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Applying knowledge and skills

Labour market skill requirements are likely to continue to increase.[67] Strong competition from overseas labour, capital, and technology means that people are expected to keep developing their skills over their lifetime, so that they can participate in the labour market and achieve higher living standards for themselves and their families. While the level of qualifications has been increasing in all industries, Figure 3.2 shows that jobs growth has been strongest in those industries that have a greater concentration of workers with post-school qualifications.[68] The need for people to develop relevant and higher skills over time will require people to make informed decisions around their skill development and retraining, and a responsive skills development system.

Figure 3.2 – The trend towards higher growth in more qualified industries
Figure 3.2 – The trend towards higher growth in more qualified industries   .
Source:  Statistics New Zealand.

Well-functioning tertiary systems, which provide training informed by employers' needs, should support development of skills for the types of jobs available. A common message heard from employers through the Treasury's stakeholder engagement was that new labour market participants lack the skills that employers require (see Annex One). This is supported by data from the Business Operations Survey.[69] This gap has been described by employers as both a lack of non-cognitive skills, and a disconnect between tertiary providers and business. The outcomes from the Productivity Commission's review of new models of tertiary education, should assist in identifying the opportunities for improvements to labour market-relevant skill development.

Employers also have a key role to play by using employees' existing skills and providing skill development on the job.[70] There is increasing evidence internationally that under-utilisation of skills in the workplace inhibits productivity.[71] The OECD's Programme for the International Assessment of Adult Competencies (PIAAC) data suggests that New Zealanders have high levels of work-related learning, compared to other OECD economies.[72] However, this is uneven across different professions, with those in lower skilled jobs less likely to receive learning and development opportunities.[73]

The nature of potential skills mismatch needs to be explored further. The perceived lack of non-cognitive skills may also reflect the so called "attitude gap" between employers and employees. This is where the misalignment of expectations, cultures, or values between employers and employees can hinder employment opportunities for groups from diverse backgrounds.[74] Addressing this attitude gap will be increasingly important as the population and labour force become more diverse. For example, between 2013 and 2038, those who identify as Māori are projected to increase from around 16 percent to almost 20 percent, Asian from 12 percent to 21 percent, and Pacific from eight percent to 11 percent.[75]

Building the capability and resilience of the Māori labour force is a key challenge. Tertiary participation by Māori aged under 25 years increased from 24.8 percent in 2005 to 27.2 percent in 2015, while Māori participation in Bachelors studies increased from 5.6 percent to 8.1 percent over the same period.[76] Ten percent of Māori hold a bachelor degree and a third have tertiary qualifications. While tertiary participation is similar to that of the general population, more Māori tend to study at sub-degree and lower qualification levels. Completion rates are also lower for degree or higher qualifications.[77]

Greater capability and resilience for Māori would enable better employment outcomes and greater resilience to shocks.People with tertiary qualifications tend to have higher earnings and lower unemployment rates than those without post school qualifications.[78] From 1988 to 2015, growth in real equivalised median household income for Māori broadly followed the same trend of New Zealand incomes as whole, but there remains a persistent gap between the incomes of Māori and non-Māori households.[79] This is partly due to Māori having greater representation in primary sectors and less representation in high-salary service sectors, such as ICT.[80] The unemployment rate for Māori also continues to be relatively higher, but the difference has narrowed in recent years. Māori have also tended to be more severely impacted during economic downturns than the general population. Recessions in 1992, 1998 and the Global Financial Crisis all saw Māori unemployment rates increase much higher than the general population. As Māori education outcomes have improved, this gap has been trending in the right direction (e.g. the gap in unemployment peaked at around seven percent during the Global Financial Crisis, compared to 16 percent in 1992).[81]

Pacific peoples face similar challenges. Like Māori, Pacific peoples experience disproportionately high unemployment rates and have also been more severely impacted during economic downturns.[82] Educational achievement, while improving, still remains significantly below that of the national population.[83] The growing size of the Pacific community and its young demographic profile (median age of 22 years compared to 41 years for the European population[84]) provides opportunities both for raising Pacific living standards and supporting an ageing population.[85][86]

Immigration is another key driver of diversity. A well-functioning immigration system not only supplements the development of knowledge and skills in the domestic workforce but also increases diversity of thinking. However, immigration needs to be considered as part of an integrated response to strengthening New Zealand's human capital (see box). Like the Māori (and Pacific) population, migrants will continue to play an important role in an ageing population by contributing an increasing share of the labour force.

Challenge and opportunity – Immigration

Immigration has supported New Zealand's economic and social prosperity. Immigration has created a larger, more diverse workforce, strengthening our international connections. New Zealand's  foreign-born population as a proportion of total population is one of the largest in the OECD, increasing from 17 percent to 28 percent from 2000 to 2014 (see figure above), and contributes just over 27 percent of the current working-age population.[87] Immigration has also contributed to the growth of Auckland as a city of global significance, with just under half of all recent working migrants settling in the Auckland region.[88]

Foreign-born population as a percentage of the total population
Foreign-born population as a percentage of the total population   .
Source:  OECD (2016), International Migration Outlook 2016, OECD Publishing, Paris.

Immigration will continue to play an important role in New Zealand's economy.Immigration can support productivity by encouraging diversity of ideas, innovation, entrepreneurship and addressing short-term skill shortages that may constrain economic growth.[89] Immigration can also make a contribution to addressing the long-term fiscal challenge of an ageing population (see discussion in Section Six). Migrants tend to contribute more in taxes than they use in public services, more-so than New Zealanders; however, migrants' positive fiscal contribution declines as they age.[90] Immigration can also place additional short-term pressure on housing and infrastructure[91] that may limit more productive investment opportunities.[92]

Maximising the economic and social contribution of immigration will be an ongoing challenge. This will involve attracting and selecting migrants with high levels of human capital, who can make the largest contribution to New Zealand's living standards. It also involves ensuring that immigration is part of an integrated system response (including welfare and tertiary systems) to human capital shortages. A key part of this response is encouraging employers to take responsibility for workforce planning rather than relying on migrant labour alone. This approach to immigration provides employment opportunities for domestic workers, with higher wages or improved working conditions where appropriate, and incentivises greater capital intensity, innovation and productivity.


  • [67] MBIE (2015) Medium-Long-term Employment Outlook – Looking Ahead to 2024.
  • [68] Statistics New Zealand, Census 2013, 2006.
  • [69] Statistics New Zealand (2013) Business Operations Survey.
  • [70] OECD (2016) Employment Outlook 2016.
  • [71] OECD (2016) Skills Matter – Further Results from the Survey of Adult Skills.
  • [72] Including on-the-job training, seminars/workshops, private lessons, and open/distance learning.
  • [73] OECD (2016) Skills Matter – Further Results from the Survey of Adult Skills.
  • [74] See recent research into the attitude gap in South Auckland:
  • [75]
  • [76] Education Counts (2016) 2015 Māori Tertiary Education Students by Gender.
  • [77] Ministry of Education (2014) Māori Tertiary Education Students in 2014.
  • [78] See note 77 above.
  • [79] Ministry of Social Development (MSD) (2016) Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2015. Figure D.8.
  • [80] Westpac, Industry Insights: Māori in the New Zealand Economy, 6 September 2016.
  • [81] Ministry of Education (2014) Māori Tertiary Education Students in 2014.
  • [82] Statistics New Zealand, Labour force status by ethnic group by regional council.
  • [83] (click on ethnicity bar)
  • [84] Statistics New Zealand, Census 2013.
  • [85] NZIER (2013) Pacific Economic Trends and Snapshot.
  • [86] See Su'a Thomsen (2016) The Treasury's Pacific Engagement. Treasury Staff Insights: Rangitaki, October
  • [87] Statistics New Zealand
  • [88]
  • [89] Julie Fry (2014) Migration and macroeconomic performance: Theory and evidence. New Zealand Treasury Working Paper 14/10.
  • [90]
  • [91] See:
  • [92] Julie Fry (2014) Migration and macroeconomic performance: Theory and evidence. New Zealand Treasury Working Paper 14/10.
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