New Zealand's Construction Downturn Impact

New Zealand's Construction Downturn Impact

Economic Analysis for Year 12 Students Understanding Labour Markets and Economic Models 90-minute presentation

The Scale of the Downturn

$720 million drop in sales for June quarter $5 billion revenue drop for the year 48% increase in company liquidations 14% rise in credit defaults 16,000 jobs lost since 2019

Contributing Factors to the Downturn

High interest rates reducing borrowing Economic uncertainty affecting confidence Rising build costs increasing project expenses Winding down of stimulus-driven projects Reduced government infrastructure spending

Economic Model Analysis

Before we examine the economic models, consider: How might reduced construction activity affect other sectors of the economy? What types of unemployment would construction workers experience?

Labour Market Model - Before the Downturn

Quantity Demanded for Labour (QDL) - high demand Quantity Supplied of Labour (QSL) - steady supply Employment (EMP) - high levels Involuntary Unemployment (IU) - relatively low Voluntary Unemployment (VU) - normal levels

Graph Activity: Labour Market Changes

Draw the original labour market equilibrium Show the effect of construction downturn Label new employment levels (EMP1) Identify new unemployment levels (IU1, VU1) Mark new quantity demanded (QDL1) and supplied (QSL1)

Labour Market Model - After the Downturn

QDL1 - significantly reduced demand QSL1 - supply remains relatively stable EMP1 - lower employment levels IU1 - increased involuntary unemployment VU1 - voluntary unemployment may increase due to discouragement

AD/AS Model - Impact of Construction Downturn

Aggregate Demand (AD) shifts left due to: Reduced investment in construction projects Lower consumer spending from unemployed workers Decreased business confidence Multiplier effects throughout economy

AD/AS Model Analysis

Explaining the AD/AS Changes

Investment component of AD falls significantly Consumption decreases due to job losses Government spending may increase (automatic stabilizers) Net exports relatively unaffected Overall result: leftward shift in AD curve

Production Possibilities Frontier (PPF) Impact

Economy moves inside the PPF due to: Unemployed resources (labour and capital) Reduced productivity in construction sector Underutilization of construction equipment Skills mismatch as workers seek new employment

PPF Analysis Activity

Draw a PPF with Construction on one axis and Other Goods on the other Show the original production point Indicate the new production point after downturn Explain why the economy moves inside the PPF Discuss potential for recovery