Impacts of unemployment on groups in New Zealand society
What the standard requires
- Achieved requires "an explanation of the impacts of changes in unemployment on various groups in New Zealand society".
- Excellence requires comparing and contrasting the impacts on different groups.
The unemployed themselves
- Loss of income — the largest and most immediate effect. Benefits replace only a fraction of a wage.
- Loss of skills — the longer someone is unemployed, the more their skills fall behind and the harder re-employment becomes.
- Health effects — unemployment is strongly associated with worse physical and mental health.
- Loss of status and routine, and social isolation.
- Long-term earnings damage — people who experience a long spell of unemployment often earn less for years afterwards, even after finding work.
Households and families
- Falling household income forces cuts in spending, and can mean housing insecurity or debt.
- Children in households affected by unemployment face poorer outcomes in health and education.
- Other household members may take on extra work, which affects study or caring responsibilities.
Workers who keep their jobs
- Not unaffected. High unemployment means less bargaining power: a worker who can easily be replaced cannot push for higher wages or better conditions.
- Wage growth slows, so real wages may fall if inflation continues.
- Job insecurity raises stress and encourages precautionary saving, which reduces consumption — the mechanism by which unemployment spreads.
Firms
Costs
- Falling consumer spending means lower sales, particularly for firms selling discretionary goods and services.
- Weak demand discourages investment, reducing future capacity.
Benefits
- Easier recruitment and lower wage pressure — firms can fill vacancies quickly and cheaply.
- Firms that sell inferior goods or budget alternatives may see demand rise as households trade down.
The government
Expenditure rises
- More people receive unemployment benefits and other support.
- Greater demand on health and social services.
Revenue falls
- Fewer people earning means less income tax.
- Less spending means less GST.
- Lower profits mean less company tax.
The operating balance worsens from both directions at once — the exact mirror of what growth does.
The economy as a whole
- Output is lost permanently. The goods and services those workers would have produced are never produced. On the PPF, this is the economy sitting inside its frontier, and the lost output cannot be recovered later.
- Productive capacity is threatened if unemployment persists, as skills decay and firms close — an inward shift of the frontier.
- Inequality widens, because unemployment is concentrated among those with the least to fall back on.
Which groups bear it most
- Unemployment is never evenly spread. It is consistently higher among:
- Young people, who have least experience and are often first out in a downturn
- Māori and Pacific workers, reflecting occupational and regional concentration
- Workers in regions dependent on one industry
- Workers with fewer formal qualifications, who are most exposed to structural change
Worked ExampleComparing two groups
New Zealand's unemployment rate rises sharply during a recession.
Compare and contrast the impact of this on: (i) workers who lose their jobs (ii) workers who keep their jobs.
Step 1 — Group (i): workers who lose their jobs
Income falls sharply. Benefits replace only a fraction of a wage, so consumption must be cut immediately — often on essentials, since discretionary spending has usually already gone.
Skills decay. The longer they are out of work, the further their skills fall behind and the more employers treat a long gap as a warning sign. Re-employment becomes progressively harder.
Health and wellbeing suffer. Unemployment is strongly associated with worse physical and mental health, loss of routine and social isolation.
Long-term earnings are damaged. Someone who experiences a long spell of unemployment typically earns less for years afterwards, even once re-employed — the loss does not end when the job is found.
Step 2 — Group (ii): workers who keep their jobs
Income is maintained — the immediate position is far better.
But bargaining power collapses. With many people looking for work, an employer can replace a worker easily. Workers cannot credibly push for higher wages or better conditions, and are reluctant to complain or move.
Real wages may fall. Wage growth slows or stops while prices continue to rise, so real wages fall even though the job is secure.
Job insecurity has real costs. Fear of being next raises stress, and encourages precautionary saving — cutting spending in case the job goes.
Hours and conditions may worsen. Firms cutting costs reduce overtime, restructure roles, or ask more of remaining staff.
Step 3 — Compare
Both groups are worse off, and both are worse off because of the same fall in demand for labour. On the labour market model, DL shifts left from DL to DL1, which lowers both the quantity of labour employed (from Le to Le1 — group (i)) and the equilibrium wage (from We to We1 — group (ii)). One curve shift produces both effects, which is why they cannot be separated.
Step 4 — Contrast
The severity is enormously different. Group (i) loses most of its income; group (ii) loses some wage growth. These are not comparable magnitudes.
The nature of the loss differs. Group (i) suffers a loss of income and of human capital. Group (ii) suffers a loss of bargaining power — a shift in the balance between employer and employee.
Duration differs. Group (ii)'s position recovers as soon as the labour market tightens: when DL shifts back right, wages recover. Group (i)'s losses persist beyond the recovery, through decayed skills and permanently lower lifetime earnings.
And there is a feedback between them. Group (ii)'s precautionary saving reduces consumption, which shifts AD further left, which causes more job losses in group (i). The second group's rational response makes the first group's problem worse.
Step 5 — Judge
Group (i) is far more seriously affected, on every dimension: the size of the loss, its persistence, and its effect on health and future earnings.
But group (ii)'s losses are not trivial, and they matter economically because they are what transmits a downturn: falling real wages and precautionary saving reduce aggregate demand, deepening the recession that created the unemployment.