February 2010

Introduction

Having the right skills in the right place at the right time is essential if New Zealand is to maximise its potential economic growth and productivity.  The Department of Labour (the Department) has a number of work programmes devoted to forecasting and analysing the future demand for skills and labour.

One of these work programmes operates under the SkillsInsight brand name. The programme involves a new data analysis tool (SkillsInsight tool: http://www.dol.govt.nz/services/LMI/tools/skillsinsight-tool.asp) and an on-going series of occupational employment forecasts for the labour market. These forecasts cover trends in demand for labour over two periods: the next five years and the next ten years.

The forecasts use a methodology that is suitable for estimating changes over the medium-term but they are not designed to predict short-term outlook changes. Although having a longer-term focus, the forecast results, which are updated every six months, do reflect current conditions such as the ongoing recession. 

Overall approach

In general, these forecasts use a “top-down” approach. That is, they extend aggregate economic forecasts about prospects for broader industry groups and produce forecasts for specific occupational groups.

The Department’s employment projections are presently derived from relatively high level industry growth forecasts generated by the New Zealand Institute of Economic Research (NZIER). NZIER develop these forecasts for their Quarterly Predictions.

Industry and occupational employment forecasts produced by the Department use GDP growth forecasts and productivity assumptions at the industry level to derive employment forecasts for the national accounts level industries. These industry employment forecasts are then combined with the changes in occupational shares of industries extracted from the census to produce occupational employment forecasts across all industries.

The forecasts use the following types of information:

• Industry level economic growth forecasts – how much is an industry expected to grow?
• Productivity growth assumptions – what level of productivity growth is expected in that industry?
• Trends in occupational shares within an industry – is a particular occupation expected to become more or less important within that industry?  

The “top-down”, industry demand approach has a number of advantages:

• It provides a consistent forecast methodology that can be used across industries and occupations, permitting comparisons across the industries and occupations covered;
• Updating is possible reasonably quickly in response to the latest available base year data, or changes in economic circumstances. 

The disadvantages of this approach are:

• The supply side of labour/skills is not explicitly included;
• Occupational forecasts can be given only at the 3-digit NZSCO level (96 occupations).

Over time, the “top-down” methodology will be benchmarked and tested against “bottom-up” information about demand and supply from relevant sources, including employer groups or industry organisations.

This demand side information will be compared with improved information about the supply of workers – new graduates, immigrants and other people moving into the labour market.

General caveats

The Department’s occupational forecasts use the results of an economic model which is applied to labour market outcomes. This enables the Department to forecast employment trends. To avoid using these forecasts out of context, the following should be remembered:

• The results do not take into account the influences of specific developments within an industry or occupation. A hypothetical example of this could be the future employment of correctional officers that could be affected by planned changes in the penal system. Details of this sort are not included in a general, economy-wide model.
• The forecast results will change in response to economic developments. We update forecasts at least twice each year.
• A forecast decrease in employment is not necessarily an indicator that demand is lower. In some cases (nursing might be an example), demand may be high but there is an inability to fill positions because the supply is not available to meet this demand. 

Because of these factors, the forecasts should be used as an indication of broad trends and not on their own for highly detailed planning.

Forecasts for individual occupations

Forecasts for 96 individual occupational groups, covering the whole of the labour market, are available in the new SkillsInsight tool, which also provides a range of other complementary data.

The forecasts are also an element in other products from the Department such as the Skills in the Labour Market Outlook, Sector Employment and Skills Snapshots and specialised sector reports that are available on the Department’s website.

Forecasting narrative series

The SkillsInsight programme includes a number of short occupational forecast narratives that highlight overall trends. The aim of this new series of reports is to provide accessible information for those that have an interest in understanding and examining the skill composition and possible changes in the medium term in shaping the future labour market. Currently (February 2010) four forecast narratives are available on the Department’s website. These will be updated 6 monthly.

These initial reports will be followed later by reports which will focus specifically on particular occupational or industry groupings of greater interest due to their size or anticipated changes. 

All reports can be found at: http://www.dol.govt.nz/services/LMI/tools/skillsinsight/forecasting-narratives/index.asp