Impacts of Employment Rates (Demand) and Participation Rates (Supply) on Unemployment Rates: A Disaggregated Analysis

Abstract

The interaction between the different macro labour market drivers and their influence on key labour market outcomes is of considerable interest to labour market analysts as well as policy makers. One of these relationships is between employment growth (or labour demand) and the associated reduction in the unemployment rate. This relationship is often determined by other labour market indicators, such as participation rates (or labour supply), and the working age population (amongst other factors). This paper reports on an integrated macro labour market forecasting framework developed by the Labour Group of MBIE, disaggregated into 11 five-yearly age cohorts across the working age population. The labour market dynamics during business cycles are affected by the ageing of the work force in New Zealand. This has varied consequences on labour market outcomes for different age cohorts, especially those at each end of the age spectrum. Forecasting likely future unemployment rates by age cohort level is of considerable interest, and will provide further insights into labour market dynamics. In addition to those in the prime age cohorts, other cohorts of interest include new entrants into the working age population; those age cohorts potentially involved in training; and those in the pre-retirement age cohorts.