The participation rate is defined as the proportion of the working age population who are in the labour force. Individuals who are out of the labour force fall into one of a number of categories. They include those who go to school beyond the compulsory school age, retired people whether or not they are of retirement age, and people who are not willing to work in the marketplace because, for instance, they are raising a family. This suggests that participation rates will be low for the age group 15 – 24 years because of higher education, for those aged 55 – 64 because many of them will take early retirement, and for females because more women stay at home to raise children than men.
However if you look at the data from 1996 – 2016 (see table below) there have been some significant changes which were addressed by Brian Gaynor in the New Zealand Herald last Saturday (21st May 2016).
- Those aged over 65 years in employment increased dramatically from 23,800 to 139,0900
- Those aged between 15 to 24 years of age increased only from 324,200 to 347,700.
Brian Gaynor identified three major workplace changes in recent decades:
- an ageing society as post-WWII baby boomers reach their sixties;
- the transformation of the New Zealand economy from one based on manufacturing and manual labour, to a service and white collar based workforce; and
- the huge increase in female workforce participation.
The transformation of the New Zealand economy from one based on manufacturing and manual labour, to a service and white collar based workforce; and the huge increase in female workforce participation.
This economic transformation has benefited older workers and females.
- 26 per cent of manufacturing workers are women
- 45 per cent of female workers represent the professional and administrative support services workforce,
- 82 per cent of healthcare and social assistance workers and
- 59 per cent of retail employees.
Since 1996 has been the increase in the female participation rate, from:
- 56.1 per cent to 63.6 per cent,
- The male participation rate has remained steady at just over 74 per cent.
As with the rest of the world, individuals in New Zealand in the 15 to 24 age group are struggling to find work because of their lack of skills and /or qualifications. Statistics below:
Unemployment % 15 to 24 age group
- New Zealand – 14.6%
- Greece – 50%
- Spain – 45.5%
- Italy – 36.7%
- Portugal – 30.7%
RBNZ Deputy Governor Geoff Bascand presented a speech on inflation pressures through the lens of the labour market. The key message from the speech is that weaker than expected labour market pressures have been “a factor in our assessment that it has been appropriate to keep monetary policy accommodative” RBNZ research has identified large flows from non-participation into employment, flows that are much higher than that witnessed in other countries. Around two thirds of the newly employed were non-participators in the previous quarter. Bascand stated that “one implication is that participation is potentially more sensitive to cyclical variation than previously thought. Another is that the unemployment rate is a weaker indicator of labour market slack and inflationary pressure than previously assumed.”
Therefore, the RBNZ has developed a labour utilisation composite index (LUCI) which shows how tight or loose the labour market is relative to a long-run average. It combines 17 labour market indicators,weighted so as to provide the best historical fit to the broader economic cycle. The boom in the early 2000’s saw labour market conditions tighter than usual with resulting higher wages. However the GFC put a stop to that with a lot of labour market slack. Today, with labour market conditions broadly in balance since 2014 there has been little upward pressure on wages.
Recent low consumer price inflation in New Zealand of 0.1% can be mostly explained by falls in commodity prices and the high New Zealand dollar which makes imports cheaper. However, the growth in labour force participation rates (see graph below) have put the brakes on wage inflation and therefore has had a lower inflationary impact than expected.
The participation rate has trended higher over the past 15 years, reaching around 69 percent in 2015. The main influences on this trend have been the ageing population, increased participation of older workers, and increased participation of women.
Participation tends to be cyclical in nature:
- Strong employment and wage growth encourage people to seek work, who otherwise would not choose to participate.
- When unemployment rises people spend longer time out of work. However some are discouraged from seeking work and no longer participate in the workforce.
A recent example of cyclical impact is Canterbury, where the strong rebuild activity encouraged additional workers to join the labour force. Participation in Canterbury rose from 67 percent at end-2011 to around 72 percent at the end of 2015, 4 percentage points above the rest of the country
In the CIE AS courses labour participation is examined in Unit 5. Here is a graph from the book entitled: The New Zealand Economy – Lattimore & Eaqub 2011. How is it worked out? Below is a flow chart explaining it.
The participation rate of people of working age in the labour force is also quite variable over time – see graph below.
Recession – participation rates tend to fall as people who have lost their job will sometimes move into full-time training to develop new skills or leave the labour force as they become despondent about finding a paid job. In New Zealand rates fell after the recessions of 1985, 1997, and 2008.
Boom – participation rates tend to rise as people see that there is greater opportunity for acquiring gainful employment. In New Zealand rates increased with upswings in the business cycle – 1993 and 2001.
Government policy can also influence labour force participation. If wages increase for younger people or older people, or if tertiary education fees rise, the participation rate will typically rise. If welfare benefits for single parents rise, the participation rate can be expected to fall.
Although the recent figures for the rate of unemployment in New Zealand have increased from 6.4% to 6.7% there are some interesting statistics with regards to participation rates and employment rates.
The employment rate increased 64.2% of the total working-age population, from 63.9%. The BNZ highlighted the following:
1. The unemployment rate hasn’t been affected too greatly during the last 4 years as NZ nears the bottom of the economic cycle;
2. NZ employment rate has settled well above that seen following the 1998 recession and significantly above that which was experienced following the early-1990s recession;
3. New Zealand’s early-1990s employment rate is about where a lot of the troubled developed-world economies now find themselves – Greece, Spain, and even the US. See graph below;
4. New Zealand, in contrast now has one of the highest employment rates in the world (testimony to its relatively high participation rate, coupled with a high rate of placement into jobs).
With firms indicating that it is their intention to take on more staff the BNZ estimate that the unemployment rate will be:
6.2% Dec 2012
5.6% Dec 2013
One wonders where the NAIRU is? The rate of unemployment when inflation is stable – maybe 4%. This is much lower than that of the US – see Beveridge Curve postings