Colin Espiner: “For some reason that I don’t quite understand, unemployment usually continues to rise at the end of recessions, and there’s normally a lag time of something like a year before it falls.”
I can help with that one.
When a down-turn starts, employers generally don’t know how bad or how long it will be. Being uncertain, they are generally loath to let staff go because making people redundant can be expensive and so is hiring replacement people if things pick-up quickly. Most employers care about their workers too, they don’t want to see them unemployed. They’ll try to cut over-time or move people to part-time and/or take a hit in profits instead over the short-term. When things get too serious the lay-offs start.
Once business conditions improve, employers will generally try to get more out of their existing employees rather than hire additional people, again, due to cost and uncertainty about how long the upturn will last. Unemployment keeps rising because jobs disappear all the time but few people are hiring.
For these reasons, business profits are hit early in a recessionary cycle and workers feel it later. Kiwi workers will actually earn less in the next four years than the last one.
Look, there’s no shame in not knowing why unemployment lags GDP but, Colin, this relates to your ability to do you job, you really should try to find out. And thanks to the Internet there really is no excuse. I typed “why does unemployment lag GDP” into google and on the first page was an Australian Bureau of Statistics paper examining the issue.
At least he’s not still claiming that “obviously [Key] has no control over wages”*. That really was dumb.
*[huh, they’ve taken down the blog entry and re-directed the url]