What rising unemployment means for New Zealand businesses
What rising unemployment means for New Zealand businesses
In this article, Alex Cochrane, Director, BDO Gisborne and People Advisory specialist explores what’s beyond the headlines and offers practical tips for New Zealand employers.
During the three months to June 2026, the broader underutilisation rate rose to 13.8%, up from 12.9% in the previous quarter. This measure includes people who are unemployed, those who have a job but want more hours, and people who want work and are available but are not actively looking. In practical terms, around 440,000 New Zealanders were underutilised in the June quarter, including 171,000 unemployed people.
“The unemployment rate is important, but it does not tell the full story for business leaders. Underutilisation, participation and employment growth all help build a more practical picture of what is happening in the labour market. For SMEs, the key question is not simply whether more people are available, but whether the right skills are available at the right time, in the right place, and at a cost the business can sustain.” – Alex Cochrane, BDO People Advisory Specialist
At the same time, the picture is mixed. Employment increased by 0.5% over the quarter, the employment rate was unchanged at 66.7%, and labour force participation rose to 70.7%. More people are working or looking for work, but job creation has not kept pace with labour force growth.
What the latest labour market data means for SMEs
For business leaders, the latest figures point to more available capacity, but not necessarily an easier operating environment. Higher unemployment can ease hiring pressure in some areas, but it can also reflect weaker demand, lower confidence and more cautious investment. Workforce planning should therefore sit alongside cash flow, productivity and scenario planning.“In a softer labour market, discipline becomes more important, not less. Hiring too slowly can leave a business underprepared when demand returns, but hiring ahead of confirmed work can put unnecessary pressure on margins and cash flow. The businesses that navigate this period well will be those that connect workforce planning closely with demand, productivity and financial resilience.”
Why the impact will vary by sector
The impact of softer labour market conditions will not be felt evenly. In sectors with relatively resilient demand, such as agriculture and healthcare, workforce challenges may remain structural rather than cyclical. Location, specialist skills and timing can matter more than the national unemployment rate.In demand-led sectors such as construction, tourism and retail, labour availability may not be the main constraint. Pipeline certainty, consumer demand and margin pressure are likely to have a stronger influence on hiring decisions.
In not-for-profit, Māori business and community-focused organisations, the pressure may be more complex. Higher unemployment can increase community need or expectations around employment, while funding, capacity and sustainability remain challenging. For these organisations, workforce planning needs to balance purpose, service demand and long-term financial resilience.
How business leaders can respond to changing labour market conditions
- Review workforce plans against confirmed demand. Avoid basing hiring decisions only on economic headlines. Test whether roles are linked to current workload, funded growth or clearly identified capability gaps.
- Protect key capability. Even when unemployment rises, skilled people can remain difficult to replace. Retention, training and internal mobility should remain priorities.
- Use productivity as a planning lens. Consider whether systems, processes or technology could help existing teams work more effectively before adding headcount.
- Keep communication clear and human. A softer labour market can create uncertainty for employees. Regular, honest communication can help maintain trust and engagement.
- Plan for recovery, not just restraint. Businesses that maintain the right capability through a downturn may be better placed to respond when demand improves.
“The most resilient businesses will be those that look beyond the headline numbers and make deliberate, people-focused decisions. That means protecting critical capability, communicating clearly with teams and planning for recovery as well as restraint.”
Need help managing workforce change?
Periods of labour market change often create both challenges and opportunities for employers. Whether your business is considering recruitment, reviewing workforce costs, managing organisational change, or looking to retain key talent, having a clear people strategy can help you make more confident decisions.At BDO, our People Advisory team works alongside business owners and leaders to align workforce planning with commercial objectives. We support organisations with recruitment and talent acquisition, workforce planning, organisational design, leadership development, retention strategies, performance management, restructuring processes and broader people and culture initiatives.
"The businesses that emerge strongest from uncertain economic conditions are often those that make deliberate decisions about their people. Taking time to understand your future capability needs, protect critical talent and plan ahead can create a significant competitive advantage when conditions improve."
If you'd like to discuss how changing labour market conditions may impact your business, or explore practical workforce planning strategies, our People Advisory team is here to help. Contact the People Advisory team to discuss how we can support your organisation's people, performance and workforce planning goals.
