Last week, Statistics New Zealand reported that the nation’s unemployment rate rose to 5.2% in Q2 2025, the highest rate since Q4 2016.
As illustrated below by Justin Fabo from Antipodean Macro, New Zealand’s underemployment rate also surged, suggesting significant surplus capacity in the labour market.
The rise in New Zealand’s labour underutilisation rate comes despite a significant decline in the nation’s labour force participation rate.
A wide gap has emerged between Australia’s unemployment rate, which was 4.3% in June 2025, versus New Zealand’s at 5.2%.
As illustrated below, New Zealand enjoyed lower unemployment than Australia between 2013 and 2023. However, the role has reversed.
One consequence has been a sharp rise in migration from New Zealand to Australia.
As illustrated below by Alex Joiner from IFM Investors, immigration between the two nations tends to track the difference in unemployment rates.
When Australia’s unemployment rate is lower than New Zealand’s, it has historically been associated with a strong inflow of Kiwis to Australia in search of job opportunities.
Other labour market indicators, such as SEEK’s job ads and applications per job ad series, suggest that New Zealand’s labour market remains incredibly soft.
Meanwhile, ANZ Senior Economist Miles Workman warned last week that the unemployment rate could rise to 6% if employers stop hoarding workers and “right size” in the coming months.
Workman estimated that this labour hoarding has kept the unemployment around 0.5% lower than otherwise in recent quarters and that the labour market could soon “be hit with a double whammy: weaker-than-otherwise demand for labour and a shedding of hoarded labour”.
“The recent deterioration in the high-frequency data combined with signs that firms’ capacity to hold out for the recovery is diminishing suggests risks are skewed to weaker labour market outcomes than we or the RBNZ have been forecasting for the next year or so”, Workman wrote.
If New Zealand’s labour market continues to weaken, then Australia could see the flow of Kiwis increase beyond current historically high levels.
