Xero Small Business Insights employment data is showing a moderation in employment growth.  But there are some good reasons for it.

The annual growth in employment is still strong – at 5.6 percent, but that is well down on the 8-10 percent annual growth seen near the start of the year and late 2017.  Monthly job ads have been growing at a 4-6 percent rate for the past few months, which ties in with the trend coming from Xero Small Business Insights data.

Monthly employment figures are subject to seasonal variation but it has still showed employment falling in three of the past four months. More caution is coming through in the timeliest figures.

Growth in the number of employees per firm has slowed to one percent.  Firms are still adding to capacity, but at a slowing rate.

It’s convenient to point to low business confidence, surveys showing less appetite to hire and nervousness over the government’s labour relations policy.

There are clearly some material policy changes that could impact both big and small businesses but blaming softening employment growth on that is too clever by half.

The real, or main reason employment growth is slowing is simply because employees are harder to find.

The unemployment rate has fallen to 3.9 percent.

That’s the ninth lowest in the Organisation for Economic Cooperation and Development (44 countries). New Zealand has the third highest employment rate across those 44 countries. The labour force participation rate is high too; lots of people are in the labour force and a high number are employed.

A low unemployment rate is presenting growing pains for many businesses.  Employees – and particularly highly skilled ones are becoming harder to find.

The ANZ Business Microscope notes difficulty finding skilled employees as small firms second biggest problem. Number one is regulation.  It’s been the same story for over a year.

It’s not a lack of demand that is holding small firms back. It’s meeting the demand and compliance costs.

The unemployment rate is below what is considered full employment.  On the face of it, there are available resources (109,000 are defined as being unemployed) but being at full employment is really saying we don’t have the necessary skills anymore to do the jobs on offer at the prevailing wage rate.  

The challenge is to improve the skills of those that are unemployed, so they can be snapped up and employed.

The good news is that the pool of available labour is bigger than 109,000.

There is another 111,000 who are underemployed; they are employed part-time but would like to work more hours.

On top of that we have 84,000 who are not actively seeking a job but available for one.  

There is another 22,000 who expect to be available in the next four weeks.

The underutilisation rate (an alternative to the unemployment rate) is 11.3 percent.  That has been falling like the unemployment rate but is still elevated and flags a pool of available labour that can be accessed.  Of course, the challenge is still to ensure the pool has the available skills, and one hopes there will some concrete initiatives that come out of the Government’s Business Advisory Group and Small Business Council.  

Expanding the skill base across the economy is critical, but it’s something that takes time to build.

In the meantime, small businesses need to be focused on driving productivity growth and investing in technology.

With the playing field now also tilting in favour of those with valuable skills, there will be rising pressure on wages to rise.  Pressure is starting to build, and small businesses will need to pay careful attention to extracting savings from other areas.

Attracting, and retaining talent is not just about the money though.  Firms are going to have to be creative emphasising the non-wages aspects to remuneration and become increasingly flexible to attract those who are currently underutilised or underemployed.     

This article, including the insights and analysis contained within it, was prepared by Economist, Cameron Bagrie with the support of Xero through Xero Small Business Insights data. All data used is anonymised and aggregated. For the purpose of informing and developing policies to promote small business in New Zealand. It contains general information only and should not be taken as taxation, financial, investment or legal advice. Xero recommends that readers always obtain specific and detailed professional advice about any business decisions.

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