Human Resources Development Working Group – Labour and Social Protection Network Meeting

New ZealandSkills and Productivity Challenges

Dr Dafydd DaviesDirector, InternationalDepartment of LabourDouglas GormanGeneral Manager, Strategic Labour Market PolicyDepartment of LabourFebruary 9, 2012. APEC, Moscow

Why is NZ’s productivity growth so low?

Causality:• Poor long run economic growth…• …due to poor long run productivity growth…• …due to poor long run export performance…• …due to export composition and…• …exacerbated by factors such as shallow capital markets, exchange rate volatility, firm composition

• … a land of migrants…reliance on importing skills…• …poor utilisation of skills• … being far, far away with a small population and low population density

Good, OK or Bad by OECD standards, & what’s the trend (= over 10 yrs vs OECD mean)

GoodLabour participation International linkages

- inward FDI =Workforce skills Quality of institutions

=Quality of regulation (Quality of Labour

regulation =)Fiscal position =Government

effectiveness

OKInnovation in firms =Innovation linkages Firm dynamicsInvestment Debt market development

=University & compulsory

education =Inflation rate

performance =Quality of tax system =

PoorGDP per capita Labour productivity Formal measures of innovation Saving Equity market development International trade Int’l linkages - outward FDI Management skills ICT =Real interest rate performance =Exchange rate stability =Current account =Net foreign asset position

yjrEconomic Development Indicators 2011 – Treasury, MED, Stats NZ

Employment growth & GDP growth 1991-2008

0

20

40

60

80

100

120

140

-40 -20 0 20 40 60 80 100 120 140

Em ploym ent grow th

%

G D P grow th %

Prim aryM anufacturing

Transport & storage

W holesale/retail, accom & restaurantsEduc, Health, Govt adm in & other services

Construction

Finance/Insurance/RealEstate/Business Services

Electricity/Gas/W ater

High productiv ity grow th/ low econom ic grow th

High productiv ity/ high e conom ic grow th

Low productiv ity/ Low econom ic grow th

Low productivity/ high e conom ic grow th

Recent trends in the demand for skills

O ccupations 1991 2008 Professionals 13% 17% Service and Sale W orkers 13% 15% M anagers 11% 14% Technicians and Associate Professionals

11% 12%

Clerks 15% 12% Trades W orkers 10% 9% Plant and M achine O perators 10% 8% Agric and Fishery W orkers 10% 7% Elem entary O ccupations 6% 6% Source: Statistics NZ, Household Labour Force Survey

Forecast employment by highest qualification

Source: Dept of Labour forecasts

The demographic challenge• Factors pushing up participation have dominated the downward demographic pressure for the past 20 years.

• Demographic pressure will increase over the next 20 years

• Share of the working age population who are 65+ years old is projected to increase from 16% in 2009 to 25% in 2029

• Labour force growth slowing and participation projected to fall

Do we have a skills mismatch issue?• New Zealand performs well in tertiary education achievement

• BUT our labour productivity performance is still poor

• A fifth of our workers are over-qualified and around 40% are under-qualified - vocationally qualified workers are best matched to their occupations, many people with degrees are working below their skill level

• The extent of skills mismatches may be increasing over time.

Impact on economic growth

Summary

• Strong service sector employment growth is forecast with mixed implications for productivity growth but higher levels of qualifications required.

• The ageing population will constrain labour force and economic growth

• Labour supply forecasts show strong growth in the number of degree-holders…

• But weak growth in higher level vocational qualifications due to strong emigration

• Skills utilisation is essential to retaining skills in an open labour market

• Skills retention is a key issue

Supply of skills in the w orkforce

D em and for skills from em ployers

ProductivityRegulatoryenvironm ent

Em ploym ent practices

and conditions

Industry and firmstructure and

culture

M igration

Accidents reduce supply

(e.g. w orkplace injuries

fatalities)

O ccupational licensingand requirem ents

O ngoing D evelopm entInform al and form al learning.

In educational institutions both before and during em ploym ent

and m id-career retraining.In w orkplaces, households, voluntary organisations

and other contexts.

Labour m arketparticipation choices

Em ploym ent andw elfare policies

Firm strategy andinvestm ent decisions

A conceptual fram ew ork of Skills and Productivity

InnovationSom etim es new skills

are developedthrough innovationand innovation canchange the nature of

dem and

U tilisation of Skills by W orkplacesApplication of people’s skills in com bination w ith other

resources like capital, technology,natural resources etc

The labour m arketm atches skills to jobs

Traditional focus

New Focus