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Skills matter for productivity growth – more than ever
  • How countries perform in developing and utilising skills is one important factor that helps to explain differences in countries’ long-term productivity and growth performance. The macro-economic evidence about the importance of skills is increasing, and the effects are stronger than previously shown.
  • Higher skills increase individuals’ productivity and the productivity of others they work with. Skills have a dynamic effect on productivity growth by increasing the capacity to innovate and apply new ideas. Skills can enhance the returns to capital investment, and increase firms’ ability to adapt to new markets and competitive challenges.
Skills and the other drivers of productivity are interdependent
  • The impact of skills on productivity depends critically on the quality of an economy’s institutions, and the effectiveness of firms in utilising the skills of their workforces. Increased skills have the greatest impact on productivity in open competitive and entrepreneurial economies with efficient labour markets and institutions.
Globalisation is increasing the importance of skills for growth
  • Technological change and the increasing integration of the global economy are driving greater mobility of skilled labour, greater returns to skills, and ongoing economic structural change. In this context, overall skill levels and the opportunities to acquire skills and re-skill become increasingly important for both social and economic objectives.
We need to take a broad and long-term view of skills
  • Specialised technical skills are important, but so too are the many “soft” skills such as communication, teamwork, creativity and problem solving. Attitudes and values matter as much as knowledge and technical skill.
  • Skill development is a life-long, self-reinforcing process. It happens not only in formal education, but also in the home, the community and the workplace. Public policy approaches to skills and productivity must therefore take a broad view, and include a very long-term perspective.
Skills supply needs to respond to changing demand, and firms need to effectively utilise their workforces' skills
  • The contribution of skills to productivity depends not only on the overall level of educational achievement, but on how the supply of skills is matched to changing demand (through labour market responses, responsive tertiary education and training systems, and migration) and on firms’ ability to effectively utilise workforce skills.
NZ’s skills performance: many areas of strength but room for improvement
  • New Zealand has relatively good overall levels of skills and the trends are positive. We rate near the OECD average for qualifications in the adult population, and there are strong flows of skills into the workforce due to more skilled and qualified school leavers, high participation in tertiary education (including industry training) and skilled immigrants.
  • Wide disparities in achievement are evident at all ages and stages of education. Low skill levels are more concentrated in the growing Māori and Pacific communities. Too many young people leave school without a senior secondary qualification, and too few continue to participate in education and training after they leave school.
  • High participation rates in tertiary education in the last 20 years are improving the qualifications profile of the workforce, but in recent years there has been no growth in degree-level graduates. The low foundation skills of a large minority in the current workforce are a barrier to upskilling and productivity growth.

Policy implications

A lot of work is already underway

A great deal of work is already underway across the public sector, in the business community and the wider community to improve New Zealanders’ skills and the contribution of skills to productivity.

A productivity focus for future public policy should include...

This paper does not evaluate specific policies and programmes. Instead, it seeks to identify issues that will need continued emphasis in the ongoing development and implementation of public policy.

Targeted support for disadvantaged young children
  • Sustained, targeted support for disadvantaged young children through early childhood education and other interventions to support child development can deliver significant long-term benefits in skills and productivity, as well as broader social benefits.
    • Children from disadvantaged home environments benefit most, and they should be the priority for future government investment in children’s services. Their access to quality services may be compromised by broader demand pressures and supply constraints in the early childhood education sector.
Maximising the quality of teaching in schools
  • New Zealand’s “tail” of underachievement in schooling can be addressed without compromising outcomes for high achievers.
    • Maximising children’s experience of quality teaching is the critical factor. The most effective schooling systems focus on:
      • high quality teacher training and professional development;
      • effective systems to identify and respond to the needs of students at risk of falling behind;
      • supporting effective leadership and the development of learning organisations in schools; and
      • measurement, accountability and incentive systems that focus on student achievement.
  • Challenges for schooling policy in New Zealand include:
    • focusing resources on effective programmes and building the capability needed to take them to scale; and
    • increasing flexibility and responsiveness to meet the needs of students who are falling behind.
Improving secondary school retention, achievement and post-school transitions
  • Increasing youth participation and achievement in education and training will have significant benefits for skills and productivity. Greater emphasis is needed on improving secondary school retention, school leavers’ qualifications, and transitions into tertiary education and training.
    • Regulatory, funding and accountability arrangements should place more emphasis on the retention and achievement of those students who leave early and with poor qualifications;
    • More flexibility is needed in senior secondary schooling and post-school transitions to meet all young people’s education needs.
Careful development of foundation skills programmes for low-skilled workers
  • Improving the foundation skills of low-skilled workers could deliver significant productivity gains, and merits the increasing activity now underway by government, firms and education providers in this area. An experimental and developmental approach is needed as the existing evidence of effective approaches to improve the basic skills of low-skilled adults is limited.
  • The basic architecture of New Zealand’s tertiary education system is sound. Strategies in the sector include specific priorities to improve tertiary education’s contribution to productivity.
High quality information, planning and resource allocation in the tertiary education sector
  • The challenge remains in the implementation of policy tools to achieve these objectives. High quality information is needed to identify and respond to changes in employer and student demand, and to assess the quality of tertiary education programmes. Planning and resource allocation will need to adjust responsively to changing demands and priorities.
  • A productivity focus would see any increase in government tertiary education expenditure concentrated on ensuring broad access and improving the quality of provision. Increased subsidies for existing students and/or graduates are unlikely to contribute to productivity growth.
Support for the integration of skilled immigrants, with  international students as a target group
  • Support to accelerate settlement and integration of skilled migrants, both in employment and in the community, could increase the contribution of new migrants to productivity growth;
    • International students studying for higher qualifications are a major potential source of skills, of valuable international connections for knowledge transfer and market development. Efforts to maximise the potential benefits of international students’ connections to New Zealand should be sustained and intensified.
Improving firms’ utilisation of skills through competition and support
  • Firms’ ability to effectively develop and utilise their workforces’ skills is critical for skills to contribute to productivity growth. Management capability is a crucial factor in this.
    • Fostering a dynamic and competitive enterprise environment is the most important contribution government can make.
    • Government can also help to create opportunities for firms, entrepreneurs and managers to learn from each other.
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