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Forces for Change in the Future Labour Market of New Zealand

Continuing globalisation

New Zealand’s connectedness to the international market place, particularly in trade and people, means we are exposed to both the benefits and costs of globalisation. Globalisation affects the New Zealand labour market via the demand for jobs and via the supply of skilled workers through migration, with both positive and negative employment impacts depending on sectors and regions. It also places prime importance on labour productivity.

Increase in global labour supply

The International Monetary Fund (IMF) [1] has estimated that the effective global labour supply increased almost four-fold from 1980 to 2005, with most of the growth occurring since 1990. East Asia has contributed half of this increase because of a large rise in the working age population and greater trade openness. [2]

The increased mobility of highly skilled migrants, particularly in the context of international skill shortages, is likely to become a more important factor influencing migration policies in the future.  We can expect a growing proportion of our workforce to be internationally mobile – both short-term overseas visitors or temporarily domiciled New Zealanders.

Impact on New Zealand jobs

The industrialised economies, including New Zealand, can counter their slowing domestic labour force growth by tapping into this increased pool of global labour both through immigration and offshoring.

A key concern is whether more intense global competition will cause net job losses in the advanced economies, especially with the emergence of offshoring. However, over the last ten years globalisation has not had a negative net impact on New Zealand jobs and New Zealand has enjoyed one of the lowest unemployment rates worldwide, with this pattern likely to continue.

More offshoring

The relocation of business processes from one country to another has been viewed as having negative impacts on New Zealand jobs, yet the employment effects of offshoring are complex. Offshoring can raise productivity, lower prices and lift profits of the firms concerned and allows their sales to expand. The new jobs resulting from this improved competitiveness and higher sales and output can offset the prior job losses. Adjustments may result for some since the new jobs may not be in the same firm, sector or region as the old. The skill requirements for these new jobs may not be identical to the old and could call for higher qualifications than those required in the jobs lost. It is possible that offshoring disproportionately affects lower skilled workers in a negative manner. In recent history a number of New Zealand manufacturing jobs were offshored, while at the same time New Zealand benefited from offshoring from larger economies (for instance in the area of call centres).

Advances in information and communication technology and the falling costs of such technologies in the years up until 2020 are likely to make offshoring even more of a global phenomenon.

Yet in future years, job turnover in New Zealand is likely to continue to be driven more by technological change and domestic circumstances than by international competition. For example, the IMF [3] considers that the globalisation of labour forces contributes to rising wages in industrialised economies through higher productivity and output. The IMF [4] also noted, however, that globalisation is one of several factors acting to reduce the share of national income accruing to labour. Rapid technological change was thought to have a bigger impact, especially in the lower skilled sectors.

Growing international labour flows

Migration of people is the other side of the globalisation process. International migration of workers (both higher and lower skilled) is on the rise, driven by technological change and skill shortages in OECD countries. New Zealand is a land of migrants – one in four workers in New Zealand was born overseas, and in Auckland this figure is more than one in three workers. While New Zealand is currently able to easily attract and select the skilled migrants it needs, demographic changes in developed and developing economies will intensify the international competition for skilled migrants.

It is estimated that in 2006 there were over a half-million New Zealanders living overseas, representing 14 percent of the New Zealand-born population. [5] New Zealanders living overseas form one of the more highly skilled expatriate groups in the OECD, with around 45 percent holding a tertiary qualification. Even if many New Zealanders do not wish to return home, absentee Kiwis provide a potential source of connectedness to international markets. There is also a growing trend in temporary flows: people shifting offshore for a few months or a few years. Immigration is not always the permanent move it once was thought to be.

New Zealanders who do return home tend to be attracted back for family reasons such as older parents and bringing up children as well as lifestyle factors, safety and security and recreational and social opportunities. [6] Conversely, the primary reasons cited for New Zealanders remaining overseas are economic and work-related factors including salary, career and business opportunities.

The trans-Tasman labour market is likely to become an even more important influence on our ability to increase the quality and supply of skilled people. In the last ten years, nearly half of all New Zealanders departing the shores on a long-term basis have gone to Australia, an average net migration outflow to Australia of 20,000 people a year since 1998. Further work is needed to better understand how the New Zealand labour market in 2020 will be affected by the growing connectedness of the two labour markets and on how much we are becoming a component of a broader trans-Tasman labour market.

Pressures to raise labour productivity

Labour productivity is becoming a more important nexus for globalisation and demographic forces of change and is a key determinant of future living standards. While much of New Zealand’s recent economic success has depended on a growing labour force, constraints in labour supply mean future economic growth will depend on improved labour productivity. At the same time, because of international competition, labour productivity will also be an increasing determinant of export success.

Figure 5: GDP per hour worked as percentage of United States

Figure 5: GDP per hour worked as percentage of United States

Data Table for Figure 5

Source: OECD Compendium of Productivity Indicators.

However, New Zealand has experienced a consistent gap in labour productivity since the 1970s when compared internationally. [7] Taking the United States as the global industrial and technological leader, New Zealand has lagged far behind the United States and other OECD countries, such as Australia, Switzerland and Ireland, as shown in Figure 5. [8] While Ireland has experienced rapid catch-up from the late 1980s, and Australia has performed fairly steadily in comparison to the United States, New Zealand’s GDP per hour worked has declined from an already low base, falling by 13.1 percentage points to 56.1 per cent of that of the United States by 2006. Although most of this decline in labour productivity was in the 1970s, New Zealand is now in the unenviable situation of having a large labour productivity gap with the United States and most of its OECD trading partners. For example, in 2006 an hour worked in New Zealand produced 27 percentage points less output than an hour worked in Australia.

Ironically, New Zealand’s success in employment may actually be lowering labour productivity indices. Mare and Hyslop (2008) found that less skilled people taking up lower paid jobs might be depressing growth in average labour productivity in New Zealand.

To illustrate how significant productivity growth is for our future, Figure 6 shows that much of the recent strong growth in GDP has been due to the addition of more people into employment (labour utilisation) rather than labour productivity.

Figure 6: Current and future composition of GDP growth

Figure  6: Current and future composition of GDP growth

Long Description for Figure 6

Source: Department of Labour.

Increased employment growth has had many economic and social advantages, but labour force growth cannot be relied upon to sustain long-run growth. Future economic growth will increasingly need to be derived from increases in labour productivity.

Towards improved labour productivity

There is still considerable uncertainty about the key drivers of labour productivity. Many of the factors are interrelated and may act in synergy. For example, increases in labour productivity can reflect the fact that each worker is equipped with more capital (a higher capital-labour ratio). Increases could also reflect gains in multifactor productivity – for example, innovation, managerial skill, business  organisation, research and development, as well as changes in the characteristics and efforts of the labour force and even good luck and good weather. At the level of the individual firm or industry, key influences include technological advances and improvements to the quality of labour, or to management practices and work arrangements. The increased availability of microeconomic analysis of productivity using firm-level data is increasing our understanding of the dynamics of productivity growth. 

[1] IMF, World Economic Outlook April 2007, Washington, D.C: IMF, April 2007, p. 162.

[2] Ibid.

[3] Ibid p. 161.

[4] Ibid.

[5] See Population and Sustainable Development,, Myth: There are at least 1,000,000 New Zealanders living overseas, Statistics New Zealand, retrieved from http://www.population.govt.nz/myth-busters/MythDiaspora.htm

[6] Much of the available information on the circumstances and motivations of New Zealand expatriates is anecdotal. However, information is available from the Massey University’s ‘New Zealand Talent Flow Programme Massey University (Kerr Inkson, Stuart Carr, Margot Edwards, Jill Hooks, Duncan Jackson, Kay Thorn and Nicola Allfreem), May 2004 survey of 2,201 highly-skilled New Zealanders overseas.

[7] See New Zealand Treasury productivity papers http://www.treasury.govt.nz/publications/research-policy/tprp.

[8] See OECD (2003, 2004, 2008) for discussions of the OECD member countries as a whole.