Report Findings: Part 1 Labour force participation among 50-64 Year-Olds

The increase in the older workforce has been caused not only by growth in the volume of people aged 50-64, but by increases in their rate of labour market participation. ^[4] The labour force participation rate among those aged 50-64 in New Zealand rose to 77% by September 2005, compared with 57% in the same quarter in 1991, an increase of 20 percentage points. The proportion of New Zealand's older labour force in work now ranks among the highest in the OECD (see Figure 1).

Figure 1: Percentage of the population employed 2004^[5]

While New Zealand's participation rate for 25-49 year-olds is close to the OECD average (shown in the diamonds in the graph above), the participation rate of 50-64 year-olds is noticeably higher than most. Only Iceland, Sweden and Norway have higher participation rates in this age group. It is interesting to observe those countries with a similar per capita income (such as Spain and Greece) have much lower levels of labour market activity among their older workforce. Figure 1 also shows that the economy most strongly linked with ours, Australia, has a participation rate among 50-64 year-olds about 10 percentage points lower. This gap may widen further over time given the trend in Australia towards workers retiring earlier (noted in Alpass and Mortimer 2006).

The growth in participation rates among older men and women in New Zealand since the early 1990s has also exceeded most OECD countries. Indeed, many OECD countries have seen a decline in the proportion of older aged workers in the workforce since 1990, including some Scandinavian countries already mentioned who currently lead older labour force participation (OECD 2005). The magnitude and continuing increase in older labour force participation in New Zealand is therefore uncommon among developed countries.

Figure 2 presents the participation rate changes for broad age groups over the period investigated. The dotted lines show the most current participation rates. Overall, this graph demonstrates the increase in the participation rate that has occurred among older age groups, in contrast to a decline in some younger age groups. Combined with an increase in absolute size of the older age groups, this participation change has contributed strongly to the increasing utilisation of older workers in the New Zealand workforce.

Increased rates of participation have occurred for females in all age groups over 40, and for males among all age groups over 55. The strong increase in participation rate among the 55-59 and 60-64 years age groups is in contrast to the slight decline that occurred among most younger age groups. This reflects an increasing involvement in tertiary education, which has lowered the participation rate for males and females under 25. This also accentuates the effect of a smaller volume of persons in younger age groups relative to higher volumes in the older age groups.

An example of the shift that has occurred since 1991 is that a greater proportion of 55-59 year-olds are now working than 20-24 year-olds of both genders. This is due to a rise in participation in the older age group and a fall in the rate for the younger age group, as discussed above.

Figure 2: Labour force participation 1991-2005, by age and gender

Figure 3 shows the trend in the New Zealand participation rate for 50-64 year-olds from March 1991 to September 2005. Over this period, both male and female older workers have had above-average growth in their labour force participation rate. Older female participation rates have risen dramatically from about 45% in 1991 to about 70% by 2005. For older males, the participation rate rise has been less pronounced, from about 70% to 84% by 2005. It should be noted that for older males this is still below where it was in the early 1970s, as noted in the OECD synthesis report (2006). The rate for 50-64 year old males moved ahead of the overall rate for all age groups in about 1995, while females in this age group began to exceed the average about five years later. As at September 2005, 50-64 year old male and female participation rates exceeded the national all male and female participation rates by 9.0 and 8.4 percentage points respectively - in stark contrast to the picture in the early 1990s.

Figure 3: Labour force participation rate changes by age and gender 1991-2005

Figure 4 shows that this growth in the labour force participation rate for older people has not been uniform across each 5-year age band. For example, the participation rate for males aged 50-54 has remained fairly constant over this entire period at a high level of around 90%. In contrast, a dramatic increase in participation rates for 60-64 year olds of both genders has occurred. From 1991 to 2005, males in this age group increased their participation rate from 35% to over 70%, and for females the rate rose substantially as well (although from a lower base) from about 18% to over 50%.

It is not coincidental that the first decade of this increase coincides with the phased raising of the age of eligibility for New Zealand Superannuation (from 60 to 65). This has created a greater economic necessity for many people to participate in order to maintain living standards. However since the phase-in was completed by 2001 the proportion of those aged 60-64 participating in the labour force continued to grow rapidly. For females, for example, the average participation rate in 2001 was 41.7% and this had increased to 50.1% four years later. For males over this four year period the increase rose from 63.9% to 71.1%. This suggests that factors other than changes to superannuation may be stimulating greater participation in this age group.

The growth in the 50-54 year old and 55-59 year old female participation rates has considerably exceeded that of males, and as a result the rates between the two genders have slowly begun to converge. The reasons for the stronger ongoing growth in female participation rates reflect a wide variety of factors (such as better qualifications, more work opportunities and the growth in female sole households).^[6] The participation rate "gap" between males and females has closed substantially for these two age groups, whereas the gap has remained at about the same level for 60-64 year olds over this period.

Figure 4: Older people's Labour force participation rate changes by age and gender

So, for the 50-64 year age group overall;

• females have substantially increased their participation rate in all three age bands
• the strongest increase in participation over this period has occurred in the 60-64 years age group
• males aged 50-54 have not increased their participation rate since the early 1990s although they continue to have the highest participation rate.

Figure 5 looks at ethnicity, and shows increases in participation by broad ethnic group (note that "Other" comprises mainly Asian and Pacific peoples). Steady growth occurred among older Europeans throughout this period, whereas participation rates for both Maori and Other ethnic groups only began to pick up in the 1998/1999 period.

Figure 5: Older people's Labour force participation rate changes by ethnicity 1991-2005

The participation rate gap between older Maori and European, which widened in the 1990s has begun to close, however there is a continuing large gap between the older Other and older European ethnic groups. Numerically the pool of labour in the Other ethnic group aged 50-64 has grown more quickly than either European or Maori (from around 23,000 people in 1991 to 63,000 people in 2005), but this group remains significantly less engaged in the labour market.

To help further explain the ethnic variation in participation rates, Figure 6 looks at changes by both ethnicity and gender. There are very strong differences across these different groupings. Male Europeans have the highest participation rate, but the male Maori rate has begun to rise sharply and is not far behind. Substantial increases have occurred for all groups except the female Other ethnic group.

Figure 6: Older people's Labour force participation rate changes by ethnicity and gender

The strong growth in the female participation rate occurred for both Europeans and Maori, with the latter's rate rising from 39% to 62% in this period. Participation rates for older European, Maori and Other females were similar in 1991 but soon began to diverge and a significant gap now appears between their respective participation rates. It appears that Other females are a particularly slow growing and underutilised segment of the formal labour market with their labour force participation rate barely reaching 50% by 2005. Cultural differences could partly explain this, as suggested by a large gap between the participation rates between male and female in this group. An additional factor may be the large compositional change that has occurred in this group due to an influx of migrants from new source countries over the 1990s (including an increased inflow from non-English speaking countries). The potential for greater participation in this group needs to be explored further, which will also require understanding why participation is low and addressing any barriers.