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Employment and hours worked adjustment in New Zealand's labour market

Jamie Culling, Finn Robinson

Introduction

When economic growth slows or declines, firms often need to reduce the amount of labour that they utilise. Firms can make this adjustment either by reducing the number of people they employ, or by reducing the number of hours that their employees work. The same process also takes place when growth is strong, and firms need to increase the amount of labour they use in order to meet strong demand. In this Note we explore how important the adjustments to average hours worked and number employed are for New Zealand’s labour market.

Our results show that for New Zealand, adjustment in the labour market over the long-term is largely driven by changes in the number of people firms employ. However, this result largely reflects structural trends, such as population growth and the substantial increase in labour force participation since the 1990s.

We find that hours worked per employee are an important contributor to the cyclical adjustment of the labour market. We find that during a downturn, businesses tend to adjust hours worked by their employees, before they resort to letting them go. In an upturn, firms increase hours worked by current staff before hiring new employees.