I hate one chart posts. No that was too weak, I despise single chart posts. But given that I am under the thumb of greater forces than myself (my thesis, my job) I have decided to do one.
So what is this chart that tells us about the NZ labour market recovery? It is actually a chart neatly provided by Statistics New Zealand in their release of the labour market data last week:
Cheers Statistics New Zealand!
I have heard a lot of economists saying “wage growth is still weak, and then so is the labour market”. That is nice, but wage growth is a very lagging indicator – if we were responding to current wage growth figures we would have wanted to tighten policy all through 2008 …
What matters is our outlook for where wage growth will be heading [Note: for those concerned, we are discussing wage growth excluding productivity improvements, promotions, changes in job composition etc etc – so it is just “a measure of inflation” rather than a measure of the income going to households. Without this clarifier economists can sound a little harsh!] this depends a lot more on the underlying demand and supply imbalances across the labour market which are developing now.
The rebound in the employment rate over the past three quarters, and the fact that the participation rate is at a record high, is phenomenal. Currently a lot of workers are part time, and would quite like more hours (the intensive margin) but the scope for further growth in the number of people employed (the extensive margin) due to availability (supply) looks pretty limited. Depending on the nature of the recovery, what this means for our outlook for wage inflation and monetary policy can differ a lot!
In broad “aggregate” terms this looks like a real labour market recovery – and that is beautiful. Of course the devil is in the details, in reality a single chart can’t tell you very much! These are details which I will try to flesh out for Infometrics clients in the coming months … I know, I’m a tease