Recession and unemployment go hand-in-hand - so why are most businesses looking to hire more staff this year?

There are fears New Zealand is heading into a recession with some economists saying we are already in it, however, businesses aren't letting it stop them from growing their workforce, new research has found. 

A survey from software company ELMO has found businesses are remaining shockingly optimistic with the majority expecting to grow their workforce this year despite increasing economic turbulence.

"The overall level of optimism was surprising given the fear of a recession globally and domestically, as well as the ongoing labour shortage," ELMO Software CEO and co-founder Danny Lessem said.

Both the RBNZ and Treasury have agreed New Zealand will plunge into a technical recession this year, with the latter projecting the country's economy to contract 0.8 percent across three quarters. 

Higher unemployment and recessions usually go hand-in-hand, as lower demand for goods can force businesses to make job cuts. But despite the increasing economic turbulence, New Zealand businesses said they are still hoping to expand their workforce.

Nearly two-thirds of businesses are planning to grow their workforce in 2023, up from just over half last year, the latest annual ELMO HR Industry Benchmark report revealed.

Of those expecting a change in the size of their workforce, 56 percent expect their workforce to grow by 11 to 25 percent, while one-fifth anticipated an increase of over 25 percent. Eleven percent predicted their workforce to decrease this year.

New Zealand's unemployment rate is currently low sitting at 3.4 percent which is roughly 99,000 people.

Westpac predicted last month the unemployment rate will rise, peaking at 5.2 percent by 2025. While this is significantly higher than the current rate, it would be a return to normal unemployment rates as the country sits at historically low levels.

It comes as companies in New Zealand announced mass job cuts earlier this year.

The Warehouse proposed cuts that could affect 190 employees, MediaWorks axed 90 roles and Xero planned to shed up to 800 jobs.

"While job cuts in tech companies and professional services firms are in the spotlight right now, the overall surge in optimism when it comes to adding headcount is a good reminder that not all organisations will be impacted by economic uncertainty in the same way," ELMO Software CEO and co-founder Danny Lessem said in a statement.

"While some sectors may be forced to downsize in 2023, either due to a potential recession, rising material prices and interest rates, others will outperform."

The report found businesses with over 2000 employees was expecting on average to grow their workforce by 24 percent, while small and medium-sized businesses predicted a 12 percent increase in headcount.

Danny Lessem.
Danny Lessem. Photo credit: Supplied

Recruiting challenges

The plans to grow workforces come despite continuing difficulties with how to address the talent shortage in New Zealand.

At the end of 2022, businesses were crying out for staff amid a dire worker shortage.

The ELMO software report found both recruitment and upskilling was tied as the number one issue for HR professionals across the board, with 16 percent choosing them as their top challenges in 2023. 

Recruitment woes are being compounded by the difficulty of holding onto new hires, the report said. It found the average turnover rate in New Zealand for new hires within their probation period is 12 percent, marginally down from last year, but still twice as high as it was in 2019 and 2020. 

"The high new hire turnover rate seems to be an outcome of the 'bums on seats' mentality of the last few years, without regard for the short or long-term costs," Lessem said. 

"HR is now telling us that finding the right candidates is one of their biggest recruitment challenges and that suggests the focus has shifted from quantity to quality, in order to hire those who are truly right for the roles rather than choose someone without the necessary skills and experience.

"Given potential budget constraints this year and the need for high productivity as the economy slows, it makes commercial sense to hire well, rather than waste money churning through new staff."

Lessem said he anticipates hiring throughout the rest of the year will be much more deliberate.

Higher levels in net migration levels could help companies during the tight labour market. New data from Stats NZ shows an annual net migration gain of 33,200 people, compared with a loss of 17,500 people.

"Recent immigration law changes may help to ease the skills shortage within certain industries. For example, several skilled professions have been added to the Straight to Residence and Work to Residence Green List Pathways, making it easier to attract new workers from overseas," Lessem said.

This month, the two-year work-to-residence pathway opened up to all teachers and people in other roles, like drain layers and motor mechanics.