Pacific Economic Trends and Snapshot September 213 Report to Ministry of Business, Innovation, and Employment
Contents 1. Key points... 3 2. Demographic trends... 5 3. Qualifications and skills... 7 4. Employment and incomes... 9 Pacific Economic Trends and Snapshot September 213 2
1. Key points This economic snapshot shows a significant gap in the economic outcomes (incomes and net worth) of Pacific people compared to the rest of the population (Maori being the main exception on a number of measures). This gap reflects major structural factors. The young age structure of Pacific people accounts for 3.5% of the 1% difference in income from wages (and 1% of the 22% difference in income from all sources, including from investments and self-employment). Other factors are differences in qualifications and skills, sectors of employment, and the high proportion of migrants in the Pacific workforce (who tend to earn less than nonmigrants). These structural factors take a long time to change. Nothing can be done about age or about migrant status of those in the workforce. Changing other characteristics of those already in the workforce is difficult too. Even if from now on New Zealand born Pacific people gained the same qualifications and skills as the rest of the population, difference in incomes and wealth between the Pacific and other population groups would persist for a long time. But the young age structure presents an opportunity. Between now and 226, 98, young Pacific people will become part of the working age population. They will replace 16, Pacific people who will turn 65. The latter tend to be low skilled. Given the progress that is being made in the educational attainment of Pacific people, this can result in a substantial earnings boost of about 15% as the qualification mix improves. This boost can be raised further if educational attainment and sector of employment choices were to fully match that of the general population. Under Grow NZ for all, the Ministry of Business, Innovation & Employment (MBIE) set a target to increase real household income 4% by 225, or 2.75% per year. If we focus on personal incomes (to stay away from differences in household composition) it suggests weekly income from all sources for those in paid employment would rise from $1, to $1,4. Weekly income for Pacific people would rise from $785 to $1,115 by 225. For Pacific people s income to converge with the average (taking account of age differences) real wages would need to rise by 4.4% per annum between now and 225 an extra 1.7 percentage points per annum on MBIE s target. The improved qualification mix in the workforce mentioned above would take it some of the way, to $1,285. Further action on educational attainment can make even more of a difference. The lack of net worth among Pacific people is in part due to the age structure and lower incomes, but also due to remitting and gifting. Whether this is an issue or not is for Pacific communities to discuss. But a lack of net worth is one barrier to entrepreneurship and self-employment and thus business and investment income. So what next? The data and discussion in this economic snapshot suggest that raising household incomes requires attention in the following areas: continuing efforts to raise educational achievements of Pacific people, including: effective levels of participation in early childhood education effective compulsory schooling, in particular addressing the outcomes in decile 1-3 schools facilitating Pacific youth pushing on to achieve in tertiary education and into employment addressing the high rate of Pacific youth (particularly females) not in employment, education and training, to avoid long term detachment from the labour market and poor income outcomes reviewing the labour market interventions in place for unemployed Pacific people over the age of 25, who may have skills or experience in declining or slow growing sectors understanding better the reasons for the lower labour force participation (and thus lower household income) among Pacific people, and what change is desirable. Pacific Economic Trends and Snapshot September 213 3
Figure 1: Explaining the structure of this report Immigration Pacific people Consume Gift/remit Save Education Jobs Income Wealth Bank deposits Property Business Human capital The diagram above shows some of the key linkages that help explain the welfare of Pacific people in New Zealand (see de Raad & Walton for a detailed discussion). 1 The ideas inform the structure and focus of this economic snapshot, and the focus on demographics, education and skills. Basic population characteristics, like age and migration, have a big impact on social and economic outcomes, including household income. They explain a significant part of differences in income and wealth. Migrants tend to earn less than New Zealand born people. This is because of language and other labour market barriers. Pacific migrants also tend to have few qualifications or skills, which affect income. Education helps people to raise their skills and knowledge ( human capital ). This leads to better paying jobs. As people get older, they also build up their human capital, and thus are able to earn more. There are feedback loops: children are more likely to have tertiary qualifications if their parents do. Income gets divided into spending today (housing, food, power, travel, fees, entertainment, etc.), saving and donations/remittances. The higher one s income, the easier it is to put some money aside to save. People s situations and preferences, including those shaped by cultural ties, will influence spending and savings decisions, and these may change over time. For example, New Zealand-born Pacific people may not wish to remit or gift to the same extent as their migrant parents. Savings can be put to different uses: bank deposits, property, equities and business ventures, or education and training. These different types of storing wealth build up over time and generate returns. Young people tend to have little wealth compared to older people, because they have lower incomes and have not yet had the chance to accumulate savings (including net equity in housing). Investments depreciate and need to be maintained; properties need repairs; people may need refresher courses or even retrain (for example, experience and skills gained in one job may be obsolete elsewhere). There are many other factors that influence outcomes, including intergenerational and neighbourhood effects. The aim of this model is to focus attention on a limited number of important economic factors. 1 de Raad JP & Walton M. 28. Pacific people in the New Zealand Economy in Bisley A (ed). Pacific Interactions. Institute of Policy Studies. www.ips.ac.nz Pacific Economic Trends and Snapshot September 213 4
2. Demographic trends A growing population group Pacific people will account for 23% of all population growth to 226 The Pacific population in New Zealand will grow 4% from 345, in 211 to 482, in 226. Pacific people will make up 1% of the total population, but make up 23% of all population growth over this period. Because Pacific people will be such a large part of the growth in population, it requires a specific focus. It has implications for the orientation and performance of education, health and other social services. Born in New Zealand Migration no longer fuels the growth in the Pacific population With the median age rising to just 23 in 226, differences in income will persist Nearly all the Pacific population growth will be due to births. Migration, which fuelled population growth during the 195s until the 197s, is no longer the driving force. New migrants tend to earn around 2% less than New Zealand-born residents with otherwise similar skills and characteristics, according to literature. This migrant penalty is due to skills and language barriers. It erodes with time, but only very slowly for migrants with low skills and those from non- English speaking backgrounds. This migrant penalty will become less of an influence in future. The Pacific population is also a young one, with the median age rising to just 23 in 226. The median age of Europeans the largest population group will be 42. In general, young people earn less than older people. Income differences will persist, even if other causes for income differences are eliminated; the average weekly income for someone aged 4-44 is twice that of someone aged 2-24. Pacific people will make up an increasingly important component of the labour force. The number of Pacific people of working age will grow 4% to.3m between 211 and 226. This compares to a 3% drop in the number of working age Europeans, to 2m. Two thirds live in Auckland Signs of upward mobility, but risk of a poverty trap The majority of Pacific people (66%) live in Auckland. This is a real plus, as Auckland is New Zealand s centre of economic and job growth. Geographic concentration also helps with targeting interventions. However, most Pacific people live in poorer neighbourhoods (33% in South Auckland). In part, this is a life stage; as people grow older and earn more they move into better houses and well-to-do neighbourhoods. But there is a risk of a poverty trap, if children go to poor performing schools or face other barriers to job search or social mobility. The trap may reflect neighbourhood effects or unmeasured individual factors; more needs to be known about root causes to guide the design and selection of interventions. Pacific Economic Trends and Snapshot September 213 5
Percentage of Population NUmber of People Number of people (s) Thousands Proportion of NZ Popn. (%) Figure 2: Diverse Figure 3: and growing Seven largest Pacific ethnic groups in NZ Growth of Pacific population in New Zealand, 1945-226 14 12 6 12 1 8 6 4 2 21 26 5 4 3 2 Pacific people (LHS) Percent of NZ population (RHS) 1 8 6 4 1 2 1945 1956 1966 1976 1986 1996 26 216 226 Figure 4: A young population Figure 5: Migration no longer the key reason for Pacific population growth Population age distribution at 226 6 Pacific population Total population 4 2 14 15 39 4 64 65+ Pacific Population growth 9 Net Migration New Zealand Pacific births 8 7 6 5 4 3 2 1 22 23 24 25 26 27 28 29 21 211 212 Source: Statistics NZ, NZIER Figure 6: Two-thirds of Pacific people live in Auckland Figure 7: and a third in South Auckland Distribution of Pacific Population in New Zealand, NZIER Pacific Economic Trends and Snapshot September 213 6
3. Qualifications and skills The education gap is narrowing Barriers to education go right back to early childhood The qualification gaps between school leavers is closing Positive tertiary participation rates need to translate into higher qualifications Quality early childhood education (ECE) is associated with better education outcomes later on. Children from disadvantaged backgrounds can benefit in particular. Pacific children s participation rate in ECE is now catching up to the population average. At the current rate of improvement, Pacific children s participation rate will be the same as for all children in 22. Educational outcomes at low decile schools tend to be lower than for children at high decile schools. Reasons are complex, but include quality of schools, the influence of parents backgrounds (e.g., low literacy and resources), and so-called neighbourhood effects. In 212, 6% of Pacific children attended a decile 1-3 primary or secondary school (compared to 68% a decade ago), and 12% attended a decile 8-1 school. For other children the split is better: 6% and 37% respectively. Outcomes are also improving, although gaps remain. In 21, 68% of Pacific school leavers had NCEA level 2 or above, compared to 75% of other school leavers the 212 target. There is a way to go, but it is an improvement from 5% in 26 (61% for others). 2 In tertiary education, the (age standardised) participation rate of 12% for Pacific people was on par with that of the total population in 21. But participation is over-represented at the lower end of qualifications (certificate courses). This will impact on earning potential. After three years, median annual earnings are 16% higher for those with a diploma compared to level 1-3 certificates. But they would be 51% higher with a bachelor s degree. 3 Field of study and industry make a big impact on the income premium, and this should inform study choices. Population-wide gains from qualifications will emerge only slowly A high proportion of Pacific people work in low skilled jobs The skill mix of Pacific people in the workforce will change, but slowly Qualification differences translate into the type of work people do also. Over 6% of employed Pacific people work in skill level 4 or 5 occupations, such as carers, cleaners, retail jobs, factory process workers, and farm and forestry workers. 4 By contrast, half of those of European background work in high skilled occupations (managerial and professional roles), double the Pacific rate. Over time these differences in jobs (and thus income) will disappear, reflecting narrowing differences in qualifications of new entrants into the workforce. But this is a slow process if it has to rely solely on raising the qualifications of new entrants: the majority of those already in the workforce now will still be working in 225. 2 3 4 There is data for 211 and 212, but these do not match the Pacific Education Plan targets http://www.educationcounts.govt.nz/indicators/main/education-andlearning-outcomes/1781, likely due to definition issues. The proportions are lower (eg 65% of school leavers in 212 compared to 57% in 29), but improving. Scott D. 29. What do students earn after their tertiary education? Wellington: Statistics NZ, www.stats.govt.nz http://www.stats.govt.nz/browse_for_stats/income-and-work/employment_and_unemployment/skills-employed-people.aspx#ethnic Pacific Economic Trends and Snapshot September 213 7
Proportion of Population(%) Proportion of Popn (%) Proportion of Student(%) % premium on median earnings Prior participation rate Percentage of school leavers Figure 8: More getting an early start Figure 9: Improving NCEA results 1 Early childhood education prior participation rate 8 School leavers with NCEA level 2 or above 9 7 6 8 7 Pasifika Total 5 4 Pasifika Non-Pasifika 6 2 22 24 26 28 21 212 Source: Ministry of Education - Education Counts 3 23 24 25 26 27 28 29 21 Source: Ministry of Education; Pacific Education Plan Targets Figure 1: This should translate into tertiary qualifications Figure 11: Higher qualifications tend to lead to higher earnings 45% 4% 35% 3% 25% Students by Qualification 212 Total Population Pasifika 125% 1% 75% Median earnings premium on level 1-3 certificates three years after completion 2% 5% 15% 1% 25% 5% % Certs 1-3 Cert 4 Dip 5-7 Bach Post grad Masters Doc % Source: Scott 29 Figure 12: Low qualifications still dominate Pacific workers Figure 13: and this is reflected in their occupations 4% 35% 3% 25% 2% 15% Highest Qualification - 212 European Pasifika 25% 2% 15% 1% 5% Employment by Occupation - Mar 213 Pasifika Population Total NZ Population 1% % 5% % None School PS below Bachelor, HLFS degree or higher Not specified Admin Sales Operators Labourers Pers. Services Professionals Trades Source: Ministry of Business, Innovaton and Employment Managers Pacific Economic Trends and Snapshot September 213 8
4. Employment and incomes Income gap Incomes lag For all people aged 15 and over, Pacific people s average weekly incomes from all sources is 34% lower than for all ethnic groups combined. Differences are lower for those in paid work: a 22% gap in average weekly income from all sources and a 1% gap in wages and salaries. Differences in qualifications, age, and industry of employment explain much of the gap. Ethnicity too plays a part, which is indicative of the role of migration status and other unmeasured factors. 5 and net worth lower too and lower wealth Just 31% of Pacific people report income from other sources, such as selfemployment and investments, compared to 66% of the total population. The average net worth of Pacific people is just 2% of the national average. Net worth is the value of assets (such as a house, deposits and shares) less liabilities (such as mortgages, credit card debts or other loans). In 26 the average net worth of Pacific couple was around $46,, compared to $223, for the total population. Age and income explain some of this for example, at young ages people with a home tend to also have a mortgage. But remittances and gifting also affect financial wealth. Unemployment a serious concern and unemployment high Raising workforce participation and reducing unemployment will help to raise household income. At 16% the Pacific people s unemployment rate in June 213 was three times that of Europeans. Pacific youth unemployment was 3% (22% male and 38% female) compared with the 16% national youth unemployment rate. The proportion of Pacific youth not in employment, education or training (NEET) was 19% (12.9% Pacific males and 26% Pacific females), twice that of Europeans. A pressing challenge is to avoid this detachment turning into a long term labour market disadvantage. At 6%, the labour force participation rate is also considerably lower for Pacific people than the 69% for those identifying as European. GFC hit Pacific hard Pacific workforce concentrated in low income jobs and declining sectors The higher unemployment rates reflect differences in qualifications and skills, as well as the industries that Pacific people work in. Pacific people are overrepresented in labourer and machinery operator jobs, which are concentrated in manufacturing, wholesale and retail, transport and warehousing. These sectors were hardest hit in the recession, which sped up the longer run decline in manufacturing jobs. These jobs may not come back, suggesting retraining may be necessary. 5 Lattimore R, A Wang, I Duncan. 25. Pacific People s Economic Participation Report: implications for the New Zealand Economy. NZIER report to Ministry of Pacific Island Affairs Pacific Economic Trends and Snapshot September 213 9
Employed (s) Number of Employees (s) Unemployment rate (%) Proportion of 15-24yr olds Figure 14: Pacific weekly income from all sources a third lower Figure 15: Age structure is only part of the explanation 6 5 4 3 2 1 Average weekly income from source Wages Self Emp. Govt. Transfers European Mäori Pacific peoples Investment Other Average weekly income by source by age Wages and salaries Self-employment Government transfers Investments Other transfers 1,2 1, 8 6 4 2 Figure 16: Unemployment rate doubled post GFC 18 16 14 12 1 8 6 4 2 Unemployment rates by Ethnicity European Pacific Islanders 27 28 29 21 211 212 Figure 17: and youth unemployment is a concern 25 2 15 1 5 Not in Employment, Education or Training June 213 European Maori Pasific Asian Source: NZ Income Survey 212 Figure 18: Pacific workers concentrated in four sectors... Figure 19: three of which were hit hard by the GFC 25 Pasifika employment by industry - Mar 213 3 Change in employees 28-212 2 2 15 1 1 5-1 -2-3 Source: Ministry of Business, Innovation and Employment -4 Manufact. Wholesale & Retail Transport Health Pacific Economic Trends and Snapshot September 213 1
2 Cyclical changes reinforced some longer term structural patterns Job numbers Relative share Job growth 1 year performance %pa Managers 5.6 2% Professionals 13.2 4% Technicians and Trade Workers 1.7 1% Community and Personal Service Workers 12.2 1% Clerical and Administrative Workers 12.1 % Sales Workers 9.1 2% Machinery Operators and Drivers 13.9 % Labourers 22.4-1% Primary 3.2 % Manufacturing 19.7-1% Utilities and Constr. 7.8 2% Wholesale, Retail & Accom 18.4 1% Transport, Warehousing & Comms 1.3 2% Financial and Insurance 3.6 3% Other Business Services 7.2 3% Public Admin and Safety 6.7 2% Education & Training 6.6 2% Health 1.6 3% Other Services 5.6 2% For more information This report was prepared by NZIER for the Ministry of Business Innovation and Employment. For more information on this report contact: Matalena Leaupepe Chief Advisor, Pasifika at the Ministry of Business Innovation and Employment. Pacific Economic Trends and Snapshot September 213 11