Understanding labour market developments in New Zealand, 1986-2017

In this paper we document longer-term trends in the New Zealand labour market using unit-record data from the Household Labour Force Survey (HLFS) and HLFS-Income Supplement. We focus on analysing the factors behind the large increases in labour force participation over 1986-2017, as well as on decomposing wage growth into contributions from continuing workers versus compositional effects associated with flows into and out of employment. New Zealand’s aggregate labour force participation rate has steadily trended up since 1993, despite an aging population. The dampening effect from population aging has been more than offset by increasing participation among older workers, with the participation rate of those aged 55 and over increasing from around 20 percent to 50 percent. We find that increased participation among prime-age females also contributed significantly to the increase in aggregate labour force participation. Further, rising levels of education over time are estimated to have boosted participation across demographics. Inflation adjusted wages grew by about 1.5 percent annually on average over the period from 1997 to 2015. Net employment growth over the period has tended to restrict average wage growth. Average wage growth has been lower since 2008 than before, suggesting weaker economy-wide wage pressure. This is mainly due to lower wage growth among continuing workers rather than compositional changes in employment, perhaps due to firms cutting costs and loss of worker bargaining power.