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Dynamics of the New Zealand labour market

This article discusses the dynamics of New Zealand’s labour market. The labour market is an active and changeable place and here we present the most-recent data to show people’s movements.

In summary, we find that:

Our labour market data tell us that less than half of all wage and salary earners have been employed in their present job for more than 18 months. People move frequently between jobs, with over 250,000 wage and salary earners starting at a new business each quarter.

The recent fall in labour force participation can be better understood when we look at how people have been moving between labour force statuses. A lower likelihood of people staying employed and changes of people between labour force statuses, in particular from employment to not in the labour force, help us understand the overall story our labour market statistics tell.

Where labour market data comes from

This article analyses measures of labour market dynamics from the Household Labour Force Survey (HLFS) and Linked Employer-Employee Data.

The HLFS is the official measure of people in employment, unemployment (which together make up the labour force), and not in the labour force.

Each quarter, we survey about 30,000 individuals (aged over 15 years) from about 15,000 households. Households are in the survey for two years. Therefore, in any one quarter, 7/8 of the households were in the survey the previous quarter, and 1/8 of households from the previous quarter leave the sample. This 1/8 of households is replaced by different ones from the same area as those leaving. This enables analysis that is based on people who are in the survey from quarter to quarter.

On average, we interview over 21,000 people (about 70 percent of all those interviewed) in both the previous and current quarters. Analysis of the labour force status of these individuals is called ‘gross flows’. Gross flows help us understand the labour market’s dynamics, by looking at estimates of movements between labour force status that are based on individuals who are directly surveyed in two adjacent quarters.

Linked Employer-Employee Data (LEED) uses existing administrative data drawn from the taxation system, together with business data from Statistics NZ's Business Frame.

LEED provides statistics on filled jobs, job flows, worker flows, mean and median earnings for continuing jobs and new hires, and total earnings for wage and salary earners. This information gives an insight into the operation of New Zealand's labour market and helps explain the causes of overall movements and changes in the labour market.

See Explaining labour market statistics for more on our suite of labour market statistics.top

People frequently move between jobs

People often change jobs. Data from LEED shows that less than half of all wage and salary earners have been employed in their present job for more than 18 months. That people move frequently between jobs can also be seen in the 250,000 wage and salary earners who start at a new business each quarter.

Figure 1

Graph: Job tenure, 2011 tax year

Worker turnover rates

The job movement data from LEED is summarised in the ‘worker turnover rates’ (for wage and salary earners) measure.

Worker turnover rates measure the stability of the workforce, or subsections of it, using the number of new employees who are hired (worker accessions) and the number of employees who leave their job (worker separations). A high worker turnover rate indicates a large number of people moving around, and in and out of, the workforce. A low rate indicates greater stability. However, a low worker turnover rate could suggest it is harder for people to move between jobs.

Recent data suggests that about one in seven individual workers are coming or going from a job in any given quarter. Women have a marginally higher worker turnover rate. Younger workers have higher rates, with one in four youth (15–24 years) changing their workplace in any quarter, compared with about one in ten workers aged 40 years and over.

We also have worker turnover rates for people employed in small, medium, and large firms. Turnover tends to be higher for smaller firms than larger firms, suggesting there’s more job movement at smaller firms.

Figure 2

Graph, Linked Employer-Employee Data, worker turnover ratetop

People also frequently move in and out of the labour force

In the HLFS we analyse the movements in labour force status for people we interview in adjacent quarters. This data reveals how fluid the labour market is.

At any given time, there are much greater flows of people between labour force statuses than the net changes in employment, unemployment, and the number of people not in the labour force suggest.

See Labour force categories used in the Household Labour Force Survey for more on labour force categories.

While most individuals surveyed in adjacent quarters remain employed, or remain outside the labour force, we also see people:

  • moving out of employment into unemployment, or out of the labour force
  • moving out of unemployment into employment, or out of the labour force
  • remaining unemployed
  • entering the labour force into employment or unemployment.

We represent the flows between labour force statuses in figure 3.

Figure 3
Flows between labour force statuses

 Diagram: Labour market flows

Example of labour force flows

Figure 3 can be used to explain the overall movements for people who are employed, unemployed, and not in the labour force.

Unemployment falls by 2,000 people. This is not simply 2,000 people moving from unemployed to employed.

We need to look at those who remained unemployed (from the previous quarter) and the people who were unemployed in the previous quarter and are no longer unemployed – because they moved into a job, or out of the labour force (eg a discouraged worker). We also need to consider the previous labour force status of everyone who is now unemployed. The sum of all these changes gives us the net change in unemployed people.

At any given time, employed people become unemployed (eg as they move between jobs, with a new job to start in the coming weeks). However, the overall change in unemployment is the number of people moving out of the unemployed category, less those moving into the category. Similar flows occur between ‘not in the labour force’ and unemployed.

In our example, the fall of 2,000 people can be 10,000 people moving from employed into unemployed, 16,000 from unemployed to employed, 12,000 from not in the labour force moving into unemployment, and 8,000 from unemployment to not in the labour force.

We use gross flows to calculate how likely it is for people to move between labour force statuses, from one quarter to the next. Generally the probability of remaining in the same status is higher than leaving it.

People have a high likelihood of remaining employed, or not in the labour force. However, changes to aggregate levels of employed, unemployed, and those not in the labour force are sensitive to small changes in the flows. Figures 4–12 give the likelihood of each of the nine flows discussed above.

Figures 4, 5, and 6

Graph: Likelihood of staying employedGraph: Likelihood an employed person becomes unemployedGraph, Likelihood an employed person leaves the labour market

Figure 4 shows that employed people are very likely to remain employed from quarter to quarter. Figures 5 and 6 show there’s a small likelihood that people become unemployed (eg through lay-offs, or leaving to search for new employment) or leave the labour force (eg retire or move to full-time study).

Figures 7, 8, and 9

Graph, Likelihood an unemployed person becomes employedGraph: Likelihood of remaining unemployedGraph: Likelihood an unemployed person leaves the labour market

Figures 7–9 show that ‘unemployed’ is the most dynamic labour force status, with roughly equal proportions of people moving into this status from employment, from staying unemployed, and from joining the labour force as unemployed.

Figures 10, 11, and 12

Graph: Likelihood a person joins the labour force as employedGraph: Likelihood a person joins the labour force as unemployedGraph: Likelihood a person remains outside of the labour force

Figures 10–12 show there’s a high likelihood of a person remaining outside the labour force (eg retirement, full-time parenthood, or in full-time study) from one quarter to the next. People are more likely to enter the labour force directly into employment rather than having to actively job search (although, this has changed after the recent recession). top

Labour market dynamics help unpick recent changes in labour force participation

In the December 2012 quarter, the HLFS showed that participation in the labour force fell. The number of people in the labour force fell 33,000, bringing the labour force participation rate down to 67.2 percent. The fall was the largest on record and came from decreases in both employment and unemployment. We saw 23,000 fewer people employed and 10,000 fewer people unemployed.

The fall in the number of employed people came from a 20,000 drop for employed women.

While the labour force decreased, the number of people not in the labour force grew – up 42,000. This came from increases for both men and women.

Figure 4 shows a drop in the number of people remaining employed in the December 2012 quarter (ie the likelihood of remaining employed from the September 2012 quarter was lower). There was also a much larger flow of people from employment to not being in the labour force. A smaller number moved into employment from not being in the labour force. The story from the gross flows data strongly supports the overall picture.

While the net fall in participation in the December 2012 quarter was the largest on record, the changes in the flows data were not unprecedented. We saw a much lower likelihood of remaining employed (figure 4) or moving into employment (from not being in the labour force; figure 10).

With an ageing population, and changes to participation rates for people in the older age groups, we expect to see flows into (and out of) ‘not in the labour force’ grow in importance. If we look at flows by age bracket for the December 2012 quarter, the 65+ age group had the largest flow from employed to not in the labour force. Other age groups to see large flows of employed into not in the labour force include youth (aged 15–24 years), 55–59-year-olds, and 45–49-year-olds.top

Conclusion

The labour market is indeed a dynamic place. People regularly change jobs or move in and out of employment, either from unemployment or from not being in the labour force.

Data from LEED and HLFS provide insight into the inner workings of the New Zealand labour market and reveal how fluid the labour market really is. They also help us unpick changes in overall movements in employment, unemployment and not in the labour force. Their movements show that overall changes are the interplay of a number of changes in labour force states.

For more information contact:

Daniel Griffiths
Wellington: 04 931 4600
Email: info@stats.govt.nz

Published 26 April 2013

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