Skills Challenges Report – New Zealand’s skill challenges over the next 10 years
Recent supply of skills
Stocks and flows of skills
The supply of skills in New Zealand's labour market comprises the stock of current skills and the flows in and out of the labour force. At the aggregate level, the 3.4 million people in the working-aged population (aged 15 years and above) represent the current stock of people who make up the potential skills supply. Into this stock there are four fairly similarly sized flows:
- young people leaving school - around 63,000 people reached school leaving age in 2009
- older workers retiring - around 36,000 people reached the age of entitlement to New Zealand Superannuation in 2009
- migrant arrivals - over the past decade, on average, 85,000[6] people arrived in New Zealand each year on a permanent or long-term basis, of whom 68,000 were aged 15-64 years, and
- people leaving - on average over the past decade, 69,000 people (56,000 of whom were aged 15-64 years) left New Zealand on a permanent or long-term basis each year.
The similarity of the size of these flows emphasises the need for an integrated view of skills in the labour market, rather than just focussing on the supply from the domestic education system.
Figure 1: Stocks and flows in the labour market: December 2009
Surge in labour force participation
More people are now participating in New Zealand's labour market. Between 1989 and 2009, the labour force participation rate increased from 64% to 68%. This increase was driven by two important factors:
- The increase in participation by women was due to women delaying having children, becoming working mothers at higher rates than in the past, and an increase in older women participating in the workforce for longer. For these reasons, over the period the female participation rate rose from 53% to 62%.
- The very large increase in participation by older workers, which began with the raising of the age of entitlement for New Zealand Superannuation in the 1990s. This has continued since, and participation within older age groups is forecast to keep increasing well into the future, with participation for 65 year-olds projected to increase from 46% to 54% between 2009 and 2019.
The main outcome from this increased participation was that employers had more people with more skills to recruit from, and the increased size of the workforce meant that more goods and services could be produced in New Zealand.
Inflows from the tertiary education system
A significant proportion of the 63,000 young people entering the working age population, as well as many immigrants, will go on to complete a tertiary qualification.
In general, our education profile is generally becoming more qualified, and skilled migration has made a large contribution to this. New Zealand's participation in tertiary education has risen significantly in recent years. The introduction of NCEA has seen a greater proportion of young people gain school qualifications, however, 14% of students leave school without attaining NCEA level 1[7]. There are significant challenges for the New Zealand workforce if the long tail of educational underachievement persists into the future.
Although results for Māori and Pasifika students have improved over recent years, a high proportion of these young people leave school with low qualifications. Asian students had the highest proportion of school leavers attaining at least NCEA Level 2 in 2008 (86%), followed by European/Pākehā (75%). There is a substantial gap between the proportion of Pasifika (63%) and Māori (50%) school leavers attaining at least NCEA Level 2. Māori and Pasifika students are also disproportionately more likely to be NEET (not in education, employment or training) between 15 and 19. There are also significant disparities in achievement and participation at school based on gender, socio-economic status and disability.
In 2009, 75%[8] of NCEA candidates met literacy and numeracy requirements for NCEA L1 by the end of Year 11. This percentage varies for students at different decile schools and of different ethnicities, from 61.5% for decile 1 schools to 89.9% for decile 10 schools; 65.8% for Māori students, 66.8% for Pasifika students, 75.8% for Asian and 81.2% for European/Pākehā. Students may go on to achieve these credits after Year 11, but some of these groups with lower average levels of literacy and numeracy attainment are also disproportionately more likely to leave education at 16.
On average, between 2000 and 2009, each year 53,600 people completed a tertiary qualification for the first time. This excludes people who are completing second or post-graduate qualifications and allows us to directly link the completions with the stock of tertiary qualified people.
| Level | 2000 | 2009 | % change |
|---|---|---|---|
| L1-6 Vocational | 23,850 | 45,122 | 89% |
| Degree | 14,663 | 19,857 | 35% |
| Total | 38,513 | 64,979 | 69% |
Source: Ministry of Education, special data run
The annual number of first-time graduates with vocational qualifications almost than doubled between 2000 and 2009, from 23,850 to 45,122. By far the strongest growth was in NQF level 4 and above vocational qualifications. With a stock of 980,000[10] vocationally qualified people in the prime employment age group (15-64 years), this graduation rate equates to the vocational workforce replacing itself every 22 years. Because the median age of people completing a vocational qualification for the first time in 2009 was 25-29 years we would normally expect this rise in the number of vocational completions to result in a strong increase in the stock of the vocationally trained workforce.
However, the strong outflows of people with vocational qualifications through emigration have cancelled out much of the effect of the increase in new vocational qualifications. As a result, the share of people in the labour force with vocational qualifications has remained virtually unchanged over the past 10 years.
In contrast, migration has boosted the share of degree holders in the labour market. This comes on top of a strong surge of young people entering the labour force who are considerably more likely to hold a degree than those retiring. The number of new university degree holders each year increased between 2000 and 2009 by 35% (from 14,663 to 19,857). However, with the strong net inflow of degree qualified migrants (estimated at around 13,000 per year) this completion rate would replace the stock of degree qualified people in less than two decades. As a result we expect the share of the workforce with a degree to continue to grow strongly into the future.
The result of this has been that the number of degree-holders in the population more than doubled between 1999 and 2009.
The net impact of migration on skills supply
Migration has a significant effect on the composition of the New Zealand labour market. While New Zealand is currently able to attract and select sufficient levels of skilled migrants, demographic changes in developed and developing economies will intensify the international competition for skilled migrants.
Temporary workers are an important source of labour, offering skills and experience that New Zealand employers need, and filling temporary labour shortages even in an economic downturn. Specific policies allow employers to recruit temporary migrants to meet particular or seasonal skill needs that cannot be met from within New Zealand (while also ensuring this recruitment does not undermine the employment, wages and conditions of New Zealand workers). Importantly, about one-third of work-visa holders will eventually become permanent residents, and specific work and residence policies facilitate this transition.
Similarly, international students, who have graduated here, are a source of skilled workers with New Zealand qualifications. For many students, the prospect of working and gaining residence in the host country plays a role in their decision to study abroad. Like many countries, New Zealand has developed immigration policies to attract and retain high-level international students. In 2009, 6,930 former students were issued a graduate job search work permit. India overtook China as the largest source country.
Most authors estimate that over a half-million New Zealanders live overseas. New Zealanders living overseas form one of the more highly skilled expatriate groups in the OECD, with around 45% holding a tertiary qualification[11]. Many will return home, attracted back for family and lifestyle factors, safety and security, recreational and social opportunities. Conversely, the primary reasons cited for New Zealanders remaining overseas are economic and work related factors including salary, career and business opportunities.
The migration flows are similar in size to the natural in-flows of young people entering the labour force, and larger than the number of older people currently moving into retirement. Because of these large flows, differences in the skills composition of immigrants and emigrants, and young people and older people have a large impact of the skills composition of the workforce.
- Young people are far more likely to hold degree and school qualifications than the people who are retiring
- Immigrants are far more likely to hold a degree (due to our skilled migrant policies) than people who emigrate.
Figure 2: Annual permanent and long term migration 1990-2010
Figure 2 above shows permanent and long term migration over the last 20 years. New Zealand's net migration has averaged 15,900 over the past 10 years, although there is a great deal of variation from year to year. Generally inflows and outflows have continued to grow strongly. It is the high level of these flows, in and out of the country, that has a substantial impact on the composition of skills within New Zealand's labour force.
Most of New Zealand's emigration involves the borderless Trans-Tasman labour market, and the qualifications profile of New Zealand emigrants is not highly skilled. Instead, it is fairly similar to that of the domestic population. However, immigration to New Zealand is regulated with the largest proportion of new residents coming in under the Skilled Migrant Category. New Zealand's inward flow of migrants looks more like a 'brain gain'.
Migrants are much more likely to hold a degree than the New Zealand-born (Table 2 below). This is particularly true for recent migrants (less than 5 years). Migrants are also much less likely to have no school qualifications, and slightly less likely to hold vocational qualifications.
| New Zealand-born | All Migrants | Recent* migrants | |
|---|---|---|---|
| Bachelor Degree or Higher | 14% | 25% | 29% |
| Post-school (Vocational) | 24% | 21% | 20% |
| School Qualification | 34% | 36% | 38% |
| No Qualification | 23% | 12% | 7% |
| Not Elsewhere Included | 5% | 5% | 6% |
Source: Statistics NZ, 2006 Census of population and dwellings
* those who had been in New Zealand less than 5 years
The overall effect of migrants to New Zealand having a different skills profile to those who leave is difficult to measure directly because of the lack of detailed data on emigrants. As a result, different forecasting models can produce widely varying estimates of net outflows. While it is likely that there is some net outflow of people with vocational qualifications (given the fairly low number of immigrants with vocational qualifications) the Department of Labour and The Treasury have derived very different estimates of the size of this outflow. More work is needed to resolve these different estimates. There is much more agreement on the size of the net inflow of degree-holders. Table 2 above shows that immigrants are much more likely to hold a degree than the New Zealand-born population. The Department of Labour estimated that, between 2000 and 2009, New Zealand gained an average of 13,000 degree holders each year through immigration.
Skills of New Zealand's existing workforce
Just as we cannot directly measure the demand for skills, nor can we directly measure supply. Qualifications are a proxy for skills. In aggregate, qualifications provide a systematic view of the training and education of New Zealand's workforce and, at the individual level, they are a common measure used by employers who are recruiting staff.
This section begins by looking at the highest qualifications held by people aged between 15 and 64 years. Figure 3 shows changes in the number of people by qualification level. New Zealand has a high share of degree qualified people compared with other OECD countries, and a relatively high proportion of them are overseas trained migrants.
Figure 3: Highest qualification 1986-2009, (25 to 64 year-olds)
Between 1986 and 2009, the number of people with no qualifications, fell by 30%. The number of people with school qualifications as their highest qualification increased by 36% and by 38% for those with vocational qualifications. However, the number with a degree increased from 100,000 people to 538,000, a 437% increase. This is particularly meaningful given that the size of New Zealand's working aged population (15+ years) increased over the period. The rate of growth in people holding degrees or higher qualifications shows the new social trend in New Zealand for relatively well educated people to continue on to get a degree (where prior to the 1990s getting a degree was less common). Vocational qualifications also increased over the period, but only slightly faster than the growth in population, which resulted in the share of people with vocational qualifications rising from 31% in 1986 to 34% in 2009.
This overall pattern of upskilling - a fall in the share of working-age individuals with no qualifications and a rise in the number with a degree - is observed across different population groups[12]. Table 3 below contains the proportion of individuals by highest qualification[13]. The first panel reports statistics for 1986, the second panel is for 2009, and the last panel calculates the percentage change in the proportion of individuals by highest qualification type between 1986 and 2009.
| None | School | Vocational | Degree | |
|---|---|---|---|---|
| Qualification shares: 1986 (%) | ||||
| Male | 35 | 15 | 42 | 7 |
| Female | 46 | 21 | 30 | 4 |
| European1 | 35 | 19 | 39 | 7 |
| Māori | 66 | 12 | 21 | 1 |
| Not in the labour force | 53 | 19 | 25 | 3 |
| Employed | 36 | 17 | 40 | 7 |
| Unemployed | 56 | 16 | 24 | 3 |
| Total | 41 | 18 | 36 | 6 |
| Qualification shares: 2009 (%) | ||||
| Male | 20 | 17 | 41 | 22 |
| Female | 21 | 21 | 36 | 23 |
| European | 17 | 19 | 41 | 23 |
| Māori | 33 | 16 | 40 | 10 |
| Not in the labour force | 34 | 19 | 31 | 15 |
| Employed | 17 | 19 | 40 | 24 |
| Unemployed | 28 | 17 | 38 | 17 |
| Total | 20 | 19 | 38 | 22 |
| % change in qualification shares *2009/1986 | ||||
| Male | -44 | 14 | -2 | 194 |
| Female | -55 | 0 | 19 | 514 |
| European | -51 | 3 | 5 | 228 |
| Māori | -50 | 33 | 94 | 1005 |
| Not in the labour force | -35 | -1 | 24 | 485 |
| Employed | -54 | 10 | 0 | 268 |
| Unemployed | -51 | 3 | 59 | 458 |
| Total | -50 | 6 | 7 | 304 |
1 to protect confidentiality, figures for ethnic groups from 1987 were used in this table. Figures for Pacific peoples are not available on a consistent basis over this period and figures for the Asian ethnic group have only been available from the HLFS since 2009.
Source: Statistics New Zealand, Household Labour Force Survey
In 1986 a greater proportion of females than males had no qualifications and a lower share held a degree, but by 2009 the share without qualifications was similar to males, and a higher share were degree qualified.
The percentage of people with no qualifications roughly halved among European and Māori. Māori experienced a doubling of people with higher school and vocational qualifications. For Europeans, the share of individuals with a degree qualification roughly tripled, but for Māori the share of people with degrees increased from less than 1% in 1986 to over 10% in 2009 - a ten-fold increase. The large increase in Māori degree holders is due to very few Māori having degree qualifications in 1986.
Figures from the 2006 Census showed that the Asian workforce was almost two times more likely to have a bachelor's degree or higher than the national average (29% versus 16%). While this partly reflects the younger age profile of the Asian population, there was still a substantial difference when age-specific differences were examined. For example, 33% of Asians aged 25-34 years held a bachelor's degree compared with 20% of the population in this age group.
Of those in employment, the biggest change was a four-fold increase in the share of degrees from 7% in 1986 to 24% in 2009. Among those unemployed, however, there was also a strong increase in the proportion that had a degree over this period, from 3% to 17%. This is likely to reflect the effects of the recession, which impacted heavily on younger groups, who are much more likely to hold a degree than young people in 1986.
Footnotes
[6] Source: Statistics NZ, International Travel and Migration, permanent and long-term migration for the 10 years to November 2010
[7] Defined as 80 credits or more at NCEA levels 1,2 or 3. All figures on school leaver achievement are for 2008 and are sourced from the Ministry of Education and are available at http://www.educationcounts.govt.nz/
[8] Ministry of Education, 2010, New Zealand Schools: Ngā Kura o Aotearoa (2009)
[9] First-time completions estimates the number of people who have completed a qualification for the first time and excludes qualifications where people are completing an additional qualification (such as a post-graduate degree or additional certificate or diploma). This can be done reliably for qualifications gained after 1994. Before 1994, we only have information on people who were enrolled in tertiary education, but not if they completed a qualification. This particularly affects the growth in vocational qualifications, around 36% of which are completed by people aged 40 years and over. In Table 1 all people who were enrolled in tertiary education before 1994 have been excluded. This means that the figures presented are likely to be an undercount of the total number of first-time vocational qualifications.
[10] Source: Statistics NZ, Household Labour Force Survey, average for the 2009 year.
[11] Cited in J-G Dumont and G Lemaitre, (2005), Counting immigrants and expatriates in OECD countries: a new perspective, OECD
[12] A similar pattern of upskilling is observed in New Zealand across industries and occupation groups by Dean Hyslop & Dave Maré, 2009. "Skill Upgrading in New Zealand, 1986-2001," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 42(4), pages 422-434.
[13] The table restricts the population to those aged from 25 to 64 years to focus upon individuals who have finished formal education and have transitioned into the labour market, and to control for the some population groups have a higher share of young people with lower education achievement (because they are still in education and training).
