‘Second wave’ of job losses on horizon
45,000 already lost but demand flat and wage subsidy ends soon, warn experts
Job losses due to Covid-19 may already be matching those seen in the Global Financial Crisis and economists warn we may be at the start of a “second wave” of redundancies, as the reality of the new economy dawns.
And with many of the current job losses affecting lower-paid workers, the next wave is expected to creep “higher up the food chain”.
Since the start of Covid-19 restrictions around 43,000 people have signed up for the job seeker benefit, pointing to a sharp upturn in job losses.
The real number of people out of work may be higher because some people are not entitled to a benefit because their partner is in work.
A Herald analysis shows more than 14,000 people have lost their jobs from several major New Zealand companies.
There have been a number of highprofile announcements from major companies about widespread job losses, with 3500 at Air New Zealand, 1000 at Fletcher Building, and more than 910 at Millennium & Copthorne Hotels. Auckland Council cut 1100 temporary and contractor staff.
While unemployment was only 4.2 per cent at the end of March, the figure now is likely to be significantly higher, with expectations that it could hit 10 per cent this year.
Figures released by Statistics New Zealand yesterday show the number of jobs fell by a record 37,000 or 1.7 per cent in April alone, the biggest monthly fall in percentage terms in 20 years, when the measurement was established.
In recent weeks, the rate at which people have been signing up for job seeker has slowed, with an increase of around 1600 in the week to May 15, the latest numbers available.
Last Friday, Finance Minister Grant Robertson highlighted this as among several signs the economy was improving, with traffic levels recovering and retail spending bouncing back from the plunge seen during lockdown.
On the increase in benefits “certainly the rate of increase is plateauing,” Robertson told reporters.
“The confidence that businesses are taking from being in [Covid alert] level 2, for the most part being able to trade . . . perhaps not at the level they were, is giving businesses confidence and we’ll want to work with them to build that.”
‘A second wave’
Brad Olsen, senior economist at Infometrics, has been monitoring announced job losses reported by the media. While the table he is building is only a fraction of the overall increase, it suggested that the past week has seen the biggest cuts since lockdown began.
Olsen said there was a large spike in job losses at the start of the lockdown. Businesses were now emerging from the lockdown and seeing exactly how the restrictions had impacted demand.
“Now they’re turning to ‘what does the future look like, they’ve discovered that there’s not as much money coming in [and] there’s not as much business as [before Covid-19] and I have to trim my workforce.
“I wonder if the announcements we’re seeing are the start of a second wave as we are getting to the end of the wage subsidy. Businesses [are clearly signalling change is coming].”
The announcements would likely take some time to show up in the job seeker figures published by the Ministry of Social Development.
Already worse than the GFC
Shamubeel Eaqub, an economist at Sense Partners, believed New Zealand was in the second wave, as the reality of post-lockdown settles in.
“We’re just at the beginning” of the second wave.
“That’s what we’re seeing with all these high profile announcements. That doesn’t count the SMEs [small and medium sized enterprises] where there’s jobs going, but it just doesn’t make the news.”
Eaqub said with around 45,000 job losses, the hit from Covid-19 on the labour market was “already worse than the GFC” while two further waves of unemployment could see job losses climb towards 200,000.
Job losses were now no longer just coming in companies most directly impacted by the lockdown and the end of tourism.
“It’s spreading now, out to virtually every sector in the economy, whether it’s manufacturing or wholesale or logistics or services,” Eaqub said.
Companies were cutting back on spending while bonuses were likely to be cut if not eliminated. This meant that while people may not be losing their jobs, changes would have an effect on others.
“There is less money for people to spend,” Eaqub said. Reducing incomes meant discretionary spending was lower, which could hit spending on durable goods. Restaurants would be hit “harder than normal”.
Amy Adams, the National MP and former Cabinet Minister who has been convinced not to retire at the election as a result of a change in leadership and the offer of a new portfolio on the Covid-19 response, predicted the worst period for the job market, and job losses, was ahead.
Adams spent Wednesday morning speaking to business owners and business representatives.
“What I’m hearing consistently is there’s a bit of a repressed demand that’s happening at the moment,” which had seen activity bounce back after lockdown.
“But they’re all saying they’re incredibly nervous because the forward order book, some say it’s ‘dead’, some say ‘flat’, some say ‘well back’, depending on what industry you’re talking to. Businesses make decisions about staff and jobs and things with a view forward.”
The wage subsidy was coming to an end for many, meaning companies were warning of job losses, while companies which might ordinarily be expanding were “just getting really nervous” and so may delay plans.
“So you have a double whammy. There’s more people losing their jobs and there’s fewer jobs being created,” Adams said.
‘Further up the food chain’
Although the profile of those who have lost their jobs is not accurately known, the job losses in the tourism and hospitality sectors suggest that, broadly, the jobs were likely to be lower paid and probably affecting generally younger workers.
Independent economist Cameron Bagrie said that as the fallout continued the second and third waves would go “further up the food chain”.
Companies which had cut off workers at the coal face would restructure executive teams. Retail would be affected as companies hastened a move to focus on online sales, which would have implications for commercial property companies. It could also accelerate bank branch closures.
Recent downturns such as the Asian Crisis of the 1990s and the GFC suggested that the number of transactions in the housing market could fall by around a quarter.
“That has implications not only in the real estate industry, it has implications in banking, in the legal fraternity and elsewhere.”
Treasury has forecast that while unemployment will rise sharply to 9.8 per cent later this year, that job creation would bounce back sharply in the following quarters.
Its statements suggest that job creation will be so strong that unemployment could drop down to 4.2 per cent within two years, a fact Robertson’s office highlighted in the Budget.
Since then, Treasury officials avoided an appearance at the Epidemic Response Select Committee which was chaired by former National Party leader Simon Bridges.
Robertson has declined to say whether he believes the forecasts are realistic, saying forecasting is always difficult but in the current conditions is more an art than a science.
Dr John McDermott, the former head of economics at the Reserve Bank who is now executive director at leading economics consultancy Motu, said after previous economic downturns, the labour market tended to be one of the slowest to recover.
If Treasury’s forecasts proved to be correct “it would be unprecedented,” McDermott said.
“If you’ve gone through the step of laying off staff, you don’t change your mind in six months. It will be years.”
As well as jobs disappearing, this would make it hard for people trying to find new ones, which was likely to hit young and inexperienced people the hardest.
“For school leavers, and those with university degrees, it could be a tough ask to get new jobs.”
Businesses make decisions about staff and jobs and things
with a view forward.
Amy Adams, National MP