Thousands of people in Canterbury appear to have given up job hunting in the region.
Official statistics show New Zealand's unemployment rate for the December quarter fell 0.2 percentage points to 6.3%.
But employment growth remains muted, coupled with a sharp fall in the number of hours worked and a lower workforce participation rate.
ASB economist Jane Turner says the fall in the topline rate is misleading.
The labour force participation rate fell 0.2%, or by 3000, to 68.2%, and she says most of the decline over the last year is due to Cantabrians struggling to find work in the region.
She says usually when there are large declines in workforce participation, it's likely to reflect discouraged workers which is probably the case in Canterbury.
Ms Turner says it suggests that many people who have been looking for jobs have effectively given up, which removes them from labour market statistics and gives a lower unemployment rate than what is truly the case.
She says she expects the participation rate to improve as Canterbury is rebuilt, but the recent data gives the Reserve Bank leeway to keep interest rates on hold until at least the end of the year.