New Zealand "beat the virus" but what happened next?

New Zealand "beat the virus" but what happened next?

One of the great success stories of the global pandemic has been New Zealand, at least if you believe the current media narrative. It’s true that the country took immediate action under the orders of Prime Minister Jacinda Ardern to protect everyone’s health. The country slammed its borders shut like an iron curtain. Everyone was placed on lockdown, with the least social interaction possible. Anyone who so much as sniffled was placed in quarantine. And in a matter of only a few weeks, they had virtually wiped out the disease from their islands.

But what’s been happening since then? Life has mostly returned to normal, with citizens being free to come and go as they please inside the confines of the country. But travel across their borders still involves two weeks of quarantine, pretty much wiping out their tourism industry entirely. According to the latest reports, however, they would appear to be shaking that problem off as well. The latest labor numbers out of New Zealand claim an unemployment rate of only 4% during the last quarter, the period when the entire country was locked down. Amazing, right? Perhaps. But we’ll want to look at the details. (Associated Press)

New Zealand’s unemployment rate showed a surprising improvement to 4% during the midst of the nation’s virus lockdown, although the headline number doesn’t tell the full story and joblessness is likely to increase in the months ahead.

Still, the figure was far better than most people expected and came as welcome news to the government led by Prime Minister Jacinda Ardern ahead of a general election next month.

The figures from Statistics New Zealand showed the unemployment rate in the quarter ending June fell from 4.2% in the previous quarter. But the number of hours worked also fell a record 10% and the number of people not in the labor force rose.

Boasting an unemployment rate of only 4% in the middle of a global pandemic when most of the country was locked down is indeed impressive. That’s particularly true for a nation where upwards of 15% of their GDP relies on tourism and that well has run just about dry at the moment. So what could explain this?

To figure that out we have to look at how New Zealand calculates their published unemployment rate. As with most nations, the unemployment rate is determined by the total number of people receiving unemployment benefits divided by the total number of workers in the labor force. Simple enough, right? But not so in New Zealand.

What goes unmentioned in their report are a number of factors encompassed by their “underutilization rate.” You see, the unemployment rate, as mentioned above, is dependent on the number of people in the labor force. But in New Zealand, you are only counted as being “in the labor force” if you are actively seeking a job and reporting in to their employment services each week. The people on lockdown could effectively do neither, so tens of thousands of them were simply removed from the labor force count. Those people are considered the “spare capacity in the labor market.”

Also, even for those who are still able to do some work, the published rate doesn’t reflect how many people are working full time. The actual number of hours worked on average per week fell by more than 10% last quarter… the largest drop in that category for as long as they’ve been keeping such records. As the linked analysis shows, their underutilization rate rose to 12%, employment dropped by 11,000 jobs and more than 37,000 people “left the labor force.”

So what was the actual unemployment rate for the quarter if it were measured in more normal western terms? Well into the double digits. And with the tourism industry not showing any signs of coming back, analysts don’t expect things to improve any time soon. Also, as we discussed here previously, New Zealand has a healthy population, but they have almost zero herd immunity. It’s only going to take one person to break ranks when coming into the country and they could be right back where they started in a flash. So they posted a great-sounding number, but it seems to be printed on a house of cards.

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