Skills Challenges Report – New Zealand’s skill challenges over the next 10 years
Recent demand for skills
New Zealand has a highly efficient, export-orientated agriculture sector and large manufacturing and service sectors. Tourism is also an important source of export income. In terms of gross domestic product over 60% of value in the New Zealand economy is created in the service sectors. It is therefore unsurprising that the majority of workers in New Zealand are employed in service related industries, both in the public[21] and private sector. This can be seen in Table 4 below.
| 1991 | 2008 | |||
|---|---|---|---|---|
| Share of GDP | Share of employment | Share of GDP | Share of employment | |
| Primary sector | 8.4% | 10.7% | 7.2% | 7.0% |
| Manufacturing | 16.9% | 17.5% | 13.9% | 12.8% |
| Electricity, gas & water supply | 2.7% | 0.9% | 1.9% | 0.6% |
| Construction | 4.3% | 5.3% | 4.8% | 8.3% |
| Wholesale & retail trade / restaurants / accommodation | 15.1% | 20.4% | 15.5% | 22.5% |
| Transport & storage | 3.9% | 6.6% | 4.8% | 3.9% |
| Finance / real estate / business / communication services | 20.1% | 10.4% | 26.5% | 16.3% |
| Education, health, govt admin, social & community services | 16.3% | 27.9% | 16.6% | 28.1% |
| Total | 100.0% | 100.0% | 100.0% | 100.0% |
Source: Statistics NZ - HLFS and National Accounts
Table 4 above presents the proportion of people employed, and the share of GDP in different industry groups and the change between 1991 and 2008. The rapid expansion of employment in the New Zealand service sector over this period has coincided with a decline in employment in agricultural and manufacturing industries. This decline has been driven by a fall in manufacturing jobs and strong productivity growth in the primary sector. This fall represents a significant structural change in our economy. In most cases the change in the share of GDP in different industries is smaller than the shift in employment, due to the different productivity growth rates in different industries.
The knowledge economy
The knowledge economy[23] consists of those sectors with a highly skilled workforce and which invest heavily in knowledge-based assets (intangibles) such as R&D, staff development, product design and development, and brand equity. These sectors represent an increasing share of the New Zealand economy's output and employment, and are the most likely source of the future gains in innovation and knowledge that will be needed to improve productivity.
Employment in the knowledge intensive sectors grew more quickly than in the rest of the economy over the period 2000 to 2008. The knowledge intensive industries in the 'Professional, Scientific & Technical Services' sector accounted for most employment growth in the private sector, though 'Financial & Insurance Services' also grew. In the public sector there was significant growth in knowledge intensive sectors across health, education and public administration.
An increasing share of national GDP is generated by the private knowledge intensive sectors, with the 'Communications' sector growing particularly quickly and 'Real Estate and Business Services' and 'Finance and Insurance' also growing over the past 10 years. Early signs are that the economic downturn has only accelerated the growth in the share of national GDP represented by these industries. The public knowledge intensive sectors also generated a slightly increased share of national GDP compared to 10 years previously, mostly due to output growth from 'Education, Health and Other Services'.
Demand during the recession
As a result of the recession over 2008 and early-2009, employment fell strongly over 2009 and at June 2010 was 1.7% lower than it was at its December 2008 peak. This has seen the unemployment rate rise strongly reaching a peak of 7.1% in late 2009.
However, the fall in employment could have been larger had it not been for the reduction in hours worked. Generally, employers appeared to hold onto their staff during the downturn, with many firms responding to weak demand by reducing the hours of their current staff, rather than laying them off. Employers' experiences of dealing with skill shortage prior to the recession looks as if it has made employers more willing to hold on to staff for when the economy recovers.
Skills get used differently during the economic cycle
Skills are recruited and utilised differently at various stages in the economic cycle. When the economy is expanding and the demand for labour is high, there can often be a shortage of particular skills. During a downturn, demand weakens and many skills are under-utilised because of the rise in underemployment.
In general, as the economy grows and many opportunities arise in the labour market, it draws in people who were previously only marginally attached to the labour market. On average, these people tend to have lower skills and tend to take some time for their skills to come up to the average level. Mar and Hyslop[24] found that, between 1997 and 2007, employment increased by over 20%, while real earnings increased by only 9%. They estimated that, if there had been no change in the skills composition of the workforce, real earnings would have increased by 15%. In other words the generally lower skilled people absorbed during the period of boom and labour shortage, which were previously less likely to be employed, are less productive.
The New Zealand economy is now growing again, albeit rather slowly. A key reason for the weak recovery is that the New Zealand economy is going through a period of structural change as it rebalances away from non-tradable consumption driven industries to the more efficient export sector. Indeed, the early stages of the recovery in New Zealand have been driven by exports, particularly of primary products. De-leveraging also remains a dominant trend, with households and businesses repairing balance sheets and choosing to repay debt or increase savings rather than beginning to spend again.
It is still unclear how much of this change will lead to a long-term rebalancing of the economy towards a greater share of production in the tradable sector. Certainly the primary sector is projected/forecast to grow strongly, but manufacturing is forecast to shrink slightly (albeit increasing the share of high-value manufacturing). There are also demographic pressures that will increase the share in some service industries, such as Health, over the long term.
New Zealand's economic growth is expected to gather some momentum over 2011 on the back of robust trading partner growth and high commodity prices. Reconstruction activity following the Canterbury earthquake and the 2011 Rugby World Cup will also support growth. But the relative pace that our private sector services get back to their feet may have a significant skills impact. It may mean that the skills of people working in many of those industries are not in demand at the levels they were a few years ago. Furthermore, it is also possible jobs won't return in some of these industries. For example, employment in property services grew at over four times the pace of total employment in the five years preceding the recession as a result of the housing boom. It is unlikely all of these jobs will return.
The changing patterns of the demand for labour since the early 1990s has been driven by:
- the changing industrial structure of the New Zealand economy, in particular the growth in the importance of commercial services (such as business services and retail) and the decline in the share of workers employed in manufacturing and primary industries, and
- increasing skill levels within each industry, reflecting increases in the skill level of the labour supply and the higher skill demands of new production techniques.
It is important to consider why there have been changes in employment in different industries. In some instances this is because demand for products or services from an industry has changed, but in other cases it is because the industry has become more or less productive, which affects the number of workers that are required and their skills.
| Industry | Business cycle | Average for 1978-2008 (%) | ||||
|---|---|---|---|---|---|---|
| 1982- 1985 | 1985- 1990 | 1990- 1997 | 1997- 2000 | 2000- 2006 | ||
| Average annual % change | ||||||
| Agriculture, forestry, and fishing | 1.9 | 7.9 | 6.3 | -0.2 | 4.0 | 4.0 |
| Agriculture | 1.8 | 6.6 | 7.4 | -0.8 | 4.3 | 4.0 |
| Forestry and fishing | 2.9 | 18.2 | -0.9 | 0.2 | 3.2 | 3.9 |
| Mining | 12.1 | 4.9 | 8.1 | 2.1 | -5.6 | 1.9 |
| Manufacturing | 2.7 | 1.7 | 1.3 | 3.3 | 1.8 | 1.7 |
| Electricity, gas, and water supply | 3.1 | 4.3 | 7.0 | 21.0 | -3.0 | 4.4 |
| Construction | 1.7 | 1.4 | 0.3 | -1.7 | 0.0 | 0.5 |
| Wholesale trade | -1.1 | 0.8 | -1.0 | 6.2 | 0.7 | 0.7 |
| Retail trade | -2.4 | 0.7 | 1.5 | 3.1 | 2.1 | 1.0 |
| Accommodation, cafs, and restaurants | -2.3 | -1.4 | -0.7 | -0.8 | 0.4 | -1.3 |
| Transport and storage | 4.6 | 6.1 | 5.9 | 2.9 | 0.6 | 3.6 |
| Communication services | 6.3 | 12.3 | 13.6 | 13.2 | 6.8 | 9.3 |
| Finance and insurance | 1.9 | 0.1 | 3.2 | 12.3 | 3.3 | 3.4 |
| Business services(1) | .. | .. | .. | -1.9 | 0.8 | .. |
| Cultural and recreational services(1) | .. | .. | -0.6 | -2.5 | .. | |
| Personal and other community services(1) | .. | .. | .. | 9.2 | 1.2 | .. |
| Measured sector | 1.5 | 2.9 | 2.6 | 3.1 | 1.3 | 2.1 |
Source: Statistics New Zealand.
Table 5 above shows the primary sector and transport and storage have become more productive, so they need fewer workers and those they retain will need the skills to work with more sophisticated machinery and equipment than they had in the past.
In Figure 5 below we present the combined effect of employment growth and growth in economic output in the different industry groups. This shows that most of the strongly growing industry groups have also had above average employment growth, indicating relatively poor productivity performance. On the other hand, the primary sector, manufacturing (around one-third of which is manufacturing of primary products) experienced GDP growth of around 40% and negative or very small employment growth, indicating strong productivity performance. Only the transport and storage industry group showed strong GDP growth and strong productivity performance (indicated by falling employment).
Figure 5: Employment growth and GDP growth, 1991-2008
Within these broad industry groups the pattern is more mixed. For example, in the growing commercial service industries there was strong productivity growth in communications and financial services, but very weak growth in other services, such as wholesale & retail trade and business services.
This trend towards greater employment in the service industries is reflected in the changing occupational composition of the labour market, shown in Table 6 below.
| Occupations | 1991 | 2008 |
|---|---|---|
| Professionals | 13% | 17% |
| Service and Sale Workers | 13% | 15% |
| Managers | 11% | 14% |
| Technicians and Associate Professionals | 11% | 12% |
| Clerks | 15% | 12% |
| Trades Workers | 10% | 9% |
| Plant and Machine Operators | 10% | 8% |
| Agric and Fishery Workers | 10% | 7% |
| Elementary Occupations | 6% | 6% |
Table 6 above shows that the period 1991-2008 was characterised by an increase in high-skilled and service sector jobs. Already common jobs became even more common. The four occupation groups: Professionals, Service and Sale Workers, Legislators, Admin, and Managers, Technicians and Associate Professionals increased in terms of the share of all jobs. These four high-growth occupations increased from just under a half all jobs in New Zealand in 1991 (48%) to the clear majority of jobs in 2008 (58%)
Over this period there was a reduction in the number of jobs for clerks, trades workers, plant and machine operators, agriculture and fishery workers, and in elementary occupations (like cleaners, packers, rubbish collectors). The single largest percentage change over time between 1991 and 2008 was for agriculture and fishery workers, their work represented 10% of all jobs in 1991 and declined to 7% in 2008.
The increase in service sectors and the fall in the primary and manufacturing sectors has changed New Zealand's skills profile towards a more service oriented and higher skilled workforce. Table 7 below presents the share of high, medium, and low skilled[25] occupations by industry.
| Industry | High | Medium | Low | |||
|---|---|---|---|---|---|---|
| 2008 | Percentage point change since 1991 | 2008 | Percentage point change since 1991 | 2008 | Percentage point change since 1991 | |
| Primary sector | 8% | 3 | 5% | 1 | 87% | -5 |
| Manufacturing | 31% | 6 | 32% | 0 | 36% | -6 |
| Electricity / gas / water | 56% | 24 | 19% | -11 | 25% | -13 |
| Construction | 18% | 6 | 56% | -14 | 25% | 8 |
| Wholesale & retail trade / restaurants / accom | 32% | -2 | 59% | 1 | 9% | 1 |
| Transport and storage | 32% | 0 | 22% | -11 | 46% | 11 |
| Finance / insurance / real estate / business services | 65% | 10 | 26% | -16 | 9% | 6 |
| Health, education, govt admin, social and community services | 62% | 10 | 31% | -3 | 6% | -6 |
| Total | 43% | 8 | 37% | -2 | 20% | -6 |
Source: Statistics NZ, Household Labour Force Survey
Table 7 shows that in 2008 43% of all jobs were in high-skilled occupations, an increase of 8 percentage points from 1991. Most industry groups experienced a shift in the share of employment in high-skilled occupations. Five out of the eight industries reported a fall in the share of medium-skilled occupations. Whereas the picture was more mixed for low-skilled occupations. Overall there was a clear increase in the share of highly skilled occupations.
Financing, Insurance, Real Estate, and Business Services employ high rates of highly skilled people, so the expansion of this industry has contributed to more highly skilled, service-oriented jobs in New Zealand's labour market. The majority (65%) of workers in this industry are high skilled, some are medium skilled (26%), and a small proportion are low skilled (9%). In 1991, there were very few people employed in this industry in low skilled jobs, but this has increased substantially since. This may be due to increased outsourcing of functions such as cleaning services, which moved them into the business services industry.
The second largest industry from an employment perspective is wholesale and retail trade, restaurants and accomodation. In 1991 this industry employed 20% of workers in New Zealand and in 2008 this share grew to 23%. The majority (59%) of workers in this industry are medium-skilled e.g. Service and Sale Workers, Clerks etc. The skills profile in terms of occupations has not changed between 1991 and 2008. We can deduce from this that the expansion of this industry has not contributed to the increased share of high-skilled jobs, but growth in this sector would certainly have brought more service-oriented jobs.
In the manufacturing industry there is a near even split of high skilled occupations (31%), medium-skilled (32%) and low-skilled jobs (36%). In the past, the manufacturing industry employed a greater proportion of people in low skilled jobs. The decline of manufacturing has hit people in those low skilled jobs in particular.
The primary sector is employing fewer people in New Zealand. Over time, increasing proportions jobs in this industry are medium and high-skilled, but still the overwhelming majority of jobs in this industry are low skilled (87%). Agriculture, hunting, forestry and fishing employed 11% of New Zealand's workforce in 1991, this dropped to 7% in 2008. As discussed above, this is due to increased productivity in these fields.
The next section shows that despite the large changes in the mix of qualifications, the employment probability for each group remains largely unchanged over the last 20 years.
Figure 6: Employment rates by highest qualification, 1986-2009 (25 to 64 year-olds)
Not surprisingly, a smaller proportion of people are employed with no qualifications compared with those that hold a degree. The late 1980s and early 1990s recession had a dramatic negative impact on the employment rates of people without basic qualifications. Despite rising steadily since the late 1990s, they have not recovered to their pre-recession level. The employment rates for people with degrees have fallen slightly, which could be partly due to a change in the composition of individuals gaining a degree and a greater range in their employment outcomes. In the last year or two, the employment rate has fallen in all skill levels, but the fall has been more pronounced at below degree level.
Employers' perspectives on skill levels
In 2008 the Business Operations Survey (BOS) asked firms a number of questions relating to the skills of staff and job applicants.
When asked about whether existing staff have the skills to do their job, generally the majority of firms felt that most of their existing staff had the skills they needed. There were a few pockets of concern, with managers being identified as an area of occasional skill deficits, but generally the responses were positive.
When asked about the skills that existing staff most need to improve, soft skills were those most called for. Customer service and sales skills were most in need, with 27% of businesses saying existing staff most needed to improve these, 22% of firms said their staff most needed to improve team working skills, 21% wanted oral communication, and 19% said management/supervisory skills needed improvement. Improvements in existing trade related skills were needed in trade related industries (particularly in construction where 39% of firms felt existing staff needed improvements). Additionally, the professional, and technical skills were lower on the list of skills existing staff most need to improve in comparison with softer skills.
When asked about the factors resulting in staff not having the skills to do their job, a lack of experience was the most common reason given. The other main factors for staff not having the skills to do their job were reportedly a lack of motivation, recruitment problems, and the scope of the job increasing.
Only 9% of firms considered that a lack of internal training and development were factors in staff having insufficient skills for the job. This could mean that increasing training and development within the firm is considered ineffective for the skill issues firms are facing, or it could mean that the majority of firms in New Zealand do not value internal training and development given the return on their investment.
When asked about preparations they were making for the future, 45% of firms said that providing training for their staff was how the business was preparing for future changes. The theme of intending to train staff in the future was seen in answers to other question in the BOS. But when asked to report on the training that had taken place during the 12 preceding months the training levels were more modest. This shows a difference between reported intentions to train staff, and revealed behaviour which differs to the intention.
Employer investment in skills
A recent report from the Survey of Working Life[26] found that 31% of employees had received some employer-funded education or training in the 12 months prior to the research taking place. Most courses were relatively short (between 1-5 days). Pacific and Asian employees were less likely to receive training funded by their employer. More highly educated workers were more likely to receive training than those with little education, and they also tend to undertake more hours of training. The more hours an employee works, the more likely he or she is to receive training. Employees who work for small organisations (those with 20 or fewer employees) are less likely to receive training than those who work for medium-sized or large organisations. Employees who work for publicly owned or non-profit organisations are more likely to receive training than those who work for private firms.
Hard to fill vacancies
The most commonly reported reasons for vacancies being hard to fill was applicants lacking the desired attitude, motivation, or personality (34%), or applicants lacking either work experience (29%) or the qualifications or skills required by the business (29%).
Only 15% of BOS respondents with hard to fill vacancies felt this was because the wages they were offering were low compared with the rest of the New Zealand. But we know that trades people, labourers, transport workers, sales and service workers aren't just looking within New Zealand for good wages, they are looking also in Australia. New Zealanders who shift to Australia commonly work in these kinds of occupations.
Footnotes
[21] It should be noted that community, social and personal services is made up largely of workers in health and education.
[22] All industry figures in this report are grouped using Australia New Zealand Standard Industry Classification 1996 to ensure comparability between historical and forecast figures.
[23] Knowledge-intensive sectors are those industries that meet the following two criteria: at least 25 per cent of the workforce must be qualified to degree level or higher, and at least 30 per cent of the workforce must be employed in the professional, managerial and scientific and technical occupations
[24] David C. Maré and Dean R. Hyslop(2008) Cyclical earnings variation and the composition of employment, Statistics New Zealand.
[25] Occupations are assigned to skill levels as follows:
- High skilled occupations: Legislators, Administrators, Managers, Professionals and Technicians and Associate Professionals.
- Medium skilled occupations: Clerks, Service and Sale Workers, and Trades Workers.
- Low skilled occupations: Agricultural and Fishery Workers; Plant and Machine Operators and Elementary Occupations.
[26] Employer-funded education and training - who receives it?
