The Continuing Story of Unemployment

When considering employment it is useful to identify three distinct types of unemployment.

1. Frictional unemployment relates to the time that it takes for some workers moving between jobs to find new employment and for employers to hire new workers. It is generally considered to be 1 to 2 % of the labour force.

2. Cyclic unemployment is related directly to fluctuations in the economic cycles, with jobs being created during economic upswings and being lost during economic downswings. This is seen as waves on the underlying frictional unemployment.

3. Structural unemployment, the increase in the base level of unemployment, is mainly due to the following causes:

* The greatly increased participation of women in the labour force.

In New Zealand, for example, between the 1961 and 1986 censuses the female Labour Force Participation Rate rose steadily from 30.0 to 54.1 %; didn’t change significantly between 1986 and 1992 when the unemployment rate was increasing; increased to 57.0% during the period of decreasing unemployment between 1992 and 1996; and was 57.5% in the March 1999 quarter. Provided we have a GDP growth rate of about 2-3% per year during the next few years, we should reach a ‘saturation value’ of about 58% of women of working age either in work or actively seeking work.

* The automation of many jobs, especially through the application of information technology.

Many jobs have been rendered obsolete. Although new jobs have been created, they are fewer in number because the whole object of automation is to greatly increase the productivity per labour unit. The new jobs usually need a higher level of skill. and though retraining and ‘upskilling’ will ensure many will get the new jobs there will be a growing number of people who will never be able to attain the skill level necessary. Automation does however, confer many benefits on the labour force. Robotic methods replace dirty or unsafe jobs; information technology removes repetitive jobs; and decentralised work methods provide opportunities for the flexible operation of the labour force which can be considered essential when both parents are working.

* Thirdly, the ‘internationalisation (globalisation)’ of business.

Our current policy of world-wide tariff reductions and the trend towards transferring some of our businesses and production facilities overseas are important components of this cause of increase in structural unemployment.

Structural unemployment is the primary cause of the present ‘long-term unemployment’ problem with which nearly all developed nations are confronted.

Because structural and frictional unemployment do not disappear automatically with economic growth, the two are sometimes discussed using the terms equilibrium rate of unemployment or natural unemployment rate. It represents the percentage of the labour force that is not required by the market and government sectors even in good economic times. Evidence from overseas suggests that it may lie in the range of 5 to 7%. This is significantly different from the 1 to 2% natural unemployment rate experienced twenty years ago.

In May 1994 the Chairman of the Prime Ministerial Task Force on Employment, John Anderson, in his foreword to the Task forces’ publication, “Employment – The Issues” stated “The core lesson we have learnt is that the problem of unemployment will not be solved by economic growth alone.”

Perhaps the best estimate of our natural unemployment rate is 6.5% (119 thousand unemployed) in the present social environment.

This estimate agrees with the following statement in the NZ Futures Trust’s 1994 submission to the Prime Ministerial Task Force on Employment.

“Even if strong economic growth continues for the next 5 years, the number of unemployed is most unlikely to be less than about 115,000.”

This means the challenge for the future is finding other ways of addressing the social implications of these higher permanent (natural) levels of unemployment.

The picture is really more complicated and actually more pessimistic, as a break down of the unemployment figures exposes the high youth unemployment rate which has remained approximately 2.5 times the overall rate for the past 13 years. This is despite the fact that the Labour Force Participation Rate (demand) dropped by 25% over the same period. The very significant negative social outcomes of these young people with no employment have been well documented elsewhere and of course will have long-term impacts on society. The very high unemployment rates of the Maori (currently 3.4 times the European rate) and Pacific Island (currently 2.6 times the European rate) groups have also deteriorated slightly over the last 13 years.

As we move into the new millennium and the anti-social effects of this higher permanent unemployment rate become more evident it is hoped that some of the less market driven alternatives that have been suggested might be tried.

The NZ Futures Trust is currently studying the vital questions of reducing the structural unemployment level and the ability of the third sector (the non-market economy or social economy) to provide employment for those not required by the marketplace or Government activities.