Skills, Economic Crises and the Labour Market

Abstract

Do higher skills help mitigate the negative impact of economic crises? We study the effect of two major economic setbacks—the Global Financial Crisis (GFC) in 2007–09 and the COVID-19 period from early 2020—on wage progression for New Zealanders with different skill levels. For our analysis, we link the PIAAC survey data on literacy and numeracy skills with the Inland Revenue's tax records that document the entire workforce's monthly labour market information. During the GFC, the adverse impact of the economic shock on wage progression appears to be significantly lower for the higher-skilled population. Moreover, those in the low-skilled group who changed employers during the GFC experienced the largest wage drop. However, during the more recent period of COVID-19 restrictions, we find little evidence of skill-based differences in wage progression. In some years, low-skilled workers even experienced slightly faster wage growth than high-skilled workers.