Our take on the latest Labour market statistics (Wed 4 Feb 2026)
Unemployment rate
Participation rate
Labour Cost Index
5.4%70.5%
2.0%paDecember 2025 quarter (sa)
December 2025 quarter (sa)
Year to December 2025
The key numbers...
- The unemployment rate rose to 5.4% in the December 2025 quarter, the highest rate in nine years, and up from 5.3% in the September 2025 quarter (all figures seasonally adjusted). The increase in unemployment coincided with an increase in the labour force participation rate, from 70.3% to 70.5%. Market expectations were for a stable unemployment and participation rate this quarter.
- Employment still rose, at a reasonably strong 0.5% in the quarter, but the labour force grew faster than employment, alongside more people actively looking for and available for work.
- There were 14,000 more people in the working age population in December, with 19,000 more people in the labour force, as 6,000 people previously not looking or available for work became available. Of this 19,000 increase in the labour force, 15,000 found work, and 5,000 were still looking for work and counted as unemployed (figures do not add to totals due to rounding).
- The underutilisation rate – covering people unemployed, underemployed, or in the potential labour force – held steady at a plateau of 13.0%. There was considerable movement within the group, though, with people moving from the potential labour force into being formally unemployed, and more wanting more hours to work too.
- Growth in labour costs has continued to slow, with the labour cost index rising just 2.0%pa in the December 2025 quarter, a slowdown from 2.9% in December 2024, and the slowest increase since the start of 2021. The public sector led labour cost growth, with a 2.2%pa increase in the December 2025 quarter, compared to 2.0%pa for the private sector.
...and our reaction
- Although the headline increase in the unemployment rate might look like the labour market is getting worse, below the surface a number of indicators are showing more promise. There are both more people in work, and now looking for work, with fewer sitting on the sidelines.
- The underemployment rate rose to a record high of 5.2% in the December 2025 quarter, which coupled with the unemployment rate increase, shows that people are struggling to find enough hours or any work at all. This finding aligns with MBIE’s Job Ad index, which showed limited growth in ads in the December 2025 quarter.
- Part time work made up 55% of the 14,000 increase in employed persons this quarter, an unusually high share given that part time work only makes up 20% of jobs overall. This unusual split could suggest employers are only dipping their toes in the labour market, shy to commit to full-time hires.
- Weekly paid hours fell 0.1%pa in the December 2025 quarter, showing that not only are a significant portion of new jobs part time, but that hours are limited for existing employees too, as economic activity remains patchy.
- Despite the increase in unemployment rate this quarter, New Zealand’s unemployment rate remains middle of the pack amongst its OECD peers, ranked 18th out of 38 countries. However, Australia’s unemployment rate remains materially lower at 4.3%, and is a key factor in New Zealand’s currently weak net migration.
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