New Zealand’s underutilised workforce
Untapped potential or tapped out?
Underutilisation in the labour market is not a term that rolls off the tongue, but it has potentially far-reaching consequences for national productivity and wellbeing. New Zealanders work more hours and produce less than most OECD countries. If we want to increase material living standards, we need to explore every reasonable possibility to increase labour productivity — including looking at underutilisation.
NZ’s labour productivity, measured as GDP per hour worked, has ranked in the bottom half of OECD countries since the year 2000, and has fallen into the bottom 75% since 2019.Contributing components of GDP per hour worked are how well individuals' skills match their jobs, and how many hours they are working in those jobs.
The labour market metric underutilisation estimates the sum of people in three distinct groups:
the underemployed — those working, but want to work more hours, and are available to do so
the unemployed — those without a job, but actively seeking work and are available to do it
the potential labour force — those without a job, and either available to work or actively seeking it, but not both.
How many hours do you want to work?
We might think of underemployed workers as individuals whose potential isn’t maximised at work; however, labour market statistics on underemployed measure how the number of hours an individual actually works compared to the number of hours they say they want to work.
Recent MBIE-funded research on characterising the underutilised workforce in NZ reveals that although many underemployed workers claim “not enough work available” as the main reason for their underutilisation, the statistics hint at a different story.
How many hours do the underemployed work?
We analysed data from New Zealand's Household Labour Force Survey (HLFS) spanning the six years between Q2 of 2016 to Q2 of 2021, finding that under-employed workers were only working one hour per week less than their fully-utilised counterparts. For those working full-time, this equates to 40 hours worked by the underemployed compared to 41 hours worked by the fully-utilised.
… underemployed workers were only working one hour per week less than their fully-utilised counterparts.
The key difference between the underemployed and the fully-utilised is not hours worked; rather it seems to be household and individual income. As an example, part-time underemployed workers earn 28% less than their fully-utilised counterparts, and this gap widens to 32% when we compare the full-time underemployed to to fully-utilised full-time.
These findings challenge the tempting assumption that underemployed workers are just not working enough. It also begs the question: Is the issue that underemployed individuals aren’t working enough hours, or that they can’t increase their incomes while working a 40-hour week? We cannot determine this from the HLFS, as a “not enough income” option was not offered to respondents.
Not an easy fix
Low-paying jobs tend to also be low-productivity jobs. More low-paying jobs thus dilute productivity measures, such as GDP per hour worked. If the goal is to lift NZ’s productivity, perhaps simply reducing the underutilisation of those currently classified as “underemployed” is not as good of a solution as we may intuit it to be.
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I’d like to thank and acknowledge by co-authors on the project: Lisa Meehan & Gail Pacheco.
Note that my inclusion of “underemployed full-time” in the broader underemployed category is a departure from Stats NZ’s official definition, which categorises the “underemployed full-time” as ”fully utilised”.
I've always been confused about the statement that NZers work longer than our OECD counterparts. We work more hours per capita, but we also have a greater employment rate . However, when you look at the difference in hours worked per worker, then any differences are marginal. For example, according to the OECD (https://stats.oecd.org/index.aspx?DataSetCode=ANHRS#), in 2021, the average annual hours actually worked per worker in New Zealand were 1,730 and 1,716 for OECD mean, and the largest difference I could find was in 2019 with 71, which is not massive for an entire year
Neat stuff. It suggests that the government might be a bit misguided in thinking there's a lot of slack in the labour market via underemployment. It's been one of the less-implausible reasons for Labour's hostility to immigration: rather than just being racist xenophobes, they believe there are a lot of underemployed workers here who would be putting in a lot more hours in the absence of migrants. But if half the underemployed are full-time anyway and working only an hour less than their fully-utilised counterparts, there may not be nearly as much slack as Minister Wood seems to think.