As borders reopen, credit card spending shows more New Zealanders booking overseas trips. Are they leaving for good? Mary Jo Vergara looks at the data.

The March quarter update of the New Zealand labour market was yet another strong one. Jobs are plentiful, unemployment held steady, and wages are on the rise. And that’s despite the Omicron outbreak.

Worker absenteeism spiked, as expected, with more than 40,000 people – or 1.6% of those employed – away from work due to illness. But overall, Omicron failed to significantly disrupt the current run of play.

All major labour market indicators continued to scream red-hot in the quarter. Firms’ future employment intentions have held up remarkably well in recent months, all things considered.

Engagement with the labour market is high, with the participation rate sitting above 70%. And job listings continue to rise. Demand for labour clearly remains robust. Firms are calling out ‘Marco’, but a closed border means fewer are yelling ‘Polo’ back. 

The good news is, New Zealand is slowly opening back up to the rest of the world. Already, New Zealanders living overseas can enter the country without the need to enter MIQ. Our friends across the ditch and those on temporary work and student visas can do the same. The month of May marked the reopening to visa waiver countries. And by the end of July, everybody else will be welcome back, two months ahead of schedule.

Reopening the border will surely help alleviate the labour shortage issue that continues to plague businesses. But the bad news is, it will take time – a whole wave of visa applications will need to be processed, and unfortunately shortages are expected to get worse before they get better. Because of the phased border reopening, long-term departures are forecast to increasingly exceed long-term arrivals.

There’s a lot of pent-up demand among New Zealanders to fly the nest. Kiwibank electronic cards data revealed as much, showing a massive 80% lift in flight bookings spend over the March quarter. For two years families have been kept apart, OE plans delayed and overseas careers put on pause. But now, the decision to leave has been made easier with the assurance that New Zealanders can return home without the need to first enter managed isolation. 

Meanwhile, fewer are expected to be booking one-way trips to New Zealand. Prior to Covid, most long-term arrivals came from non-waiver countries – the top three sources being China, India and South Africa. But the border remains closed to these countries until July. Only from the latter half of the year onwards are arrivals expected to meaningfully pick up. Until then, long-term arrival numbers will be held back. 

Since March last year, New Zealand has been running a net migration loss. The phased reopening will see this deepen. Around a net 20,000 people are expected to leave New Zealand by the end of this year. That’s similar to the last period of major outflow seen back in 2011 when an Aussie mining boom attracted Kiwi across the ditch for the prospect of a six-figure salary. 

The net outflow will only add further stress on an already stretched labour market. And some pockets of the market are at greater risk than others. As a big employer of young people, the hospitality industry is especially vulnerable. Within accommodation and food services, 15-24 year olds make up almost 40% of the workforce. 

Given the unwavering demand for labour, the unemployment rate is primed to set a new record low. The ongoing skills mismatch however means a rate below 3% will be difficult to sustain – if ever achieved. Firms continue to experience severe difficulty in finding suitable staff. According to NZIER’s recent business confidence survey, a record 67% of firms reported difficulty sourcing unskilled staff. And an even larger share struggled to get skilled workers. 

Migrants had been a key source of labour prior to the pandemic. The migration boom during 2013-15 saw a growing proportion of non-Europeans enter the labour force. The Asian ethnic group, in particular, was among the fastest growing, up 48% in the five years prior to Covid. In 2019, 73% of newly employed were of Asian ethnicity. Given the pre-Covid migration trends, many job vacancy posts are likely to continue to go unanswered. 

Overseas labour is desperately needed to balance the labour market. But with that tap still switched off, the Kiwi labour market is expected to remain tight for some time yet. A silver lining from this is that wage growth should push higher. At 3.1%, annual wage inflation is already running at the fastest pace in 13 years. But persistent labour shortages and rising cost of living are fuelling expectations of further pay rises.

All in all, though we’ll see the net outflow of Kiwi deepen in the near-term, Aotearoa is still an attractive place to grow new roots. Long-term arrivals should start to pick up later in the year and eventually lead net migration to return to an average of around 30,000 people per annum. That’s higher than the long-term average – albeit well down from pre-Covid highs.