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Printable version
Key Statistics - article, May 2004, p. 9-15
This article seeks to evaluate the composition of the New Zealand working age population not in the labour force, drawing inferences mainly from data for the year ended March 2003. Persons not in the labour force include retired people, those involved in childcare or family responsibilities, students who are not engaged in or pursuing employment, and those unable to work due to physical or mental disability. It also includes those who are ‘jobless’. This is not the same concept as the ILO definition of unemployed, which is those people who are not considered to be actively seeking work, or those who during the reference week have been unavailable for work.
A profile of persons not in the labour force1
1. Introduction
Models based on basic economic theory partition those who are not employed into two groups: the ‘unemployed’ and those ‘not in the labour force’. The inclusion of the former in the ‘labour force’ reflects the view that the unemployed are treated as a labour force reserve, or a group whose attachment or proximity to the labour market is sufficiently strong that future supply will come from this group, rather than from those not in the labour force.
Empirical observation of people’s movements between being employed, unemployed, and not in the labour force, however, do not fully substantiate this model, and suggest that there are other factors that may determine people’s propensity to enter or exit employment. An understanding of the characteristics of the group not in the labour force is therefore important for getting a better understanding of labour market dynamics.
This article seeks to evaluate the composition of the New Zealand working age population not in the labour force, drawing inferences mainly from data for the year ended March 2003.
2. Framework for evaluation
In New Zealand, official estimates of the numbers employed, unemployed and those not in the labour force are based on responses tabulated from the Household Labour Force Survey (HLFS), which is a quarterly survey of 15,000 households across New Zealand.
Statistics New Zealand uses International Labour Organization (ILO) standards to define labour force variables. For someone in the working age population to be considered ‘employed’, the person should, during the reference week, have worked in a paid job or an unpaid job such as a family business or farm, for at least one hour. This group also includes those who usually have a job but did not work during the reference week for reasons such as sickness, leave, other personal reasons or poor weather conditions.
The ‘unemployed’ are people who during the reference week were without a paid job, were available for work, and were ‘actively seeking’ work in the four-week period prior to the reference week. People who do not fall into either of these categories (of employed or unemployed) are considered to be not in the labour force.
Persons not in the labour force include retired people, those involved in childcare or family responsibilities, students who are not engaged in or pursuing employment, and those unable to work due to physical or mental disability. It also includes those who are ‘jobless’. This is not the same concept as the ILO definition of unemployed, which is those people who are not considered to be actively seeking work, or those who during the reference week have been unavailable for work.
3. Significance of persons not in the labour force
Those not in the labour force include people with varying degrees of proximity to the labour force. It may be the case that the ILO definitions of employment and unemployment, while very useful in terms of drawing international comparisons, may in their own right prove limiting in giving a clear picture of the state of the labour force. A view held by labour economists is that the propensity to move in and out of the labour force is not independent of labour market conditions. So, for instance, if there is high unemployment in the labour market, this may influence people’s decision to participate in the work force by discouraging some workers from seeking work. Likewise, if jobs are relatively easy to get, then this may have the effect of encouraging those not in the labour force into employment (or temporary unemployment). One may therefore wish to have an understanding of the composition of those who are not in the labour force in terms of their proximity to the labour force to place employment and unemployment figures in context (see 4.3. Proximity to the labour force).
People choose to not participate in the labour force for a variety of reasons, and depending on these, the implications for the New Zealand economy are varied too. For instance, a large proportion of those who are not in the labour force include retired people and students not engaged in or pursuing employment. While the students not engaged in or pursuing employment are upskilling themselves to enter the labour force in the medium run, those who have retired are not likely to do so. This may have policy implications. It may for instance be possible to encourage more young people out of the labour force into education in the short run, presumably for positive benefits ensuing from a better skilled work force in the medium to long run. The fact that those who retire often do so as a consequence of the natural ageing process, restricts the influence of policy on this segment for those not in the labour force, in the short run. However, public policy may be able to influence labour force participation in this age group, for those who do not participate in the labour force for economic reasons (for example, by altering the age for superannuation provisions).
Furthermore, the percentage of the population that participates in economic activity, potentially has implications for the nation’s gross domestic product and standard of living. For instance, in an economy with a high dependency ratio, where only a small proportion of the country’s population is responsible for the country’s economic output, much higher levels of productivity would be required of this productive population to sustain the same standard of living, than if a larger percentage of the population were responsible for producing that output. It is important to monitor the population that does not participate in the labour force to observe the trends and characteristics of this segment of the population as society evolves.
4. Snapshot as at year ended March 2003
The total working age population for the year ended March 2003 was 2,986,600. Of these, an estimated 1,001,500 were not in the labour force. This consisted of 626,900 females (62.6 percent) and 374,700 males (37.4 percent). Around 41.0 percent of the female, and 25.7 percent of the male working age populations were not in the labour force. Table 4.1 below shows demographic characteristics of persons not in the labour force.
4.1. Age composition of those not in the labour force
Generally speaking, those not in the labour force are concentrated among the younger and the older age groups of the working age population. One expects that while the younger age groups remain out of the labour force to pursue education, those in the older age groups have retired from the labour force. These two demographics are of interest to us in different capacities. While in the long run, the impact that New Zealand’s ageing population has on those not in the labour force is of interest, in the short or medium term, the dynamics of the labour force for the working-age population that is below the age of 65 is of greater interest. For instance, the rate of non-participation in the labour force for persons above the age of 65 has stayed above 90 percent for at least the last 16 years. This proportion however appears to have fallen in recent years, which may be a reflection of changes in the nature of superannuation provisions.
It should be noted here that while persons not in the labour force tend to be concentrated in the younger and older age groups, the percentage of the male working age population that is not in the labour force is more constant across all age groups 15 years and over than that for females (figure 4.1).
For the working age population under the age of 65, the highest percentage of persons not in the labour force, for the year ended March 2003, was in the 15–19 age group (45.8 percent) followed by the 60–64 age group (44.6 percent).
4.1.1. Those aged 15–24 years
For the year ended March 2003, there were an estimated 202,000 people aged 15–24 who were not in the labour force. Of these, 96,400 were male and 105,600 were female (the total may differ from that in the tables as it is derived from rounded data).
Among males aged 15–24, 33.6 percent were not in the labour force. Here, studying was the main activity for majority of the males (77.8 percent). The females who were not in the labour force made up 39.3 percent of the female working age population in this age group. Here too, full-time study was the main activity for majority of these females (64.3 percent), followed by being at home and looking after children (17.2 percent). Only 1.6 percent of males indicated staying at home to look after children as being their main reason for not participating in the labour force.
As figure 4.1 shows, the difference between male and female rates of non-participation in the labour force increased from 1.4 percentage points for the 15–19 age group to 10.2 percentage points for the 20–24 age group. This could be because females in the 15–19 age group are less likely to be at home due to childcare responsibilities, which is the second most common activity for females aged 15–24 not participating in the labour force. This could also further reflect the fact that a large proportion of the 15–19 age group are involved in secondary education, where the difference in male and female enrolment levels is likely to be smaller on account of it being compulsory for both sexes by statute.
4.1.2. Those aged 25–59
Of the total working age population in the March 2003 quarter, 1,829,500 (61.3 percent) were aged between 25 and 59 years. Of these, an estimated 330,400 (18.1 percent) were not in the labour force. Despite comprising a large proportion of the working age population, those in this age group made up only 33.0 percent of those not in the labour force. This is consistent with the fact that most of those not in the labour force tend to be polarized in the younger and the older age groups. The 25–59 age group is therefore responsible for the bulk of New Zealand’s economic output.
Females in this age group had a higher rate of non-participation in the labour force than males. Of the female working age population aged 25–59, 247,000 (26.3 percent) were not in the labour force. This compares with just 83,400 (9.3 percent) males in this age group who did not participate in the labour force.
The male labour force non-participation rate for the year ended March 2003 follows a U-shaped pattern, falling for each consecutive group and reaching its lowest for the 40–44 age group, and then gradually rising again for the older age groups. For females on the other hand, the U-shape pattern only exists for those in the 30–34 age group and above. After the initial drop in the non-participation rates for those above the 15–19 age group, the proportion remained constant for those in the 25–29 age group and rose slightly for those in the 30–34 age group (Figure 4.1). This may be an indication of the fact that after the age of 35 the likelihood of women having small children with full-time childcare needs falls (table 4.2).
Overall, the most common activity for those in the 25–59 age group not in the labour force was being at home with childcare responsibilities (40.8 percent). This was the main activity for 49.5 percent of females and 14.8 percent of males, indicating that women were more likely to be the main caregivers in households with children.
There were 14,900 males who were not participating in the labour force due to study commitments, compared with 23,400 women. This indicates that women are more likely to undertake full-time study in later stages of their lives, which may account for some of the difference in the proportions of the male and female working age populations that were not in the labour force.
4.1.3. Those aged 60 years and over
Of the 469,200 people 60 years and over and not in the labour force, 274,300 (58.5 percent) were female. When one considers that 53.9 percent of the population aged 60 years and over are female, one can see that, despite the reduction of the gap in the non-participation rates among males and females in this age group, here too a smaller percentage of males are not in the labour force in comparison with their female counterparts.
The proportion of the working age population aged 60 and over that was not in the labour force in the March 2003 quarter was 78.0 percent. Retirement was the main activity for most of the males (91.9 percent) and females (89.3 percent) in this age group who were not in the labour force. An estimated 13,000 (4.7 percent) females in this age group did not participate in the labour force on account of being at home without any childcare responsibilities. These may have included females who were not in the labour force in earlier stages of their lives, and therefore did not consider themselves to be ‘retired’.
4.2. Ethnicity and country of birth
Those in the European/Pākehā ethnic group had a lower than average percentage of people not in the labour force, while those in the Māori, Pacific peoples or Other ethnic groups had above average proportions of their working age populations not in the labour force (table 4.3).
For each ethnic group, women were less likely to participate in the labour force than their male counterparts. The difference between the male and female non-participation rates was highest for Māori (females being 69.9 percent higher than males), followed by the European/Pākehā ethnic group (59.7 percent higher than males) and the Pacific peoples and Other ethnic groups (47.0 percent and 50.9 percent higher than males, respectively).
The ‘Other’ ethnic group had the highest rate of non-participation. This is consistent with the fact that those in the Other ethnic group had a higher proportion of their working age population involved in study (20.1 percent) than the European/Pākehā (3.9 percent), Māori (7.9 percent) or Pacific peoples (11.6 percent) ethnic groups.
Of the total New Zealand working age population, an estimated 654,200 (21.9 percent) were born overseas. Of these, 268,200 (41.0 percent) were not in the labour force. So the proportion of the working age population that was born overseas that was not in the labour force was higher than that of those who were born in New Zealand (31.4 percent).
An estimated 105,200 (33.4 percent) of the 315,200 males and 163,000 (48.1 percent) of the 338,900 females in the working age population born overseas did not participate in the labour force, in the year ending March 2003. The highest rates of non-participation among those born overseas were for those who had been in New Zealand for a year or less (52.4 percent) and the lowest rates of non-participation were for those who had been in New Zealand for between five and nine years (35.7 percent). The nonparticipation rate increases for those born overseas who have lived in New Zealand for over 10 years. This, however, is likely to be skewed by an over-representation of those in older age groups, who are more likely to be out of the labour force due to retirement. This suggests, that for those born overseas, the propensity to participate in the labour force increases with the length of their stay in New Zealand. There may be various factors contributing to this trend, such as the likelihood of there being a higher proportion of full-time students among those who have lived in New Zealand for only a short period.
4.3. Proximity to the labour force
People are considered to be not in the labour force for various reasons. There are those who have no intention of working, and so these people could be considered to have no attachment to the labour force. On the other hand, there are those who are not included in the labour force, but are not completely detached from it either. These may be people who, for instance, either want to work but are not available to work, or those who are available, but cannot be considered to be actively seeking work. These people could be said to have a ‘marginal attachment’ to the labour force.
For the year ended March 2003, of the 1,001,500 people who were not in the labour force, most had no attachment to the labour force (figure 4.2). Of the 72,600 people who could be considered to be marginally attached to the labour force (essentially those who would have liked to have worked), 54,900 (75.6 percent) were considered to not be ‘actively seeking’ work by ILO definitions, while 17,700 (24.4 percent) were actively seeking work, but not available to start within the next four weeks of reference week.
Interestingly, despite the large difference between the number of males and females not the labour force, the distribution of those marginally attached to the labour force was relatively similar. For instance while 93.4 percent of the females not in the labour force did not want to work, the proportion for males was 91.6 percent.
Of those who were not in the labour force, 24.2 percent of females and 24.6 percent of males who wanted to work were actively looking but unavailable for work. Of those females who were available but not actively looking for work, 19.2 percent were only searching in newspapers and 11.2 percent were discouraged. Among males, 20.8 percent restricted their job seeking efforts to just searching in newspapers while 13.1 percent were discouraged.
5. Conclusion
From this evaluation, a key feature of the New Zealand working age population that is not in the labour force is that around two-thirds are female. In fact, for the year ended March 2003, females were over-represented among those not in the labour force in all age groups. The gap between the non-participation rates of males and females, however, was quite small for the younger and older age groups of the working age population, which are also the groups with the highest non-participation rates. This was largely contributed to by the fact that those in the younger age groups were likely to not be in the labour force due to study, while those in the older groups were likely to be retired from the labour force.
Most of those who were not in the labour force in the year ended March 2003 had no marginal attachment to the labour force either. It should be borne in mind, however, that the labour market was generally characterised by relatively high levels of employment in this period. It is possible that the propensity to be out of the labour force with no marginal attachment may fall in times of higher unemployment (table 5.1). This could happen as a result of a greater number of jobless people being excluded from the labour force by virtue of their being discouraged.
The non-participation rates for the Māori, Other and Pacific peoples ethnic groups were above average, while the non-participation rate for the European/Pākehā ethnic group was below average. There was also a roughly inverse relationship, between the length of their stay in New Zealand and the likelihood of their not being in the labour force, for those not born in New Zealand.
Footnote
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