brutal recession. Note that thereafter unemployment fell slowly but steadily through most of the 2000s till it started to rise again in early 2008. The problem is that 'the lowest unemployment for three years' is only taking us back to where we were in 2009, and unemployment shows no sign of any long-term downward trend as happened from 2000 onwards. (All data from Statistics New Zealand. Graphs include the latest Household Labour Force Survey data as at March 2013.)


The news is worse for young people. Graph 2 shows the unemployment rate for 15-19 year-olds, and 20-24 year-olds, also going back to 2000. The lowest unemployment for three years is still well above almost anything prior to 2009. And we're betting that sharp drop in March 2013 is not the start of a plummeting unemployment rate for 15-24 years olds.


An interesting labour market phenomenon is that when unemployment is high people just stop looking for work. Many would accept work if it was available otherwise they just appear to give up. These falling rates of labour force participation often account for improved unemployment data (as has been the case recently in New Zealand and the US).
Graph 3 shows labour force participation has steadily declined since 2008. A 2-period moving average has been included to smooth out the seasonal spikey-ness. The latest 'improvement' only puts the labour force participation rate back where it was in - well, actually, 2005.

Meanwhile, back on the farm, we have a Minister of Social Development who, with support from the surplus-obsessed Bill English, is attempting to turf as many people off welfare as is humanly (or perhaps inhumanly) possible. How's it working out for them? The number of Domestic Purposes beneficiaries has been falling, down to 106,000 from about 114,000 in 2011. Hidden away in the HLFS data is a little dataset showing what percentage of different types of household have some or all adults in work, eg childless couples, couples with children, and sole parents. Surprisingly given the apparent triumph with which the Minister announces the falling number of beneficiaries, the percentage of sole parents is work has fallen since 2011(Graph 4). If there are about 170,000 sole parents households, and the number on a benefit has fallen by about 8,000 in the last two years, and the number of sole parents in work has also fallen in the same period, who, and how many, are falling through the gaps? And why does the government continue to be puzzled by persistent and probably deepening child poverty?

Trawling around the beneficiary datasets last week we stumbled on an something that seems odd. We don't have a Theoretical Explanation for this yet, but it raises questions about the 'recovering economy' mantra, and should be raising flags about where all those newly work-tested beneficiaries are supposed to be finding part-time work. One of the statistics MSD collects is the percentage of beneficiaries declaring part-time earnings. So we would expect, given the ENORMOUS pressure beneficiaries have been under to work at least 15 hours per week or die, to see the number declaring part-time earnings to have gone up. But in fact we don't see this, except for some minor quarter-to-quarter variations. But here's a graph going back to 2000 (Graph 5, June figures, all main benefits). The number of beneficiaries declaring earnings from part-time work has been falling since 2005! There were more beneficiaries declaring earnings even in the early 2000s, in a tight labour market. For all the huffing and puffing, the number of beneficiaries declaring earnings from work has barely nudged up. This opens up a whole new set of questions, including: has the economy stopped creating beneficiary-friendly part-time jobs? Is it this lack of part-time work that partly explains the rise in hardship among beneficiary families? We don't know but it's a pretty sure bet Paula Bennett and Bill English don't, either.