Reserve Bank predicts 162,000 jobless

Press, 22 June 1989, Page 6

Reserve Bank predicts 162,000 jobless

PA Wellington Unemployment will peak around 162,000 in the September quarter before falling gradually, according to a Reserve Bank paper written for the Government. The paper, presented to the Cabinet conference on employment, also suggested that high real wages were partly to blame for New Zealand’s unemployment rate. Releasing the paper yesterday the Opposition spokesman on employment, Mr Winston Peters, rejected any suggestion that real wages should be lowered, saying it was “unpalatable and unacceptable advice.” The paper said the combined effects of economic restructuring, falling output and

higher real wages had caused a rapid rise in unemployment last year. “Given existing policy, the emerging economic recovery is expected to produce an upturn in employment from early 1989 and a flattening out of unemployment from mid--1989,” the paper said. It rejected any loosening of monetary policy to stimulate employment, saying it was crucial that inflation be contained during the improvement in the economy if the recovery in production and employment was to last. But it should be possible to improve the recovery’s job-creation effects though a range of labour market policies aimed at “improving incentives both to offer work — and

accept work.” The bank estimated that a 10 per cent rise in real wages over 1985-1988 reduced full time-private sector jobs by 47,000. “Thus, instead of an estimated 160,000 unemployed by March, 1989, a constant real wage may have kept the unemployment level down to 130,000,” it said. During the coming year real wages were likely to remain steady so, as productivity improved, the real cost of labour would fall. “With the present very high’ level of unemployment it is clear that any such reductions should be used to encourage employment growth — rather than to justify higher wage increases.” the naner said