Seasonal and cyclical job losses in Queenstown
Queenstown's labour market is in its off-season. The working-age population is 22,000. Of these, 12,540 are employed, 660 are unemployed, and 8,800 are not in the labour force. At the end of winter, 400 hospitality workers lose their jobs, and 200 unemployed people stop looking for work and leave town. A construction firm building a hotel delays 80 jobs. Youth unemployment (15–24) is 14%, against 4.3% nationally. The average tourism wage is $26 an hour, the median house price is $1.1 million, and rents average $650 a week; many workers commute 40 minutes from Cromwell. The council proposes either a $2 million wage subsidy for tourism firms or a $1.5 million trades training scheme, but its budget allows only one.
1. Calculate the unemployment rate and labour force participation rate before and after the job losses, showing your working. Explain what happened to the measured unemployment rate and why it may understate the problem.
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Before: Labour force = employed + unemployed = 12,540 + 660 = 13,200. Unemployment rate = 660 / 13,200 × 100 = 5.0%. Participation rate = 13,200 / 22,000 × 100 = 60.0%.
After 400 job losses and 200 discouraged workers leaving the labour force: Employed = 12,140. Unemployed = 660 + 400 − 200 = 860. Not in labour force = 8,800 + 200 = 9,000. Labour force = 12,140 + 860 = 13,000. Unemployment rate = 860 / 13,000 × 100 = 6.6%. Participation rate = 13,000 / 22,000 × 100 = 59.1%.
If the 200 had stayed in the labour force, unemployment would be 1,060 and the rate would be 1,060 / 13,200 = 8.0%. So the official rate rises from 5.0% to 6.6%, but this understates the deterioration because 200 people left the labour force. These are discouraged workers - hidden unemployment. The fall in the participation rate is a warning sign.
Judgement: the measured unemployment rate is sensitive to the definition of the labour force. The council should look at participation and at the number of job losses, not just the headline rate.
2. Classify the unemployment in Queenstown using at least three types, and explain the evidence for each.
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Seasonal unemployment: the 400 hospitality workers laid off at the end of winter. Tourism demand falls predictably each year; this is not a sign of a permanently weak economy.
Cyclical (demand-deficient) unemployment: the hotel construction delay of 80 jobs, likely caused by higher interest rates and weaker demand for accommodation. This is due to a downturn in aggregate demand.
Structural unemployment: the mismatch between tourism skills and the trades needed for construction and maintenance. Youth unemployment of 14% suggests young people lack the skills or experience employers want, and the town's housing costs may deter them from staying.
Frictional unemployment: the 200 who stop looking and leave town are moving between jobs or locations; some search time is normal.
Judgement: seasonal unemployment is the largest identifiable component, but the construction delay adds a cyclical layer and the youth figure points to structural problems. The policy response should match the type: seasonal income support or tourism diversification for seasonal unemployment; demand stimulus for cyclical; training for structural.
3. Evaluate which of the two schemes - the $2 million wage subsidy or the $1.5 million trades training - is more likely to reduce unemployment in Queenstown.
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Wage subsidy ($2 million): quick to administer, preserves existing jobs and incomes, and supports local businesses through a seasonal trough. It works best for cyclical unemployment. But it may be deadweight - firms may have kept workers anyway - and it subsidises low-wage, low-productivity tourism jobs. If it supports 200 jobs for a season, that is $10,000 per job. It does little for the 80 construction workers or the 14% youth unemployment.
Trades training ($1.5 million): addresses structural unemployment and the construction skills gap. It has a longer lag and only works if there are jobs at the end; training people who then leave Queenstown would leak the benefit. It could help the 80 construction workers and young people, and raise productivity.
The decision depends on the cause. If the problem is mainly seasonal and short-term, the wage subsidy is more targeted; if it is structural, training is better. A combined approach - a smaller subsidy plus training - may be best, but the council can fund only one scheme.
Judgement: on the evidence, the training scheme is more defensible for the long run, but it will not help this winter. If the council's priority is to keep people in work now, the wage subsidy wins on speed. A targeted subsidy for permanent residents, coupled with training, would reduce deadweight.