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Training on the job

Skill acquisition in the workplace is likely to significantly raise overall productivity. The principal role of government should be to ensure that the environment in which firms operate is as conducive as possible to individuals and businesses making decisions that are both productivity-enhancing for the firm and beneficial to the employee.

The available data on the level of training by New Zealand employers suggests that employee participation has been high by OECD standards. The level of New Zealand’s workforce skills (as measured by educational attainment) has been rising. However, this has not occurred at the same rate as some comparable overseas countries such as Australia.

Raising skills in the workforce is primarily the responsibility of employers and individuals, but there is also a role for the government. The main form of government assistance for in-work training is through the Industry Training and Modern Apprenticeship schemes. We advise continued support for these schemes. They are flexible and industry-driven, and jointly funded by industry and the government. The funding for these schemes has increased sharply in recent years, with significant increases in the number of trainees. There is a concern that pressures to rapidly increase the number of industry trainees will jeopardise the quality of provision and might lead to training people in areas that do not meet industry needs.

Other assistance is remedial. Low-skilled adults are a high priority group, and there has been considerable spending in foundation learning for low-skilled adults in recent years. Participation has increased, but it is unclear what outcomes this expenditure is actually achieving. The key issue now is to ensure that provision is effective before expanding it further.

Lifting employment further

There is limited scope for increasing economic growth by increasing labour utilisation, but there are still some societal groups that are under-represented in employment numbers. Lifting participation of these groups will add directly to growth, improve social cohesion and raise productivity by allowing for skill formation in the workforce.

The overall regulatory environment has supported a rapid growth in employment and hours worked. Eighty percent of people aged 20 to 64 years are participating in the labour force, which is amongst the highest in the OECD. Participation rates have been growing over time, largely due to increases in the participation of women and older people.

Figure 12: Some beneficiary numbers have continued to rise
Figure 12: Some beneficiary numbers have continued to rise.
Source: Ministry of Social Development

The main groups in the working-age population who are not in the workforce comprise:

  • 201,000 beneficiaries, of whom the major categories are those on the sickness and invalids benefits (83,000) and the domestic purposes benefit (63,000)
  • 165,000 non-beneficiaries with a working partner, of whom 109,000 have a dependent child at home, and
  • 134,000 in other categories, mainly students (59,000) and early retirees (32,000).

New Zealand’s social assistance system should encourage people to work to the extent to which they are able. In line with research and best practice recommendations, the Ministry of Social Development has been developing a more active and intensive case management process and trialling a broad range of employment-focused initiatives targeting the invalids, sickness and unemployed beneficiary groups. Participation in this trial is currently voluntary. We consider that the work expectations on these groups could be strengthened further for those able to work, even if only part-time. Officials have been working on a single benefit, to be introduced in 2007, which will replace the current system of benefits and complement these administrative initiatives.

Consistent with high rates of participation, our overall assessment is that the regulatory environment affecting the labour market is essentially sound. A number of changes to the regulatory environment have been made recently. The agreed policy to increase the statutory annual leave entitlement to four weeks from 2007 will increase employment costs and reduce potential labour supply. However it is too early to make an assessment of the economic effects of other changes. Individually, most are unlikely to have substantial negative effects on firm productivity – but their cumulative effect may be more significant, particularly in an economic downturn. Any further moves towards greater regulation will increase the risk that the overall regulatory framework substantially inhibits productivity growth.

Recommendations

  • Continue benefit reforms with an increased focus on stronger expectations on those not currently seeking work and moving existing clients on to the new, simplified benefit system
  • Monitor effects of recent employment regulation changes and avoid making further changes that reduce labour market flexibility

A stable base

In summary, the key challenge to improving New Zealanders’ living standards is increasing productivity. Responding to this challenge will mean ensuring that the interconnecting policies work well together. To make the most of gains from external linkages, a sound business environment and a skilled workforce, New Zealand’s economy will need to be underpinned by a supportive macroeconomic environment and an efficient public sector.

 

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