These moves have put workers on edge and added more pressure to falling job vacancies. While a cooler job market could arguably slow down inflation, it is rattling an already jittery economy, experts say. New Zealand entered a technical recession in the final quarter of last year.
Howe does not work in the public sector, but still says the job cuts are sending ripples through private industry.
“After Covid, one recession, two recessions, another graduating year of students entering the employment market, after a government contracting freeze last September, it’s just too many compacted issues all at once,” she said.
Worst-ever job market
New Zealand’s Finance Minister Nicola Willis, who is overseeing the cuts, has said that workers will find other jobs.
“But there are no jobs,” Howe said. “Everyone applying is overqualified and if they get the role they’re taking 20 per cent salary cuts. For your average middle manager, that’s about NZ$20,000 (US$12,100) less per annum.”
According to a March update by online job search platform Seek, job vacancies in New Zealand have fallen nearly 30 per cent in the past year. The drop in vacancies was the highest for Wellington at nearly 40 per cent.
In February, Seek New Zealand’s Country Manager Rob Clark said the confirmation of a recession had dampened hiring interests, adding that conditions could still worsen.
The unemployment rate is, however, still at one of the lowest levels in the past decade at 4 per cent, although New Zealand economists have predicted it could hit 5 per cent by the end of the year.
The current job market in New Zealand is the worst ever, eclipsing downturns during the pandemic and the global financial crisis, according to recruitment veteran Jane Reddiex.
“There has always been a quiet period after general elections but not to this degree or for this long. There are a lot of high calibre candidates in the market for fewer jobs,” said Reddiex, a general manager at The Johnson Group and Alpha Recruitment.
The difference this time – and particularly for the Wellington market – was that the government had cut both spending and cracked down on the use of contract workers at the same time, she said.
Migrating to New Zealand just got harder for workers who can’t speak English
Migrating to New Zealand just got harder for workers who can’t speak English
Bridget Clarke, a senior director at recruitment firm Robert Walters in Wellington, said white-collar contractors who previously never had a problem finding work were struggling.
Across industries, many skilled jobseekers were settling for jobs that were below their expertise, according to Clarke, reflecting observations by Howe.
Clarke and Reddiex agreed the job market slowdown could trigger another round of “brain drain”. Even though there was a current net inflow of migrants to New Zealand, the country had always been vulnerable to a brain drain of skilled workers, in particular losing its workers to Australia.
Online forums have erupted over poor employment prospects, with some affected Wellington workers saying they might move overseas to “start afresh”.
“The market remains riddled with uncertainty, compelling candidates to explore alternative options. For many, it is preferable to be proactive in making decisions and assuming control before facing the possibility of being laid off,” Clarke said.
And if a brain drain kicks off, the government will lose out with fewer workers driving up wages, Clarke warns.
“Consequently, the government’s goals of achieving savings could be swiftly undermined,” she said.
However, moving overseas might not be easy for these workers given falling employment globally, said Urvashi Yadav, a senior consultant at New Zealand economics research firm BERL.
But if workers remain in the country, it might cost the government, especially if the unemployed turn to social support, she adds.
‘Necessary’ job cuts
The government has said the job cuts are necessary as part of a pre-election commitment to cut waste.
Indeed, about 16,000 new jobs were created by the former government over its six years in office, with the public sector workforce growing by more than 30 per cent during that period.
Eric Crampton, chief economist at The New Zealand Initiative think tank, said public sector spending and employment grew substantially from 2020 and the government was in a “substantial structural deficit”, spending more than it earned, mainly from tax revenue.
“The most recent figures had New Zealand’s structural deficit as second worst among developed economies, with only the US in worse shape. Fiscal consolidation is absolutely necessary, and reductions in the size of the public sector will be part of it,” Crampton said.
In Australia and New Zealand, restaurants struggle as downturn blues bite
In Australia and New Zealand, restaurants struggle as downturn blues bite
Too many jobs through rapid fiscal spending can result in an overheated labour market in New Zealand, according to analyses by the Initiative. It also exacerbates inefficiency and reduces productivity, Crampton added.
The government believed the higher number of public servants did not produce more benefits so it sought to achieve austerity, said political theory and public policy expert Grant Duncan. Moreover, many New Zealanders agreed with the government that “there were too many bureaucrats”.
Will the recession worsen?
The full impact of job cuts on the economy will not be known until they are completed, likely in June, according to Yadav.
“But the public sector does make up quite a big proportion of the Wellington economy … and obviously, you have all the other supporting industries as well. So it is not an insignificant part of the New Zealand economy,” Yadav said.
“Firms like PwC, for example, have announced that they might cut 50 jobs in the government advisory department. So there’s going to be a ripple effect.”
Economic consultancy NZIER’s latest survey of business opinion revealed poor business sentiments among a quarter of those surveyed. Its principal economist Christina Leung said that, alongside higher interest rates, the Wellington job cuts had hurt business confidence.
“This uncertainty is driving caution among businesses when it comes to hiring and investment,” she said.