New Zealand in Focus: How full employment affects low-income workers

New Zealand's unemployment rate reached its lowest since 1986 at 3.2% in the fourth quarter of 2021 and the first quarter of 2022. Some experts believe New Zealand has therefore reached full employment. But what does this mean for low-income workers?

Full employment is the absence of any "cyclical unemployment" – the unemployment rate linked to the economy's rise and fall, explains Michael P. Cameron, Associate Professor in Economics, University of Waikato, in an analysis published in The Conversation.

“As the economy reaches a peak in the cycle, employers increase production, requiring a high number of workers. The availability of these extra jobs reduces the number of unemployed, eventually reaching full employment,” Cameron says. 

However, unemployment can still take place because of two peculiar instances: 

• Frictional unemployment – “it takes time for unemployed workers to be matched to jobs”

• Structural unemployment – “some unemployed workers don’t have the right skills for the available jobs”

Bargaining power

Full employment in New Zealand means employers will find it difficult to find prospective workers to fill vacancies. When the labour market is tighter – with more available jobs than workers – prospective employees will have a higher bargaining power. 

“But that doesn’t mean workers have all of the power and can demand substantially higher wages; only that workers can push for somewhat better pay and conditions, and employers are more likely to agree,” Cameron says.

The jobs that receive better signing bonuses and more generous packages are unlikely to be those “at the bottom end of the wage spectrum”.

Low-income workers are still in part-time, fixed term or precarious employment arrangements, which is why they are not benefitting from a tighter labour market, according to Cameron.

“Nevertheless, a period of full employment may allow some low-wage workers to move into higher paying jobs, or jobs that are less precarious and/or offer better work conditions,” he says. “That relies on the workers having the appropriate skills and experience for higher-paying jobs, or for increasingly desperate employers to adjust their employment standards to meet those of the available job applicants.”