Labour crisis will likely drag on into next year, warns economist

The labour crisis will probably last all year, an economist says, and more migrants, fewer Covid cases and even robots will have a role in resolving worker shortages.

Low unemployment, high rates of illness and net migration loss have impacted retail, food processing, hospitality and tourism businesses.

NZIER principal economist Christina Leung said no significant net migration gains were expected until 2023.

And ANZ chief economist Sharon Zollner said a tight labour market in Australia was adding inflationary and even more labour supply pressures this side of the Tasman.

The existence of a labour shortage was not in much dispute but there was some debate about the causes, and solutions.

Two separate factors were driving labour shortages, Leung said.

Pandemic border restrictions had stifled the supply of foreign workers. And Leung said thousands of new daily Omicron cases forced people not to work, or to isolate.

“A lot of workers in professional services can work from home,” Leung added.

But many in hospitality could not. And the pandemic’s persistence was causing partial closures and service cuts at many hospitality providers.

“The incentive to invest in laboursaving technology becomes greater,” she said. “It does encourage firms to think of new and innovative ways to carry out their business.”

Leung said customers might see more robots in restaurants, although culinary cyborgs would not likely be mainstream any time soon.

The Herald last month found eateries in Northland, Rotorua and Auckland had introduced robot service to meet labour shortages.

The labour crisis was afflicting many countries, including Australia, and Leung said that complicated challenges for New Zealand.

“Firms will have to think about how they can better attract and retain talent. Wages are only a part of the equation,” she added. “Some people come to New Zealand because of the lifestyle and the experience.”

Leung said the labour shortage would not likely be resolved by encouraging workers to take on second jobs.

Although some could have side gigs, most could not or would not — at least not to a degree to meaningfully impact the labour crisis.

“Given that the labour market is so tight, we would expect the utilisation is already up to capacity.”

During the first year of the pandemic, net migration plummeted from 91,900 to 6600. And in the year ended February 2022, the country had a net migration loss of 7600.

ANZ chief economist Sharon Zollner said fiscal policy early in the pandemic ended up overstimulating the economy, and pushing house prices up dramatically. “That made everyone feel wealthy, and happy to borrow, and happy to spend.”

Unable to travel abroad, many people splashed out on consumer goods and material objects, rather than services.

“Globally, manufacturing experienced a massive surge in demand. The bigger supply disruption, in terms of long-lasting impacts, has been the closed border,” Zollner said.

Reduced labour supply pushed wages up, and now a lack of workers, including skilled staff, was impacting many sectors.

“If you look at measures like the number of job ads divided by the number of unemployed people, it’s off the charts.”

Zollner said New Zealand for a long time relied on migration to “paper over the cracks” in areas including education and mental health.

Now, some of these areas were struggling greatly, as was hospitality.

Some industry groups and the National Party have been urging the Government to speed up visa processing.

“But the Government is wary of opening the floodgates just as the economy slows,” Zollner added.

She said many factors made the next few months unusually tricky to forecast, and it was still to be seen how the Reserve Bank might intervene.

The tight Australian labour market was already luring Kiwis, Zollner said. That could compel New Zealand employers keen to retain staff to pay more.

But low population growth could also drive an increase in property vacancies, pushing rents down.

Inflationary pressures and the constricted labour market were expected to influence a possible official cash rate adjustment at next week’s Reserve Bank meeting.

A rate hike would impact mortgages and savings rates for many, and likely reduce spending and cool the economy but hopefully not spark a recession.

Zollner said there was some debate on whether unemployment rates could fall even more.

“Talking to businesses, you don’t get the impression it can drop too much further. How long can it go? We see monetary policy getting traction on demand, maybe this quarter.”

Firms will have to think about how they can better attract and retain talent. Wages are only a part of the equation. Some people come to New Zealand because of the lifestyle and the experience.

Christina Leung (left),

NZIER principal economist