Skills matter….and we already seem to have them

Earlier this week the OECD released Skills Matter, a 160 page report on the results of a programme of surveys of adult skills in OECD (and a handful of other) countries.  As usual with OECD reports, it is full of fascinating charts.  Here is how they describe the programme:

In the wake of the technological revolution that began in the last decades of the 20th century, labour market demand for information-processing and other high-level cognitive and interpersonal skills is growing substantially. The Survey of Adult Skills, a product of the OECD Programme for the International Assessment of Adult Competencies (PIAAC), was designed to provide insights into the availability of some of these key skills in society and how they are used at work and at home. The first survey of its kind, it directly measures proficiency in several information-processing skills – namely literacy, numeracy and problem solving in technology-rich environments.

It is worth emphasizing that the survey involves attempting to directly assess skill levels, not formal qualifications.

The first such survey was done a few years ago, but this is the first round to include all OECD countries and, in particular, the first to include New Zealand.   They even provide a 20 page country note on New Zealand.

The bottom line for New Zealand?  The news is good.

Here is how our adults scored on literacy.

oecd literacy 2

And numeracy

oecd numeracy

And on “Problem-solving in technology-rich environments”

oecd problem solving

Looking across the three measures, by my reckoning only Finland, Japan, and perhaps Sweden do better than New Zealand.    Perhaps there is something very wrong with the way the survey is done, and it is badly mis-measuring things, but those aren’t usually the OECD’s vices.  For the time being, I think we can take it as reasonably solid data.  And the broad sweep of the cross-country results makes some sort of rough sense: typically the poorer countries are to the left of the charts (relatively less highly-skilled).

But if the skill levels of our adults are so high, on average, by international standards (and, as it happens,  we have quite a high rate of tertiary qualifications as well), it should perhaps raise questions again about the size and nature of our immigration programme.

After all, as I noted, the poorer and lower productivity countries are generally to the left of these charts. But New Zealand is one of the less well-performing OECD countries on that score.  Here is real GDP per hour worked for OECD countries in 2014.

real gdp per hour worked 2014

And when the OECD lines up the skills scores against the productivity data one of the largest gaps (lagging productivity) is for New Zealand   The cross-country scatter plots don’t show a tight relationship by any means, but they do tend to suggest that the skills and talents of our people aren’t what holds New Zealand back.

And yet we aim to grant 45000 to 50000 new residence approvals each year (a scale three times the size of US and UK programmes, per capita), supposedly with a focus on skilled migrants.  What is the logic?  And where is the evidence that this is the right place to focus in tackling New Zealand’s long-term economic underperformance?  Reinforcing those doubts, we know that other data show the incremental returns to tertiary education –  a different thing from skills, but one hopes not wholly unrelated –  are also among the lowest in the OECD.

A reasonable person might instead look at the data and suspect that, for whatever reason, the economic opportunities in New Zealand just aren’t that good.  Perhaps that is about location and distance, and a seeming inability to break out of a dependence on (a fixed supply of) natural resources or to increase productivity in those natural resource sectors rapidly enough.  But whatever the underlying reason, the opportunities haven’t been found here –  our export share of GDP has been static for decades, per capita tradables sector production hasn’t changed for 15 years, and a huge number of New Zealanders have kept on leaving for better opportunities abroad (mostly in –  on these measures –  slightly less skilled Australia).

One might have severe doubts about the logic of using policy to actively pursue bringing in lots more people  –  it might be no more sensible here than it would be in Wales, or Scotland, or Nebraska, or Newfoundland, or Tasmania (who’ve been spared the depradations of Think Big bureaucrats and politicians with immigration as a lever).  Perhaps it would be a little less worrying if the new arrivals were typically very highly-skilled people –  but recall that the highly-skilled people we already have aren’t succeeding in generating high returns (high productivity) here now.

But in fact, our immigrants aren’t that highly-skilled at all.  At the frivolous end of the spectrum, we were giving a small number of Essential Skills work visas to shelf stackers and kitchen hands.  More seriously, among those gaining residence visas in the skilled migrant category, the top four occupations in the last year for which we have official data were

Occupation 2014/15
Number %
Chef 699 7.2%
Registered Nurse (Aged Care) 607 6.2%
Retail Manager (General) 462 4.7%
Cafe or Restaurant Manager 389 4.0%

But it isn’t just a matter of occupational lists.

As it happens, the OECD report looks directly at the skills level of immigrant populations.  There are a few countries where immigrant population skill level match those of native born populations.  Perhaps that isn’t too surprising where most migrants come from countries with very similar cultural or linguistic backgrounds.  Among subsets of migrants, one could think of the flow among NZ/Australia/Ireland/UK, or between Chile and Argentina, or between the Czech Republic and Slovakia.  At the other extreme, some countries now face the challenges of very large skills gaps between migrants and native-born (most of the Nordic countries are now in this situation).  New Zealand doesn’t do too badly on this count – after all, we have control on who comes in, we have a notional skills focus, and the UK remains the largest single source of residence approvals. But there is a clear skills gap between immigrants and native-born New Zealanders.  Importing people doesn’t look as though it has been a means of raising skill levels here, or in most other countries.  In general that shouldn’t be surprising –  successful countries solve their own problems, and when they succeed they might share their bounty with newcomers. But a different sort of people is very rarely the answer to serious economic challenges.

On paper, there is some evidence suggesting that migrants to New Zealand have higher formal qualifications than the average New Zealander.  Nonetheless, as Julie Fry reported in her Treasury working paper a couple of years ago

Evidence suggests that immigrants are, on average, more qualified than the
New Zealand-born.  However, they also face language and adjustment barriers, at times including discrimination, which on average take 10-20 years to overcome.  In common with overseas patterns, recent New Zealand immigrants have poorer outcomes than others in the labour market, although those outcomes improve over time.   Immigrants who are from culturally similar source countries (such as Australia and the United Kingdom) adjust more quickly.   On average, migrants from Asia take longer to adjust, and migrants from the Pacific Islands never reach parity with the New Zealand-born, reflecting the fact that they enter mainly on family reunification grounds and non-skills-based quotas.
Our immigration policy seems seriously misguided.  It has been sold as a “critical economic enabler“, but if anything looks more as though it might be serving as a disabling factor.  There is no evidence that we are short of people, or of skills.  Skill levels  –  individually and collectively –  could no doubt always be higher than they are.  But immigration policy hasn’t been, and isn’t, raising skill levels in New Zealand –  nor is it doing so anywhere else in the OECD.
(And to anyone who wants to run an individual sector skills shortages argument, I commend to them the post I wrote on that topic a couple of weeks ago.)


26 thoughts on “Skills matter….and we already seem to have them

  1. I have an Engineering Degree, I am currently working in NZ, but getting paid approx 1/3 to 1/2 what I was making offshore, its not a skills shortage its an Opportunity shortage.

    Liked by 1 person

  2. Perhaps the reason for the NZ position is that the exchange rate (to $US) has been and still is seriously out of position from where it should be. It the exchange rate reflected the incomes of NZ-ers, then NZ will be at the right side of your graph.


    • The exchange rate translation issue alone doesn’t explain it – those productivity numbers are done using purchasing power parity exchange rate, not market ones – but the persistent overvaluation of the exchange rate (relative to trends over time in productivity) is part of the way in which our rapid population growth has helped skew the economy against the tradables sector, and made it harder for us to catch up. With a much smaller immigration programme, our real exchange rate would fluctuate around a lower level, and more opportunities would be viable here (still doesn’t overcome the location/distance issues fully, but helps make some businesses viable that currently aren’t).

      Liked by 3 people

      • The US was once considered an extremely remote location until their population grew to a size critical to become a self sustaining region, once upon a time hugely reliant 9n migration to reach a sustainable size.


  3. My take on this is that we actually overinvested in education relative to the other policy settings. We produced a huge number of people with advanced degrees and very few high-paying corporates to employ them. From my own experience, this is a big reason why many graduates left.

    Liked by 1 person

  4. Yes, I agree. That said, who is say how many should be produced. It should be a matter of getting the charging roughly right and leaving it to free choice. “Roughly right” of course captures lots of debates.

    Liked by 1 person

  5. Tonight on 7 shapeless they talked about people going to a coding academy. $11000 13 weeks and certainly a job at the end of the course.
    Student loans not applicable and the point was made that they are training people for work.
    Compare that with student loans for people who are filling in 3 years mostly because they have no idea what they want to do and racking up lots of debt with student loans. (which you and I prop up.).

    Students are quitting UNI and going here to get a job.
    In my experience many that graduate finish up without meaningful work that relates to their degree. Oh except lawyers and social degrees. The blight upon this land.

    Too much misappropriated money going to universities and too many low level students getting place at those same universities. i.e. open slather and no quality standards that are worth mentioning on those enrolling. I saw somewhere else tonight that we have high level of dropouts as well.


  6. Thank you Michael that is very interesting. It certainly aligns with my experience having worked overseas and then more latterly having met people from the top international universities and institutions – that we are very much a match for them even with our colonial degrees. And yet we arent as a country getting the rewards from our capability and underlying soundness of our economic system. This is something that has disturbed me now for almost 20 years. For that reason I am increasingly attracted to your immigration analysis -reluctantly as I have so many friends who are relatively recent migrants. And I so enjoy the perspectives they bring which often includes a complete delight at being here.

    I also note that these data are averages and given our tail of Maori educational under achievement, we could be even better. But then maybe we would have an even bigger pool of educated skilled people to export to the rest of the world.


  7. We train fantastic people of ethnic and cultural cultural diversity, the best leave NZ because it is in their best personal interest to do so, its capitalism….

    suck it up..


  8. To claim that there is no skills shortage in New Zealand is a myth. There has never been such a skills shortage today, especially amongst trades people. Talk to any builder and ask them if there is a skills shortage. The real problem is that many New Zealanders do not want to do tradesmen jobs and the educational system is failing to train sufficent people to meet this need.


    • As I’ve noted in the post, no one is questioning that from an individual employer perspective there are difficulties in recruiting at the current wages rate. I addressed this point in a recent post Actually, the immigration system helps to create these “shortages” of NZers – not willfully or deliberately, but quite effectively nonetheless.

      As a reminder, most countries in the world manage to function quite effectively, including functioning labour markets, without large scale immigration. One has to wonder what would make NZ so different?

      If people want to take lots of migrants for non-economic reasons, then lets have that debate. But it is a quite different debate. I’m trying to engage the official case on its own terms – that our large scale (notionally) skills-focused immigration programme is a “critical economic enabler”.


      • 28% of Australians are migrants with 6.7 million migrants compared to 25% of New Zealanders are migrants of a million. Not too sure where you completed your maths but those sort of numbers point to Australia having a much more significant migrant policy than NZ.


  9. As a migrant to NZ, I have seen my wages grow from 30K as a systems accountant with Fletcher Challenge when it was the largest company in NZ when it was in its hey day to currently $200k as a Financial Controller with a private company owned by a UK migrant.

    I cannot agree with Michael because I encounter migrants from all walks of life and they are usually very hard working and very productive people, most of whom are in top paying jobs.but yes, most dairies are owned by migrants and there are many many migrant taxi drivers. But they are all a very hard working bunch of people putting in usually more than 60 hour weeks to get ahead. There is clearly something irrational because I simply cannot rationalise Michaels preoccupation that migrants have a direct correlation with a NZ productivity poverty.

    In fact I see zero correlation studies on any of Michaels analysis. I can see lots of pretty pictures that do show we have a productivity problem but blaming it on migrants is a rather broad sweeping statement and the link leans heavily towards a migrant bias rather than any real correlation.

    You could just as easily made statements that the kiwis that have left were our most productive and those left behind are a drag on the NZ economy, the laziest people on earth and migrants have been brought in just to do the jobs that kiwis do not want to do.


    • In fact if I compare the individuals in my office, the kiwis start at 9.30am and finish at 4.30pm. The migrants start at 8am and finish at 7pm. Kiwis stop work at 3.30pm on Fridays and start on their beer and wine Those that have holiday Bach, head out around 2 pm for a weekend of sailing and fishing. Migrants grab a beer and go straight back to their desks till around 7pm even on Friday to get the jobs done.


      • By working longer hours, are they more productive per hour worked? Or are they more productive because they work more hours? That is the key question?
        Case in point – when a dairy farmer installs a rotary shed with auto-removing cups etc etc they work less hours milking but are more productive. I think that is the point Michael is pushing.


      • I suspect there is a whole mix of experiences. I would typically expect people new to a country/society to often work harder (longer hours) than people who’ve been in a country for a long time. That is often part of getting established. fitting in etc. On average, recent arrivals earn less than others too, so there is an income motivation to work longer hours – to get up that income ladder. I’m also sure that there are some immigrants who are much more hard working than most NZers, and some NZers who are much more hardworking than most immigrants. But actually we know that across the whole economy NZers work longer hours per capita than people in almost any other advanced country, so I don’t think the aggregate data backs a story about “lazy NZers”. And, as Dave suggests, more prosperous and productive societies often tend to work less – time spent working is a cost to the individual, and if you are better off you don’t need to spend as much time working. NZ has not yet found the path to those high levels of productivity, and partly as a result we put in a lot of hours (not just hours per week, but also years of adult life spent in the workforce).


      • That’s the official stats. As far as kiwis are concerned, a 8 hour day at work is 9.30am to 4.30pm and on Fridays, a 9.30am to 2 pm day is still an 8 hour day. As far as a migrant is concerned, an 8 hour day starts from 8am to 7pm. Still recorded as an 8 hour day. Official stats do not and cannot reflect reality.


      • If we are exchanging anecdotes, shall I throw mine into the mix? I’m NZ by birth and 160 years of ancestry. For much of my working life a so-called 8 hour day looked a lot more like your 8am to 7pm story. My wife – also NZ born – operates those sorts of working hours now.

        In terms of official statistics, the most widely used source is not information from employers (the QES) but information from individual respondemts, asked how many hours they actually worked in the previous week (the HLFS).

        I’m not sure there is much to be gained from trying to contrast the work ethics of such large and amorphous groups as “NZ born” and “immigrants”.


      • But Michael, you are of prime working age and you keep yourself busy by blogging. Your working income should be well in the $300 plus but it is not. If you had employed a Phillipine maid at minimum wage to look after the kids you would have helped boost NZ productivity. But instead you are a brake on NZ productivity because you made a lifestyle choice to not work and to stay at home.


    • The thing is that being “lazy” and not wanting to do certain jobs can be a key driver in productivity. Try walking up and down a herring-bone dairy shed and getting covered in cow mess for several hours a day. Doing so will make you want to install a rotary shed where you can stand still, put on cups and let them automatically come off. The next step is full automation etc etc.


      • Then we should be looking at the lack of infrastructure spending as a primary cause NZ productivity. The lack of fast mass transport, the lack of fibre fast Internet broadband connectivity to the world, the lack of international airports causing Auckland to be a massive transport hub around 17 million arrivals and departures into a small city.


  10. This is becoming a rather cracked record and the same old song. And I very much doubt that it is the song that best answers our productivity growth problem. Moreover, I am bemused by the implications in your post that chefs and nurses are not highly skilled positions. Do you really think that, of thone currently unemployed, many could be quickly trained to perform those roles? I very much doubt it. In the case of chefs, most are likely to be in ethnic restaurants. It is inevitable that they recruit their best chefs from their home country. Thank g*d they do. The same is true of most countries I suspect – in chefs recruited from the home country to bring the required experience etc.

    I think you will find plenty of evidence of skill shortages in many industries, including healthcare, building and many others. A survey of employers would provide far more meaningful data than the OECD report you cite.


    • As a reminider this a brand new data set, on a rather salient issue – the official line is that the economy needs all these new skills.

      Re the individual/sector stresses, as I noted in the post yesterday, I suggest reading my treatment of that argument here

      And, yes, most occupations have their own skills. Few people think of the skills in those sorts of occupations (shop or café managers, or rest home workers) as the sort of highly skilled people NZ needs as a “critical economic enabler”. Do I welcome having some ethnic restaurants? Yes, sure, but the numbers make me more than a little suspicious that all is not quite as it seems. More generally, there is no evidence that the NZers are benefiting from the high rate of immigration, even if it were all highly skilled people. If we were, after all, surely every country would be following our example. Few/none are.

      Liked by 1 person

      • That statement again is just a showcase of migrant bias. Historically migration has been the very basis of human existence. Every other country in the entire world has had mass migration in order to populate the vast empty spaces. You forget that DNA tracking has placed the very first humans in Africa before they migrated on to populate the world.

        30% of countries like Malaysia is chinese from migrants brought in by the British as low cost labour. 80% of Singapore is chinese mainly due to Lee Kuan Yew inviting chinese to migrate from Malaysia as race relations boiled over when Singapore was annexed from Malaysia.

        NZ migration is at its lowest point today if you compare the land wars when migrants would have been as much as 80% of the population.


      • there was a nice quote in the Listener recently from my former colleague Matthew Wright: “humankind’s expansion out of the Rift Valley finally ended at the Wairau Bar”.

        I suspect it is not coincidental that we were the last substantial piece of land on Earth settled, and one that, taking in lots of people, struggles to keep up with advanced country incomes


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