New Zealand Jobless Rate Holds Steady as Fewer People Seek Work

The unemployment rate in New Zealand remained unchanged at 5.1% in the March 2025 quarter, defying expectations of a rise to 5.3% that would have marked the highest level since 2016. Beneath the headline stability, however, lies a labor market undergoing significant structural shifts. A declining labor force participation rate—particularly among younger workers—and a shift from full-time to part-time employment suggest underlying fragility that could test the resilience of New Zealand’s economic recovery.

The Participation Puzzle

The labor force participation rate—the proportion of working-age individuals either employed or seeking work—dropped to 70.8% in Q1 2025, down from 70.9% in Q4 2024 and continuing a decline from a post-pandemic peak of 72.4% in mid-2023. This retreat reflects a growing number of people exiting the labor force entirely. Stats NZ highlights a “marked drop in youth participation,” as young workers delay entry into the job market or return to education amid weaker demand for entry-level roles. Compounding this trend, migration—especially to Australia—has siphoned working-age individuals, reducing domestic labor supply.

The underutilization rate, which captures unemployed workers, underemployed individuals, and those who have stopped seeking work altogether, rose to 12.3% in Q1 2025, up 0.2 percentage points from the previous quarter. This broader metric underscores the slack in the labor market: nearly 400,000 workers are either jobless or underemployed, a 35,000 increase from a year earlier.

Wage Growth Slows, Full-Time Jobs Decline

Annual wage inflation moderated to 2.9% in Q1 2025, down from 3.3% in December 2024, as employers reduce hiring and favor part-time roles. Full-time employment fell by 45,000 year-on-year, while part-time positions rose by 25,000, pushing part-time work to 21% of total employment. Women remain disproportionately affected, with 30% of female workers in part-time roles versus 12% of men.

The shift toward part-time work signals a contraction in labor demand, particularly in male-dominated sectors like construction and manufacturing. Meanwhile, subdued wage growth has eased inflationary pressures, contributing to the Reserve Bank of New Zealand’s (RBNZ) decision to cut the Official Cash Rate (OCR) from 5.5% in late 2024 to 3.5% by May 2025.

Forecasts and Implications for Investors

Economists project the unemployment rate will edge higher to 5.3% by mid-2025 before stabilizing in the low 5% range through year-end. While this peak would still be historically moderate—below the 6.3% seen in 2020—the structural shifts in the labor market pose risks. A weaker labor force participation rate suggests that even modest economic growth could struggle to absorb the underutilized workforce, prolonging the recovery.

For investors, the data highlights two key themes:
1. Consumer Spending Constraints: Slower wage growth and a smaller labor force may dampen consumer spending, particularly in discretionary sectors like retail and hospitality.
2. Interest Rate Sensitivity: The RBNZ’s rate cuts aim to stimulate demand, but with inflation already within its 1-3% target range, further easing depends on labor market resilience.

Conclusion

New Zealand’s unemployment rate may be holding steady at 5.1%, but the labor market’s fragility is evident in declining participation, part-time work surges, and tepid wage growth. While these trends may temporarily limit upward pressure on inflation, they signal a workforce increasingly disengaged from the recovery. Investors should remain cautious about sectors reliant on strong consumer spending and monitor the RBNZ’s policy response, which could swing toward further easing if underutilization worsens. The data underscores a labor market caught in a precarious balancing act—one where stability masks deeper structural challenges.

As the Reserve Bank’s May 2025 statement noted, “the unemployment rate may peak around 5.3%,” but the broader labor force trends suggest the economy’s recovery is far from complete. For now, the headline jobless rate is a mirage; beneath it lies a labor market still searching for solid footing.