JVMP Reports
MECHANICAL ENGINEER:
OCCUPATIONAL SKILL SHORTAGE ASSESSMENT
Current Situation: Genuine skill shortage
Short-term Outlook: Genuine skill shortage
Executive Summary
Results from the 2005 Survey of Employers who have Recently Advertised suggest employers have had considerable difficulty in filling mechanical engineer positions in New Zealand. Only 20% of mechanical engineering vacancies were filled within ten weeks of advertising and there was an average of only nine suitable applicants for every ten mechanical engineering vacancies. This report considers these survey results in the context of trends in the demand for and supply of mechanical engineers.
| Fill Rate | Average Number of Suitable Applicants | |
|---|---|---|
| Mechanical Engineer | 20% | 0.9 |
| All Professions Surveyed | 54% | 2.0 |
Demand for mechanical engineers has grown strongly over the past few years due to strong growth in the machinery and equipment manufacturing industry and a booming construction industry. A buoyant economy, high capacity utilisation of machinery and a tight labour market has meant companies have been more willing to invest in new equipment or machinery. Demand growth is expected to continue in the short-term but at a slower rate than in recent years due to a slowdown in economic growth and a decrease in plant and machinery investment.
The number of people achieving a Bachelor of Engineering majoring in Mechanical Engineering has fluctuated around 130 each year over the last five years. A comparison of graduate achievements with the number employed in the mechanical engineering workforce indicates a training rate of only 1.9% in 2005. This is barely enough to compensate for retirements which occur at around 1.5% per annum. Net migration has most likely been positive for mechanical engineers since 2001.
Due to the on-going disparity between the growth in supply and growth in demand, the Department of Labour has assessed the mechanical engineer occupation as experiencing a genuine skill shortage.
Demand growth is expected to continue in the short-term but at a slower rate than in recent years. However, degree completions are not expected to rise dramatically in the short-term, so supply growth through training and migration is unlikely to be sufficient to eliminate the current shortfall of mechanical engineers. The Department of Labour therefore foresees shortages in the number of mechanical engineers, at best, easing only slightly in the short-term.
Introduction
The purpose of this report is to investigate skill shortages for mechanical engineers in New Zealand.
The following section presents key findings from the Department of Labour’s (the Department’s) Survey of Employers who have Recently Advertised (SERA). This survey provides an indication of employer’s success in filling advertised vacancies for mechanical engineers as well as other information on their recruiting experiences. The next two sections investigate trends in the demand for, and supply of, mechanical engineers. The penultimate section presents some of the issues that arise from the matching of demand and supply in the labour market, such as wage rates. Finally, the ‘Assessment’ section considers all the information presented in the report and provides a view on whether the occupation is in shortage, and if so, the type of shortage being experienced. A short-term outlook for the shortage situation is also offered.
Further background to this occupational report, including a discussion of the methodology; a glossary of terms; and an overview of the Department’s Survey of Employers who have Recently Advertised, including the survey questionnaire, can be found in the Background and technical note.
Mechanical Engineers in New Zealand
Professional mechanical engineers (Unit Group 2145 in the New Zealand Standard Classification of Occupations 1999) research, develop, design, manufacture, and test tools, engines, machines, and other mechanical equipment and structures. The scope of a mechanical engineer’s work includes the design and production of all kinds of goods, from basic machinery for agriculture through machines and tools for light and heavy manufacturing, to everyday consumer products. They can work on generation of power and its transmission as well as power-using machines such as refrigeration and air-conditioning equipment. Mechanical engineering is one of the broadest engineering disciplines and mechanical engineers may work in many different industries including manufacturing, agriculture, energy, naval and aviation.
The Department estimates that there were approximately 7,200 mechanical engineers employed in New Zealand in 2005. Census 2001 figures indicate that almost the entire mechanical engineer workforce is male (98%) and is employed full-time (97%).
Note on Occupational Classification
The 4-digit occupational category ‘mechanical engineers’ includes five sub-categories of engineers (NZSCO codes 21451 to 21455). ‘Other mechanical engineer’, comprises the largest sub-group representing 44% of the total, followed by ‘aeronautical engineer’ (33%) and ‘heating, ventilation and refrigeration engineer’ (19%). ‘Agricultural engineer’ and ‘naval architect’ represent the remaining 4%.
Some data sources such as the Household Labour Force Survey (HLFS) and External Migration, are only available at the broader 3-digit category, architects, engineers and related professionals (NZSCO Minor Group 214), with mechanical engineers comprising about 30% of this broader group. This means that some of the data presented in this report must be interpreted with caution, as it includes professions other than mechanical engineers.
Survey of Employers who have Recently Advertised
This section presents the key SERA findings of employers’ experiences in recruiting mechanical engineers.
The SERA allows the Department to gain insights into skill shortages by investigating how difficult it is for employers to fill vacancies. A ‘fill rate’ is calculated for each occupation – this being the proportion of vacancies included in the SERA sample which were filled with an adequately qualified and experienced person within ten weeks of advertising. Occupations with fill rates lower than 80% are typically regarded as being in shortage, while fill rates lower than 40% usually indicate that the occupation is in acute shortage.
| Number of Employers | Number of Vacancies | Fill Rate1 | Average Number of Suitable Applicants per Vacancy1 | |
|---|---|---|---|---|
| Mechanical Engineers |
22 | 35 | 20% | 0.9 |
| All Professionals Surveyed |
791 | 1141 | 54% | 2.0 |
1 The ‘All Professionals Surveyed’ fill rate and average number of suitable applicants per vacancy figures were both weighted to compensate for any under or over sampling of individual professional occupations in the 2005 survey.
Results from the 2005 SERA show that only 20% of mechanical engineer vacancies included in the survey were filled within ten weeks of being advertised, down from 47% in 2003. The fill rate for mechanical engineers was well below the fill rate for all professional occupations surveyed (54%). There was an average of only 0.9 suitable applicants for every mechanical engineer vacancy compared with an average of 2.0 for all professional occupations surveyed.
Demand for Mechanical Engineers
This section investigates trends in the demand for mechanical engineers and the factors underlying these trends. Demand is measured by the number of mechanical engineers required by employers at current wage rates.
Historical Demand
Mechanical engineers are employed in a wide range of industries and undertake work from research and design to production and maintenance. According to the Census, between 1991 and 2001 the number of mechanical engineers in employment grew by an annual average of 2.0% (see Table 3). There was a falloff of 1.8% per annum in the number of mechanical engineers employed over the period 1996 to 2001, which is most likely due to low investment in industry and a weaker economic cycle over this time.
| Annual Growth in Employment | |||
|---|---|---|---|
| 1991-1996 | 1996-2001 | 1991-2001 | |
| Mechanical Engineers | 6.0% | -1.8% | 2.0% |
| All Professionals | 2.7% | 4.0% | 3.4% |
| All Occupations | 3.1% | 1.2% | 2.1% |
There has been considerable growth in demand for mechanical engineers since 2001 due to developments in technology, engineering design, research, and manufacturing processes. A buoyant economy, high capacity utilisation of machinery and a tight labour market has also meant companies have been more willing to invest in new equipment or machines. Gross fixed capital formation for plant, machinery and non-transport equipment has increased by 14.1% per annum, in the three years to December 20051 .
About a third (32%) of all mechanical engineers work in the machinery and equipment manufacturing industry. Between 2001 and 2005, employment in this industry has grown by 5.4% per annum (see Table 4), which is indicative of growth in demand for mechanical engineers in this sector.
Aeronautical engineers comprise the second largest sub-group within the ‘mechanical engineer’ category, representing 33% of all mechanical engineers. Most aeronautical engineers (82%) are employed in either the machinery and equipment manufacturing industry or the air and space transport industry. Between 2001 and 2005 demand has been strong in both these industries, with employment growth of 5.4% and 5.7% per annum respectively.
| 2001 | 2002 | 2003 | 2004 | 2005 | Annual Growth | |
|---|---|---|---|---|---|---|
| Machinery and Equipment Manufacturing | 42.0 | 41.0 | 51.2 | 51.1 | 51.9 | 5.4% |
A key driver of demand for heating, ventilation and air conditioning (HVAC) engineers is the state of the building construction industry. A booming construction industry and the increasing popularity of air conditioning has led to strong growth in demand for the installation of heating and air conditioning units and systems in both new and existing apartments, other households, commercial, and industrial buildings. Imports for air conditioning-related machinery reached $92M in 2005, up from $42M in 20022 . There has also been strong employment growth of 11.9% per annum in the construction industry between 2001 and 2005, indicating the demand for HVAC engineers has been rising.
Future Demand
The mechanical engineering occupation is linked to the machinery and equipment manufacturing industry and success in this industry will lead to increased employment opportunities for mechanical engineers. In the short-term, growth in the machinery and manufacturing industry is predicted to slow as plant and machinery investment decreases due to the economy slowing, business confidence falling and profit margins being squeezed. Quarterly Survey of Business Opinion figures also indicate that manufacturing firm’s intentions to invest in plant and machinery has fallen over the last 1-2 years3 . Over the medium-term, growth in the industry is forecast to be modest. September 2006 Quarterly Predictions from the New Zealand Institute of Economic Research estimate that real GDP growth in the machinery and equipment manufacturing industry will be about 1.9% per annum between 2006 and 2011.
The increased popularity of having heating and air-conditioning systems in homes, greater recognition of the health and safety improvements that can be made with good ventilation systems, and sustained high activity in the construction industry will result in continued demand for heating and air-conditioning systems and therefore HVAC engineers. In addition, improving energy efficiency will continue to be a key focus for government, business and homeowners. There is continual demand for more environmentally friendly systems being developed and many older systems will be replaced by more energy-efficient systems.
The construction of new energy infrastructure will be a significant source of work for mechanical engineers in the future. In recent years the demand for electricity has been high and it is expected to increase in the future. Consequently, there is a need for improvements to infrastructure and to develop alternative energy sources. Solutions to major problems such as the need for new sources of energy will depend heavily on the ability to create new types of machines and mechanical systems which in turn, should lead to an increase in demand for mechanical engineers.
The positive factors supporting growth in demand for mechanical engineers outlined above may be counteracted slightly by the tendency for companies to outsource engineering services to lower cost economies. For example, Air New Zealand Engineering Services (ANZES), the largest employer of aeronautical engineers in New Zealand, decided in late 2005 to outsource some of their engineering services which resulted in the loss of about 200 jobs. However, this tendency to outsource may have only limited impact on the demand for professional mechanical engineers in New Zealand as mostly lower skilled functions tend to be outsourced.
Overall, the Department expects the demand for mechanical engineers to continue to grow over the next few years. However, demand is expected to grow at a slower rate than in recent years due to the slowdown in the economy.
Changes in Market Conditions4
The Department’s Job Vacancy Monitor shows that during 2004 the number of advertised vacancies for mechanical engineers spiked strongly (see Figure 1). However, since early 2005 job advertisements in this field have shown a stable trend with about 10 advertised vacancies for mechanical engineers being recorded each month.
Figure 1: Number of Advertised Vacancies for Mechanical Engineers
Supply of Mechanical Engineers
This section investigates the various sources contributing to the supply of mechanical engineers. Supply is measured by the number of people willing and able to work as mechanical engineers at current wage rates.
Tertiary Education
This section investigates the growth in supply of graduates in mechanical engineering through training – specifically the four-year Bachelor of Engineering (BE) majoring in Mechanical Engineering.
| Year | Degree Achievements |
|---|---|
| 2000 | 108 |
| 2001 | 122 |
| 2002 | 132 |
| 2003 | 122 |
| 2004 | 160 |
| 2005 | 138 |
Table 5 shows that the number of mechanical engineering degrees being awarded averaged 121 between 2000 and 2003 before rising sharply to 160 in 2004. In 2005, degree achievements fell back to 138.
| Mechanical Engineers | All Professionals5 | |
|---|---|---|
| 2000 | 2.0% | 7.9% |
| 2001 | 1.9% | 8.1% |
| 2002 | 1.9% | 6.9% |
| 2003 | 1.7% | 7.0% |
| 2004 | 2.5% | 7.2% |
| 2005 | 1.9% | 6.6% |
The training rate for mechanical engineers is given in Table 6. This indicator provides an approximate measure of the rate at which the supply of fully qualified mechanical engineers can potentially grow through training. The training rate is calculated by expressing the number of trainees achieving the relevant qualification as a percentage of total employment in that occupation. The training rate for mechanical engineers was estimated to be 1.9% in 2005 which, apart for 2004, is similar to the rates measured in previous years. The training rate for mechanical engineers in 2005 is much lower than the average training rate of 6.6% for all professionals.
Migration
New Zealand has experienced a net migratory inflow of 905 architects, engineers and related professionals in the four years to December 2005, coinciding with the strengthening of the domestic economy (see Table 7). These inflows were preceded by a small net migratory loss of 51 over the previous four-year period. The recent increase occurred as the result of a large increase in arrivals in 2002, accompanied by a large decrease in departures. Both of these changes were sustained in the following three years.
| 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |
|---|---|---|---|---|---|---|---|---|
| Arrivals | 610 | 519 | 426 | 462 | 565 | 560 | 594 | 695 |
| Departures | 510 | 513 | 562 | 483 | 370 | 325 | 378 | 436 |
| Net Migration | 100 | 6 | -136 | -21 | 195 | 235 | 216 | 259 |
Retirements
Based on 2001 Census data, it is estimated that approximately 1.5% of the mechanical engineer workforce retires each year (assuming a retirement age of 65). This equates to about 110 mechanical engineers per annum. This is slightly above the average for the broader architects, engineers and related professionals group (1.4%) and the average retirement rate for all professional occupations (1.3%). Census data shows an ageing of the mechanical engineer workforce occurred between 1991 and 2001 (see Figure 2). The percentage of mechanical engineers under 35 years of age decreased from 41% in 1991 to 33% in 2001, while the proportion in all age groups over 50 increased. By 2001, over half of all mechanical engineers were 40 years of age or older, and the average age was 41, up from 38 in 1991. As the mechanical engineer workforce ages, the number of mechanical engineers retiring each year will increase.
Figure 2: Age Profile of Mechanical Engineers, 1991-2001
Occupational Detachment6
Employers were asked if they thought engineers left the occupation to go and do something different more or less than in other occupations. Of the 19 employers who answered this question, seven thought they left at about the same rate as in other occupations, three thought they left at a higher rate, and nine thought they left at a lower rate. This suggests that occupational detachment may have a smaller impact on supply for engineers than many other occupations. Most employers interviewed felt that the majority of engineers tend to stay within the engineering profession once trained, although many move on to management positions as they get older.
The Association of Consulting Engineers New Zealand (ACENZ) annual staff recruitment survey of member firms reinforces employer perceptions of relatively modest losses through occupational detachment. Staff turnover reported in 2005 measured a relatively low 13%, with most (85%) of the people who resigned from the firms surveyed moving to another consulting engineering firm. While the survey includes engineers other than mechanical engineers, it suggests engineers tend to keep working in a broadly similar field.
Matching of Supply and Demand
This section considers some of the issues that arise from the labour market matching of the supply of mechanical engineers with the demand for mechanical engineers.
Salaries
Mechanical engineer wages are relatively high compared with other professions. The Labour Cost Index (LCI) measured an average hourly wage of $36.31 for mechanical engineers in December 2005 compared with an average wage for all professions of $33.63 (see Table 8). According to the LCI, wages of mechanical engineers have increased by 4.6% between December 2004 and 2005, compared with 4.5% in all professions.
| Dec 2004 | Dec 2005 | |
|---|---|---|
| Mechanical Engineers | $34.71 | $36.31 |
| All Professionals | $32.18 | $33.63 |
Other Assessments of Supply and Demand
A survey on vacancies within consulting engineering firms, conducted by ACENZ at the beginning of 2005, revealed that members could collectively employ about another 400 people, if the staff were available8 . In January 2004, the survey identified 220 current vacancies reported by 81 member firms. By January 2005 this had grown to 473 vacancies reported by 95 firms, representing an increase from less than three to around five job vacancies per survey respondent. Whilst ACENZ estimated personnel numbers rose by about 15% over this period, clearly many engineering firms would like to expand further if they had more staff.
Assessment
This section considers all the information presented in this report on employers’ recruiting experiences, supply and demand trends, and matching issues, and offers a view on whether there is a shortage of mechanical engineers and the type of shortage. A short-term outlook for the shortage situation is also offered.
Demand for mechanical engineers has grown rapidly over the past few years due to strong growth in the machinery and equipment manufacturing industry. This sector has grown due to high levels of investment in new equipment and machinery arising from a buoyant economy, high capacity utilisation of machinery and a shortage of labour. A booming construction sector has also contributed to growth in demand for mechanical engineers. In contrast to the rapid growth in demand, the supply of mechanical engineers has grown slowly. In 2005, supply grew by only 1.9% through training, which is barely enough to compensate for retirements which occur at around 1.5% per annum. As demand growth has exceeded supply growth, an acute shortage of mechanical engineers has developed. This is reflected in the extremely low fill rate of 20%. This disparity that has developed as demand has outgrown supply indicates that the shortage of mechanical engineers is a genuine skill shortage.
Demand growth is expected to continue in the short-term but at a slower rate than in recent years due to a slowdown in economic growth and a decrease in plant and machinery investment. However, degree completions are not expected to rise dramatically in the short-term, so supply growth through training and migration is unlikely to be sufficient to eliminate the current shortfall of mechanical engineers. The Department therefore foresees shortages in the number of mechanical engineers, at best, easing only slightly in the short-term.
For queries regarding this report please contact simon.hall@dol.govt.nz or info@dol.govt.nz.
Disclaimer: The Department of Labour has made every effort to ensure that the information contained in this report is reliable, but makes no guarantee of its accuracy or completeness and does not accept any liability for any errors. The information and opinions contained in this report are not intended to be used as a basis for commercial decisions and the Department accepts no liability for any decisions made in reliance on them. The Department may change, add to, delete from, or otherwise amend the contents of this report at any time without notice. The material contained in this report is subject to Crown copyright protection unless otherwise indicated. The Crown copyright protected material may be reproduced free of charge in any format or media without requiring specific permission. This is subject to the material being reproduced accurately and not being used in a derogatory manner or in a misleading context. Where the material is being published or issued to others, the source and copyright status should be acknowledged. The permission to reproduce Crown copyright protected material does not extend to any material in this report that is identified as being the copyright of a third party. Authorisation to reproduce such material should be obtained from the copyright holders.
Endnotes
1 Gross fixed capital formation is a measure of the net new investment by enterprises in the domestic economy in fixed capital assets. Source: Gross Fixed Capital Formation Data, Statistics New Zealand, 2005.
2 Overseas trade data on imports of air conditioning machines (excluding those used in motor vehicles) were sourced from the Statistics New Zealand INFOS system. The data were adjusted to take account of changes in inflation and exchange rates, by standardising to 1995/1996 prices.
3 Quarterly Survey of Business Opinion, New Zealand Institute of Economic Research, June 2006.
4 Analysis of the Job Vacancy Monitor suggests that it is an indicator of change in labour market tightness, or change in the degree of difficulty of recruiting staff. An increase in vacancies typically indicates increasing difficulty in recruiting staff and vice versa. While changes in demand usually dictate changes in labour market tightness, it can also be affected by changes in supply conditions, such as a rise in net migration.
5 The training rates for ‘all professionals’ were calculated by expressing the total number of bachelor degrees achieved in New Zealand, as a proportion of total employment in all professional occupations.
6 ‘Occupational detachment’ refers to individuals who choose not to continue practising in their occupation but retain a connection to the occupation (e.g. move into a management or supervisory role, or retain professional registration), or who leave the occupation entirely (e.g. by changing occupation or withdrawing from the labour market).
7 The data shown from the LCI are unadjusted mean hourly rates. Caution should be taken with interpreting this information due to the relatively small sample sizes, particularly at the occupational level. Futhermore, the LCI is designed to measure changes in, rather than the actual level of, wage and salary rates.
8 ACENZ 2004/2005 Annual Report.