Migrant population boosts labour supply in New Zealand

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Wellington, April 16, 2018

An article published today in the Reserve Bank Bulletin compares labour supply developments across the OECD and examines how New Zealand is placed.

Indian Newslink attributes the following to Jamie Culling and Former Reserve Bank Economist Hayden Skilling, who have written the article.

Labour is the largest input to the productive capacity of the economy.

The amount of labour available to be employed – labour supply – is therefore important to understand when gauging inflationary pressure in the economy.

Complex outcomes

However, labour market outcomes are complex.

There are considerable differences in outcomes across age cohorts, gender and individuals more generally.

In aggregate, New Zealand’s labour force participation has grown since 2000 to a recent all-time high. In this paper, we delve into the details of labour supply to understand what has been driving New Zealand’s historically unusual outcomes.

Furthermore, we put the New Zealand experience into context by comparing post-2000 developments in labour supply across OECD economies.

Growth in supply

Labour supply has grown rapidly in New Zealand since 2000. This growth reflects strong population growth and increased aggregate labour force participation.

The latter has occurred despite an ageing population, which would have been expected to reduce the aggregate participation rate.

The increase in labour force participation has been driven by increases in participation among individuals aged 55 years and above, and women aged between 25 and 54.

New Zealand’s labour force growth rate has been more than twice the OECD average since 2000, due to higher growth in the working-age population growth and a greater increase in participation.

Some conclusions

Higher population growth relative to the OECD reflects strong migration flows into New Zealand. The higher aggregate participation relative to the OECD is largely due to increased participation amongst older cohorts.

The United States, a typical international comparator, is an outlier in its labour force experience. The US has experienced a decline in labour force participation due to population ageing and broad-based weakness in within-cohort participation rates.

Average hours worked per person has fallen in New Zealand and across OECD countries. However, the decline in New Zealand has been less pronounced than the OECD average. New Zealand’s increase in overall labour supply relative to the OECD has thus been even larger than that suggested by changes in the size of the working-age population and labour force participation.

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Graphs Source: Reserve Bank of New Zealand.

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