Nitish Thaman is watching his house deposit draining away, spent on household bills because he cannot get a decent job.
The physiotherapist with 18 years’ experience in India, including with Delhi’s representative cricket teams, moved to New Zealand seven years ago, aspiring to build a life in Dunedin.
He and his wife got work in the healthcare sector and saved towards a home of their own. When their daughter was born two years later, just before the global pandemic hit, life was tracking towards the couple’s goals.
Then, last year, Thaman urgently needed to return to India for a couple of months. When he came back to Dunedin he was unable to get work.
About 40 job applications later, he still has no permanent position.
Health-related work, caring for people, is what he really wants to do. But in the search for paid employment he has applied for a variety of jobs.
Often he has been rebuffed with ‘‘over-qualified’’.
In desperation, he has picked up casual driving work. Even so, the deposit for their home is slipping through his fingers, eaten by the high cost of everyday necessities.
‘‘I feel gutted,’’ Thaman says. ‘‘I am qualified, passionate about my profession and willing to work, but I am wasting my talents.’’
Thaman is a living statistic, a representative of the latest labour force figures showing almost 150,000 New Zealanders are unemployed and 367,000 are under-utilised — troubling numbers worsened by this year’s public service job cuts that have resulted in thousands of people losing their jobs.
Shortly before the public sector purge really got going, New Zealand’s newly elected government signalled what was coming by getting rid of the Reserve Bank of New Zealand’s dual mandate; stripping it of the role of maximising sustainable employment, returning it to an unblinking focus on beating inflation down and keeping it there.
The change was lauded by Finance Minister Nicola Willis who said inflation had ‘‘embedded itself in the economy’’.
A return to a single focus on inflation was ‘‘the best way to achieve strong, consistent growth in employment’’, she said.
Public sector job cuts began before Christmas last year. Since then they have included the loss of 724 jobs in the Ministry of Education, 701 in the Ministry for Social Development, 655 in the Department of Internal Affairs, 551 in Kāinga Ora, 446 in Health NZ Te Whatu Ora, 419 in Oranga Tamariki, 391 in the Ministry for Primary Industries and 373 in Police.
Some job losses have come from vacant roles not being filled but, all-up, 7276 jobs have been erased.
And it is not over yet. Minister for Regulation David Seymour has previously indicated the number could go as high as 7500.
In March, Employment Minister Louise Upston conceded the job-cutting wasn’t just pruning dead wood.
‘‘People who are in that set of circumstances, and I really feel for them, have to make some tough choices, and for some that may well mean that we lose a range of people, including some of our best and brightest,’’ she said.
Upston also said Treasury was forecasting the number of those on the Jobseeker unemployment benefit would continue to rise into next year.
That rise is reflected in the latest job numbers, released by Stats NZ, last week.
The Household Labour Force Survey, comparing the September quarter with the corresponding period 12 months ago, shows the number of New Zealanders in work has dropped by 17,000. At the same time, the number of people unemployed has leapt by 29,000 to 148,000, a more than 24% increase; and those classified as ‘‘underutilised’’ — the unemployed, part-time workers who cannot get enough hours and the potential labour force (those available, or soon available, for work) — has grown by 40,000, or 11%, to 367,000.
Over the same period, inflation has fallen more than three percentage points and is now within the Reserve Bank’s mandated ‘‘Goldlilocks zone’’ of 1% to 3%.
The government has welcomed that news.
"The steps the Government is taking to reduce inflationary pressures ... are working,’’ Willis said.
‘‘Awesome news today that inflation has dropped to 2.2%,’’ Prime Minister Christopher Luxon said. ‘‘The good news is there are some early signs our plan is working — inflation is falling.’’
But at what cost?
And was it even necessary?
Either figure is about where many governments, including New Zealand’s, have said unemployment should sit. The theory, which has been economic orthodoxy since Milton Friedman’s 1976, Nobel Prize-winning speech, states there is a specific rate of unemployment that keeps the lid on inflation.
That rate, known as the Non-Accelerating-Inflation Rate of Unemployment (Nairu), so the theory goes, is the point at which enough people are out of work to keep wages, and therefore prices, from spiralling out of control. Fall below the Nairu and there will be too little competition for jobs; inflation will begin to gallop. Best to keep it in check, we are told, by having enough people sitting on the dole so that others can afford to buy groceries, aspire to regularly increase the size of their TVs and get cheap loans for investment properties.
The unemployment rate that is considered to be the Nairu sweet spot has actually changed over time. In much of the Western world, unemployment sat happily at below 2% for three decades, from after World War 2 until global oil shocks and strong trade unions sent prices and wages spiralling upwards.
From the mid-1970s, Friedman’s rate of inflation-capping unemployment was thought to be about 7%. In recent decades a lower Nairu, nearer 5%, has been deemed the magic number.
Aiming to maintain a certain level of unemployment, and calling it full-employment, has been the accepted way of things for almost half a century.
Except, it might not be correct.
University of Otago Assoc Prof Trent Smith is one of a growing number of economists who say Nairu is a harmful delusion.
‘‘I just think there’s very little evidence that Nairu is real,’’ Prof Smith says.
He agrees a drop in unemployment tends to cause a one-off increase in wages. But, he says, Nairu is making a different claim — that any decrease below a pre-determined level will trigger ongoing inflation.
‘‘Nairu is a really strong assumption about how prices respond to wages and unemployment in the economy ... You go a tick below the Nairu, you’re going to have inflation forever.
‘‘It’s really an extreme and unfounded theory when you actually look at what it says.’’
In Prof Smith’s corner are economists such as United States-based Prof James Galbraith, who laid out his concerns about Nairu as early as 1997.
The Lyndon B Johnson School of Public Affairs economist labelled the Nairu theory ‘‘not compelling’’, its empirical evidence ‘‘weak’’ and its track record ‘‘a professional embarrassment’’.
‘‘We cannot reject the possibility that macroeconomic policy has been ... running from the phantom of accelerating inflation for more than two decades,’’ Prof Galbraith said.
‘‘The result: a self-inflicted wound, a socio-psychological disability, of colossal proportions.’’
Twenty-seven years later, the number of dissenting voices has increased, but mainly among those studying economics rather than among practitioners setting economic policy.
That is certainly the case in New Zealand, Prof Smith says.
‘‘If you look at the way New Zealand currently runs its macroeconomics, the sort of programme the Reserve Bank has been handed by government, it’s very much consistent with that old view.’’
Nairu is a vital element of monetarist policy — the idea money supply is the main factor determining inflation — which has been a central plank of the neoliberal economics introduced to New Zealand from 1984.
The Reserve Bank was tasked with raising or lowering the Official Cash Rate (OCR); pushing interest rates up or down in order to exert a flow-on effect through money supply to the rate of unemployment, then to wage increases and so to the rate of inflation.
That was softened a bit, in 2021, by the previous government adding a second mandate — maximising sustainable employment. But the stick was sharpened again late last year, whittled back to a single focus on inflation.
For most of this year, the Reserve Bank kept the OCR high to dampen demand, businesses and households tightened their belts, tens of thousands of people lost their jobs ... and inflation did drop.
But inflation was already coming down. It peaked at 7.3% in June, 2022; started its steep fall that December; was at 5.6% just before last year’s general election; and has continued to fall, to now be 2.2%.
Using the Reserve Bank’s single monetarist lever is an unnecessarily blunt tool, Prof Smith says.
‘‘The justification for austerity and for monetarism ... I would argue this is possibly the most inefficient and damaging way to get inflation down.’’
The unemployment it causes is ‘‘extremely harmful’’, he says.
‘‘Every day that you’ve got a worker who wants to work and can’t work because the economy isn’t supplying the jobs, the economy loses income, loses value.
‘‘And you never get that back. It’s irreversible. You can’t go back and work those days in the past.’’
The harm is personal as well as economic.
‘‘Spells of unemployment are extremely harmful to mental health. They’re harmful to the careers of the people who experience them. There’s always going to be this blot on your resume.
‘‘Like I say, it’s a very costly way to manage our economy.’’
Victoria Ponder can attest to that. The science graduate with a post-graduate diploma and a two and-half year work history as an instructional designer in the education sector has been unable to find work since being made redundant in July.
At first confident her skills and experience would quickly land her another job — even in what has become a tighter, more competitive, job market — Dunedin-based Ponder has become despondent after months of unsuccessfully applying for an increasingly wide variety of jobs.
Her partner has had to work longer hours to pay bills. On top of that, Ponder has had to repeatedly ask her parents for financial help.
‘‘It’s mortifying,’’ she says.
‘‘With every email to my parents I say ‘I hope this is the last time’ ... It’s heartbreaking and makes me feel worthless.’’
If unemployment peaks at 5.5% by the middle of next year, as some banks are forecasting, a further 22,000 people now in jobs will likely be unemployed by July. But if, on the other hand, unemployment fell to 3.75%, more than 32,000 people could move from the dole to paid work.
That figure — 3.75% — is the Nairu that 51 leading Australian economists last year suggested would have no impact on inflation.
And if the whole Nairu concept itself is fundamentally faulty, who knows how close we could get to true full employment.
Prof Smith says there will always be frictional unemployment — people in the process of leaving one job for another job — but apart from that, he questions whether unemployment need have any long-term effect on inflation.
‘‘If we got a better handle on how to stop the dynamic prices from happening, I don’t know that there is a theoretical bottom other than zero to the unemployment rate.’’
Prof Smith, and other economists, question whether a wage-price spiral is the real driver of persistent inflation.
He points to post-pandemic global inflation that continued to rise after supply shocks had waned.
‘‘Some economists argue we’re seeing seller-driven inflation due to opportunistic pricing by firms with market power — a price-price spiral.’’
German economic historian Isabella Weber has shown this seller-inflation was a risk identified by governments during World War 2, which they successfully tackled with price controls.
In a similar vein, Prof Smith suggests formerly discarded tools should be returned to the inflation-fighting toolkit.
‘‘There’s a lot of talk now that it might be wiser to use fiscal tools — taxing and spending rather than tweaking interest rates — to manage inflation.
‘‘We could say, ‘OK, Reserve Bank, you’re still in charge of managing inflation, but instead of these monetary tools, we’re going to give you fiscal tools. We’re going to give you the power to tax and spend within some parameters which would allow you to influence aggregate demand and thus inflation’.
‘‘And, if we did that, we could have low interest rates for infrastructure, indefinitely. It could actually be an enormous benefit to the economy if we did this.’’
It is not an idea the Finance Minister is showing any sign of listening to.
‘‘Deciding how public money should be spent is properly the job of politicians elected by the people to make decisions on their behalf,’’ Willis told The Weekend Mix.
Nor does she think monetarist policies are an inefficient and damaging way of tackling inflation.
"No. Inflation targeting is used widely by central banks around the world to keep inflation low and stable.’’
Asked what she says to all the people currently employed who will be made jobless as the unemployment rate continues to rise, Willis says she has ‘‘utmost sympathy’’ and can give assurances the Government is ‘‘working extremely hard to get the economy growing faster’’.
‘‘Inevitably, there will be bumps in the road but we are headed in the right direction.’’
Destiny Hurren-hughes knows about those bumps.
In the past year, the 20-year-old has applied for about 100 jobs. But she is trying to stay positive, dreaming of a career as a midwife.
In the meantime, she says it is difficult making ends meet when most of your unemployment benefit goes on rent.
"I would love to be working, not at home all day doing nothing,’’ Hurren-hughes, of Dunedin, says.
‘‘My mental health would be better, and I want to be able to help people.’’
It is hard to keep seeking work, knowing she is often competing against more than 100 applicants for each position.
‘‘I do get a bit disheartened ... But I have to keep my head up, I have to keep trying.’’
