Skills Challenges Report – New Zealand’s skill challenges over the next 10 years
The purpose of this report is to provide an analysis of the key challenges facing the New Zealand labour market over the medium to longer term (to 2019). This report analyses New Zealand's current and projected skill demand and supply trends, in order to provide an evidence base for ongoing work across agencies.
This report provides a baseline measure of the level of skills available in the New Zealand labour market, and provides our best estimates of the projected changes over the medium to longer term. These have been produced by looking at the labour market as whole and identifying key trends.
The report presents the results of forecasts of labour supply and demand over the next 10 years that are based on our understanding of the past and assumptions around the major drivers of change. As the United Kingdom Commission for Employment and Sills (UKCES) has noted, the rationale behind such forecasts is that a comprehensive, systematic, consistent and transparent set of projections provides useful benchmark information and insights for all the participants in the labour market. However, the UKCES cautioned that it is important to appreciate that the purpose of employment projections is not to make precise and detailed forecasts of employment levels. The aim is to provide policy analysts and other labour market participants with useful information about the general nature of changing employment patterns and their implications for skill requirements.
The report uses the above conceptual framework of skills and productivity as the basis for our analysis.
Government's level of influence on different parts of the skills system varies:
- Supply of skills - the Government has the most influence over the supply of skills, through publically funded education and the settings of the immigration, welfare and tax systems
- Demand for skills - the Government can influence the demand for skills through its procurement processes (for example contractors' skills required for broadband), as an employer, or as a labour market regulator (for example occupational regulation or the Minimum Wage Act 1983
- Matching of skills - Government interventions here tend to be targeted active labour market programmes such as industry partnerships, online job matching service for employers and job seekers, Career Services, and sectoral initiatives such as the Recognised Seasonal Employer scheme
- Skills utilisation - skills utilisation occurs in workplaces and so is more difficult for the Government to influence. Nevertheless, Government action to date has focussed on providing best practice information on building and retaining skills in firms to improve productivity. Business assistance on management and entrepreneurial skills is also available through the Ministry of Economic Development and New Zealand Trade and Enterprise.
The challenge of meeting skill needs is not merely about initially matching a person to a job. An effective match entails optimum use of a person's skills in a job - and their ongoing development and updating. From an economic growth perspective, it is particularly important to attend to the question of skill utilisation. A firm's productivity - and the productivity growth that our economy requires to increase our standard of living - critically depends upon firms' success in mobilising both skill and capital efficiently to this end.
This report examines the current supply of skills in the labour market, focussing on the flows into it from migration and the education system, and recent trends in labour force participation. We then examine the evidence on skills utilisation by looking at how well the labour market matches skills to their most effective use, and how well workplaces make use of the skills they have. Here, we draw on wage and productivity data as key indicators of skill utilisation.
A high performing labour market is one that efficiently matches employer demand for skills with supply of skills in the workplace. A high performing labour market facilitates the easy movement of people and skills to their most productive use, minimising frictional unemployment. This places a very high value on free flowing, good quality information about what skills need to be developed for the future, and how peoples' skills can contribute to boosting firm productivity.
The New Zealand labour market faces the risk that it will get trapped in a low-wage, low-skill equilibrium, where low wages and poor productivity growth become self-reinforcing. This risk is amplified when opportunities for economic growth are in parts of the service sector, such as retail trade and tourism, which have tended to show poor productivity growth.
We then examine recent trends in the demand for skills, focussing on employment changes by industry, occupation and qualification groups. The report concludes with an examination of projected employment demand and supply for the 10 years to 2019.
Measuring and forecasting skill requirements
The skills required to do a job are wide ranging and operate at many levels. They include basic literacy and numeracy skills, an understanding of how to get and keep a job, knowledge of how to undertake tasks within a workplace, and so-called soft-skills (like the ability to get along with others). For some jobs, more advanced skill levels are needed, which may be specific to an occupation, firm or industry.
In this report, we refer to skills in their broad sense, including the full range of knowledge and attributes required in different jobs as well as the ability to do specific job-related tasks.
Qualification and occupation data provides our core indicator of the skills that workers bring and how they are applied in the workplace. Because skills are multidimensional, each of these indicators gives us only a part of the story:
- Qualifications give us a measure of the knowledge and skills that workers have acquired and which they might apply in a range of settings. They also provide a signal of a person's cognitive ability and their ability to work towards a goal. However, they are silent on many attributes (such as teamwork) that are also important to employers. Qualifications are often the best measure of the skills available within the labour force because we can measure the qualifications held by the entire working age population. Throughout this report we refer to all non-degree tertiary qualifications as vocational qualifications as convenient shorthand. However, we recognise that some degree courses are also vocational in nature.
- Occupations show the tasks that people are doing and the level they are working at. When we examine qualifications and occupations within industries we get a reasonable picture of skills across the labour market.
Qualification and occupation data can also be combined, showing what people bring to a job and what they do in the job, which provides an integrated picture of supply and demand. For example, in looking at the Knowledge Economy, the Department of Labour defined knowledge-intensive sectors as those industries that meet the following two criteria: at least 25 percent of the workforce must be qualified to degree level or higher, and at least 30 percent of the workforce must be employed in the professional, managerial and scientific and technical occupations.
Our ability to provide useful, evidence-driven advice about future skills issues is dependent on the quality of the evidence. We have reasonably good information about qualifications and occupations. We use this data as a basis for projecting labour market outcomes into the future, but we know that qualification and occupation data are only part of the skills picture. New Zealand is not alone in struggling to measure and forecast skills in detail. Most countries have limits in this space and many, like the United Kingdom (UK), have invested considerable resources into trying to better understand their skills landscape, but still have not been able to provide detailed forecasts.
New Zealand faces particular challenges in this regard, due to the very large impact that migration has on our skills landscape. Even for occupations with very clear training pathways, such as medical professionals, it is very difficult to forecast how many medical graduates will be retained in (or attracted to) the New Zealand labour market. Productivity and wage growth in New Zealand has a large impact on migration, but so do the labour market and economic conditions prevailing in the countries people leave New Zealand for, and those that New Zealand attracts people from.
 UKCES: Working Futures 2007-2017 Executive Summary (www.ukces.org.uk)
 The report uses data on highest educational qualification. For tertiary education completions, we use data on first-time completions, so that people who complete more than one qualification are only counted once, and in the year they first completed their highest qualification.
 Including those at NQF levels 1-3, which are equivalent to school-level qualifications. This is largely determined by the data we have used, which does not indicate if a person achieving al qualification post-school already has a higher-level school qualification.
 All occupational data in this report is grouped using the New Zealand Standard Classification of Occupations (NZSCO) 1996, to ensure comparability with historical data.
 Department of Labour (2009)