The unemployment challenge: Labour market policies for the recession

Grant Andrews, Jean-Pierre de Raad
JEL codes: 
NZIER working paper 2009/2

Over the next year another 50,000 people will become unemployed. The number of unemployed will surpass that of the last recession of 1997-98. To address the unemployment challenge New Zealand needs to supplement
existing job search assistance with investment in training and business capital to push long term productivity growth. Subsidies to prop up jobs and firms should be avoided. The April 2009 QSBO found that a net 36% of firms intend to cut staff numbers in the next three months. Unemployment will be the worst we have faced since the 1991 global recession.
With the peak in unemployment approaching, attention needs to shift now to the challenge of getting the unemployed into work. The temptation will be to artificially protect jobs. But this is short-sighted. The economic
imperative should be to ensure New Zealand has the right human capital to prosper when the economy picks up. At first glance, recent initiatives (temporary top-up support for those made redundant and the 9 day fortnight) appear sensible. But they have downsides and should be removed after the crisis has passed. Also, because they are tightly targeted they will have little impact, and do not cater well for many of the 50,000 or so extra unemployed. These will
be new entrants to the labour market or those employed by small firms. This policy gap needs to be filled to avoid high and long-term unemployment.