1 Introduction

There has been much recent discussion in New Zealand about the role of education in promoting growth, reducing inequality, and improving societal functioning.[1] The changing patterns of qualifications across employment should provide an insight into the economic and labour market forces associated with the observed qualification changes. For example, if university-qualified employment is driven by an increase in demand for goods and services produced in university-qualification intensive industries, we would expect employment growth to be concentrated in these industries. Alternatively, if there is a widespread increase in the returns to skills, as has been documented in the international literature,[2] we would expect the employment and relative wages of university qualified workers to increase, both within and between labour market groups based on industry, occupation, and demographic characteristics.

Our objective in this paper is to describe the changes in the qualifications structure of the working age population, and analyse changes in the relationship between qualifications and employment growth and incomes over the period 1986-2001.[3] The analysis addresses three key sets of questions. First, how has the qualification composition of New Zealand’s working age population changed? Second, how are workers with different qualifications allocated across jobs and how has the allocation changed? Third, how has the value of human capital changed, and how is this related to the changing mix of qualifications and economic returns to qualifications? More specifically, using census data we examine the relationships between education-based measures of human capital, industry and occupation level employment, and incomes, and the role of human capital in spurring employment growth and generating higher incomes over the period.[4]

We begin our analysis in the next section by first describing the structure of the Census data used in the analysis, and then presenting a brief summary of the aggregate changes in qualifications, together with shifts in the population across different labour force states and changes in average incomes for each over the period. In Section 3, the analysis focuses on the changes in the distribution of qualifications over the period, and compares New Zealand’s qualifications composition with that of other OECD countries. We also introduce an economic summary measure of skill intensity, which weights the average incomes earned by different qualification groups by their respective population shares. Using this summary measure, we show that skill levels increased broadly across a wide range of population subgroups, defined according to age, gender, region, labour force status, and industries and occupations for those employed.

Section 4 of the paper examines the nature of changes in the distribution of employment over the period. We focus on employment in “jobs”, as defined by 2-digit industry and occupation cells. The analysis first describes the raw employment distribution across such jobs at each census date. We then use regression-based analysis to examine how the changes in employment were related to the changing distribution of qualifications versus effects attributable to general industry and/or occupation changes. The results show that roughly one-third of the variation in employment growth was associated with qualification factors and, although employment growth was strongest in jobs with high levels of skilled workers, the employment growth appears to be only weakly related to subsequent upskilling.

Although the composition of qualifications is often used as an indicator of a country’s human capital,[5] one weakness of such an approach is that it does not take into account the (economic) value associated with different qualifications. In Section 5, we turn our attention to the value of human capital, as measured by the average annual income across the working age population, and examine the factors associated with its changes over the period.[6] The analysis decomposes the change in the value of human capital over time into components attributable to changes in the skill composition of the population, as measured by the skill intensity index described above, and changes in economic returns to skills, as measured by average incomes of different qualification groups. The value of human capital increased 20% between 1986 and 2001. About 75% of this increase can be attributed to an increase in incomes of qualification groups holding constant the qualifications’ mix in the population, 15-20% to increasing qualifications holding constant qualification incomes, and the residual 5-10% to the interaction of these effects.