OUR OPERATING ENVIRONMENT

New Zealand’s long-term prosperity, and ability to lift living standards and fund public services such as health, education and superannuation, is dependent on strong economic performance, backed by a high-performing labour market.

The labour market has a significant role to play in achieving the Government’s economic and social objectives. It is the dynamic system within which people work and gain income, where employers and employees interact to create value, and where people utilise and develop their skills and knowledge.

Analysis of the labour market assists us to anticipate and respond to forces of change within the system, by adjusting labour market policy settings. For example, in New Zealand’s current environment of low population growth, low unemployment and high labour market participation, the key factor we want to influence is labour productivity or the real value of Gross Domestic Product (GDP) generated by each hour worked.

Labour market information, as outlined in Table 1 and Figure 1, is used to monitor changes in our operating environment.

Table 1: Some Labour Market Facts and Figures1

Participation in the labour force

Participation in paid work has increased

Over the 2005 year, the number of people in full-time employment increased by 3.1%, and the number in part- time employment2 increased by 1.5%.
The overall labour force participation rate peaked during the September 2005 quarter at 68.1%. By December 2005, it had decreased to 67.8%, almost the same as the December 2004 rate, and the second highest figure on record.

Unemployment is lowest in 20 years

The unemployment rate in the December 2005 quarter was 3.6%, the lowest in the OECD (ahead of South Korea at 4.1%), and the lowest in the 20 years of the Household Labour Force Survey (HLFS).

Fewer Maori are unemployed

Maori unemployment fell to 8.6% in the year to December 2005, down from 8.9% in the year to December 2004, and the lowest annual average rate since the HLFS began

Fewer Pacific people are unemployed

The unemployment rate for Pacific peoples was 6.2% in the year to December 2005, down from 7.4% in the year to December 2004.

More women are in paid work

The female participation rate reached an all-time high of 61.5% in the September 2005 quarter and eased back only slightly to 60.9% in the December 2005 quarter.

Skills and labour availability

Skills shortages are still an issue but are reducing

19% of New Zealand businesses consider workforce shortages to be the biggest constraint on their activities, a significant drop from 25% last year3.

There has been a reduction in numbers of firms having difficulty finding skilled workers

The number of firms reported as having difficulty finding skilled labour has fallen, down to a net 33% at
the end of 2005 compared with a net 61% at the end of 20044 .

More people in work have qualifications

82% of people in work have qualifications, and 74% of the working age population now have qualifications compared to 58% in 1986.

Pay/Wages

Wages have grown

High skill shortages have pushed up wage growth to reasonably strong rates, particularly among some professionals (e.g. health) and trades workers (e.g. building). Overall, annual growth in wages has been around 4% since 2000, and real gains in wages have been in the order of 1.5%5.

Employment Relations

Work stoppages fell sharply from the 1980s to 2000, with a slight rise since. The number of stoppages fell from 171 in 1989 to 21 in 2000 and rose to 50 in the year to September 20056. The recent rise could be due to the increase in wage pressures in 2005.

Productivity7

We need to focus on increasing productivity

Growth in GDP per hour worked (the key measure of labour productivity) has averaged just 1% per annum over the five years to December 2005.

Population and Migration

The number of workers coming to New Zealand is increasing

Between 1997/98 and 2004/05, the number of people issued a work permit has increased by approximately 18% per year8. In 2004/05, there were 249,680 residence approvals, work permits and student permits in total – 46% were work permits, 43% student permits, and 11% residence approvals.

Our population is growing, but only just

New Zealand’s population is expected to grow by an average of 0.8% a year between 2004 and 2011. Growth during the year to June 2005 was 0.9%9. Between 2041 and 2051, population growth is projected to average just 0.1 percent a year according to Statistics New Zealand10.

Notes:

1. Unless otherwise stated, these facts and figures are from the Household Labour Force Survey, December 2005 quarter, Statistics New Zealand.
2. Full-time work is 30 or more hours per week. Part time work is less than 30 hours per week.
3. Quarterly Survey of Business Opinion, New Zealand Institute of Economic Research.
4. Quarterly Survey of Business Opinion, New Zealand Institute of Economic Research.
5. Labour Cost Index, Statistics New Zealand.
6. Work Stoppages, Statistics New Zealand.
7. Gross Domestic Product: December 2005 quarter, Statistics New Zealand.
8. Department of Labour Statistics.
9. Demographic Trends (2005) – reference report, Statistics New Zealand.
10. Based on medium fertility and mortality levels and net migration of 10,000 people per year.

Figure 1 illustrates both the number of people involved in the labour market and the series of flows into and around it.

FIGURE 1 - LABOUR MARKET POPULATION FLOWS AS AT DECEMBER 2005

[click for larger image]

Future operating environment

The Department has been developing, in collaboration with other agencies, scenarios of what the future labour market might look like in order to plan for it. Some notable factors identified that will affect the New Zealand labour market in the next 15 years include:

the movement of significant age groups into, through and out of the workforce (i.e. the 45-65 year old “baby boomer” group and their children, the secondary school aged “baby blip”) resulting in alternate increases and decreases in the number of people available in the labour force
continuing globalisation, both the movement of work and workers internationally
changing skill requirements and the need to address imbalances in educational achievement across different groups of New Zealanders (and especially among Maori and Pacific peoples)
the evolving nature of work, including a greater variety of employment arrangements, management styles and workplace cultures and a more diverse workforce
the accelerating pace of technological change and innovation and the impact this will have on the structure of industries and occupations
changing aspirations, including relative value placed on work, family and community commitments.

All of this has implications for how we do business – what we focus on in the short term, while keeping an eye on the long term, and being prepared to adapt to changing labour market and economic conditions.