Comparing recessions: Unemployment in New Zealand

Keeping in mind Shamubeel’s point that we need to be careful looking at aggregates, I thought it would be nice to update the graph from this post back in early-2009 – when people were talking about 11% unemployment (Note:  I have moved both series across a year).

 

Cheers Statistics NZ.

This supports the type of story we have seen from the employment rate data, and our suggestion here that the 87-92 period was incredibly ugly for NZ.  As a result, even though in GDP terms the current slowdown looks like one of the worst NZ has experienced (though not so much in RGNDI terms – given the lift in NZ’s terms of trade) overall employment and unemployment outcomes have thankfully been nowhere near as bad as in the early 1990s.  I’m looking forward to all the analysis that will appear sifting through the data and working out why this is the case ;)

 

  • Donal Curtin

    Top of head, 87-92 was worse than 08-now because (a) the ’87 NZ share market/property crash was more severe for us as we had one of the world’s largest equity market bubbles deflating (index from 4000 roughly to 1150 roughly, about the same as Japan’s spectacular bust later) (b) we were still wearing the upfront costs of Rogernomics and arguably of Ruthanasia e.g. the ‘mother of all Budgets’ (no similar program 08-now) (c) we had the initial very tough disinflationary monetary policy under the new Reserve Bank Act/inflation targetting regime (monetary policy could afford to be supportive 08-now) (d) there was the ‘Anglo-Saxon recession’ (US, UK, Australia) of 90-91 thrown into the mix, whereas Australia (at least) kept going right through 08-now and (e) I can’t remember exactly how commodity prices were going in 87-92 but I’m pretty sure that whatever they were, they weren’t as good as the current ones

    • http://tvhe.co.nz/ Matt Nolan

      Yar, for my reading of the data it looks strongly like it was largely due to monetary policy trying to break the back of highly anchored inflation expectations. Real interest rates were insanely high in 1989/90 – in fact I can imagine someone arguing that nominal rates should have been cut earlier due to the sharp drop in the inflation rate. Of course, over here the RBNZ responded with gusto to world events – it was good work!

      The failure of BNZ didn’t help, but the size of the increase in defaults and low price of non-residential property could partially be put down to monetary policy. On the other side, post Iraq war we did experience quite an oil shock – the relative TOT between then and now is definitely a big difference!

      How government policies fit in is a tough one. They likely made the economy more fragile at the time, but unemployment had peaked once we hit Ruthanasia.

      In many ways, government institutions (including the RBNZ) did a better job this time then they did in the late 1980s/early 1990s and during the Asian Crisis – we just experienced a much larger external (supply) shock.