A decline in New Zealand's unemployment rate may slow because of the number of Kiwis returning from overseas and seeking work, ASB chief economist Nick Tuffley warns.
Labour market figures released by Statistics New Zealand this week showed the unemployment rate at 6 per cent, down from 6.2 per cent at the end of September.
The labour force has grown by nearly 2 per cent in the past two quarters alone, boosted by strong inward migration.
Tuffley says the larger labour force is partially offsetting employment growth and slowing the fall in the unemployment rate.
If there continues to be strong net migration inflows into New Zealand, it means that even if there is relatively good employment growth, the unemployment rate may only fall relatively gradually because there is a pick-up in the number of people seeking work, he says.
One of the key benefits of the economic recovery is more likely to be through stronger employment growth for New Zealanders, but wage growth may not pick up initially if the number of people looking for work continues to expand. That suggests the unemployment rate will not fall quickly and the skills shortages will not develop very quickly, Tuffley says.