Cyclical labour market adjustment in New Zealand: The response of firms to the global financial crisis and its implications for workers, Motu Working Paper 12-04

Abstract

This paper examines the dynamics of employment adjustment in New Zealand, focusing on the response of firms to the 2008/09 Global Financial Crisis. We use data from Statistics New Zealand’s prototype Longitudinal Business Database (LBD) to examine firms’ employment responses to output shocks before and after the crisis, and to investigate variations in job and worker flows. We discuss the resilience of the NZ labour market to economic shocks, and the possible role of labour market policy settings. Finally, we discuss preliminary findings on the differential impact of labour market adjustment on workers – by earnings level, age, gender, and tenure – and outline potential further work along these lines. Our analysis of firm microdata highlights three key features of New Zealand labour market adjustment to the 2008/09 crisis. First, there was considerable heterogeneity across firms, both before and after the crisis, in the size of output shocks that firms faced, the amount of employment adjustment in response to any given output shock, and in the size of worker flows given the firm’s employment adjustment. Second, the crisis not only moved the distribution of output shocks faced by firms, but also altered the relationship between output shocks and changes in job and worker flows and employment. Third, the impact of the observed firm-level dynamics had an uneven impact on workers, with greater employment losses for low wage workers, young workers, and workers with low job tenure.