The Youth Labour Market Guarantee: the Environment

This was prepared in May 2006 for a report on a Youth Labour Market Guarantee.

Keywords: Education; Growth & Innovation; Labour Studies;


This paper provides an environment in which any Youth Labour Market Guarantee package must function. It covers the Government Vision statement, the latest Department of Labour 2005 statement The Labour Market and Employment Strategy – Better Work Working, and discussion on measuring the labour market with particular attention to the youth transition.

The Government Vision Statement

In Growing An Innovative New Zealand (2002) (and subsequently in Sustainable Development for New Zealand: Program for Action (2003)) the government set out its vision for New Zealand as follows:

A New Zealand Vision
            • A land where diversity is valued and reflected in our national identity
            • A great place to live, learn, work and do business
            • A birthplace of world-changing people and ideas
            • A place where people invest in the future

We look forward to a future in which New Zealanders:
            • Celebrate those who succeed in all walks of life and encourage those who fail to try again.
            • Are full of optimism and confidence about ourselves our country, our culture, and our place in the world, and our ability to succeed.
            • Are a nation that gains strength from its foundation in the Treaty of Waitangi and in which we work in harmony to achieve our separate and collective goals.
            • Are excellent at responding to global opportunities and creating competitive advantage.
            • Are rich in well-founded and well-run companies and enterprises characterised by a common sense of purpose and achievement. They are global in outlook, competitive and growing in value.
            • Derive considerable value from our natural advantages in terms of resources, climate, human capital, infrastructure and sense of community.
            • Cherish our natural environment, are committed to protecting it for future generations and eager to share our achievements in that respect with others.
            • Know our individual success contributes to stronger families and communities and that all of us have fair access to education, housing, health care, and fulfilling employment.

In principle this vision should provided a context for all the government’s policies, although perhaps not all government agencies yet take it into account as rigorously as they should.

In order to be adopted, any Youth Labour Market Guarantee Strategy must take the Government Vision Statement into account. Fortunately the perspective of the Statement is sufficiently visionary to easily accommodate a policy concerned with the transition of youths from schooling to full adulthood. Indeed, without such a policy the vision will be incompletely fulfilled.

The Growth and Innovation Framework (GIF)

Growing an Innovative New Zealand (2002) also expounded a Growth and Innovative Framework summarised by the eight points listed below. They are presented here in a slightly different order, to separate out those components of the framework which are primarily about how the economy and economic growth is to be managed, with those parts which are more about the economic outcomes are to impact on people.

How the Economy Is To Be Managed
            • A stable macroeconomic framework.
            • An open and competitive microeconomy.
            • A highly skilled population.
            • Sound environmental management.
            • A globally connected economy.
            • A solid research, development and innovation framework.

How the Economy is To Impact on Society
            • A modern cohesive society.
            • A healthy population.
            • A highly skilled population.

One element ‘a highly skilled population’ has been included in both groupings because it is a key element of the growth, and also because it has considerable impact on the lives of people. It is also central to any Youth Labour Market Guarantee.

It is central to economic development, because without a highly skilled workforce, New Zealand industries and workers will be only involved in those production processes which compete internationally with low skilled workers and therefore which can reward only with low pay rates. While such a strategy has little intrinsic merit, it would also mean the out-migration of New Zealanders to countries with higher wages, which would immiserate the economy further.

But a skilled population (note not just ‘workers’) also reflects a social outcome consistent with the Government’s Vision. A country which was exceptionally well endowed with some valuable natural resource might be affluent without a highly skilled population (needing some skilled workers, but not all the population). But it would not conform to the Vision.

Upskilling occurs throughout an adult’s life, informally in the workplace and home, formally in educational situations. However the most important formal upskilling occurs in the late teen age and early twenties years. This is evident from a cohort comparison shown in the following table:

Percentage by Cohort by Highest Qualification

Cohort: Years Born 1981/85 1981/85 1976/80 1976/80
Census 1996 2001 1996 2001
Age Range 15-19 20-24 20-24 25-29
None 34.4 15.1 20.1 15.8
School Only 60.4 48.4 50.4 41.9
Basic Vocational 3.1 8.3 6.4 6.4
Skilled Vocational 1.1 3.3 6.0 5.8
Intermediate Vocational .2 3.6 1.1 2.9
Advanced Vocational .7 5.3 6.5 8.0
Bachelor .1 11.8 9.5 14.5
Higher Degree .0 2.2 1.9 4.7
TOTAL 100.0 100.0 100.0 100.0
School or None 94.8 63.5 70.6 57.7
Lower Vocational 4.2 11.6 12.4 12.2
Upper Vocational .9 8.9 7.6 10.9
Degree .1 14.0 11.4 19.2
TOTAL 100.0 100.0 100.0 100.0

Source: 1996, 2001 Population Census

Unfortunately the data is in five year cohorts but it may be reasonably interpreted that at the age of 17 very few of those born in the early 1980s had any tertiary qualification. Five years on, now in there mid-twenties, a third of them had.

Projecting forward using an earlier cohort,[1] and adding the considerable effort since 2001 that has gone into extending tertiary education to a wider section of the community, we must be getting to the stage were almost half of the cohort has some tertiary qualification by the their late-twenties. A few more will get their first tertiary qualification after 30 (and many more will obtain additional and upgraded ones). But the big gains – from zero to half – are in the late teens and early to mid twenties.

There are two consequences:

First, if New Zealand is to have a ‘highly skilled’ population then the youth transition is crucial (although of course the foundations for this transition are built in the home and the school).

Second, a large proportion of the emerging adult population are not ‘highly skilled’. It would be the fallacy of credentialism to say that figure was near a half, since many people have skills without a credential, typically gained from work and life experiences. (Also, sadly, some of the reported credentials are of little value.)

In summary, the vison of a ‘highly skilled population’ has yet to be attained. To do so will involve even more effort in the youth transition.

The Labour Market and Employment Strategy

The Department of Labour’s>The Labour Market and Employment Strategy – Better Work Working Better (2005) is a lower level statement of policy principles, providing greater detail but founded on the vision statement and GIF.

Its principles apply to all workers and not just those in the youth transition. But they set out a picture of the sort of work experience that New Zealand aims to give all workers, thereby raising the issue that if those are the sort of workplaces that youth are meant to experience, what sort of path in the transition from school to them is necessary.

Youth in the Labour Market

An important conventional measure of the state of the Labour Market is the unemployment rate which is the proportion of the labour force who are without work. The labour force is internationally defined as those working at least 1 hour per week plus those who without work are actively seeking work (it this group who are the unemployed). On this measure young people experience much higher employment rates than older workers.

We should always be cautious proposing non-standard definitions (although always willing to challenge the standard ones in order to understand them better). But in the case of the youth unemployment rate, the statistic can be very misleading.

Consider a group of 100 teenagers, 98 of whom are doing courses in tertiary organisations, 1 of whom is in work, and 1 of whom is unemployed (without work but actively seeking work). The unemployment rate on the standard measure is 50 percent. Consider another group of 100, 98 with jobs and 2 unemployed. Its unemployment rate is 2 percent. Despite the second group’s unemployment rate being markedly better than the first, it is hard to argue that the second group is in a better state.

The dissonance arises because those in educational institutions are treated as not being in the workforce, perhaps reflecting the time when young people moved directly from school into the labour force. This story is further complicated because there are those in the workforce who are in training, such as apprentices, and there are those who are doing full-time and part-time courses who are also employed for more than 1 hour a week, while if those students without a job actively looking for work are also classified as in the labour force (and as unemployed).

In order to avoid the statistical paradoxes, we can treat those young people doing educational and vocational training courses as if they are in the labour force. This will reduce their unemployment rate (the ratio of those unemployed to those in the labour force) because:
            – students studying in formal courses and looking for work are treated the same as others with work but looking for jobs, thus reducing the numerator of the ratio;
            – students doing courses will be treated the same as those with jobs, thus increasing its denominator.

Similarly, the change in definition will increase the participation rate (the ratio of those in the labour force relative to the total age group) because
            – students studying in formal courses are treated the same as those with jobs, thus increasing the numerator of the ratio;
            – without changing the denominator of the age group total.

The point of this exercise is not to claim that unemployment is lower or participation is higher. It is to get a better comparisons across age groups, one which acknowledges the particular circumstances of the young.

Unfortunately the data to do such comparisons has only been collected since June 2004. Moreover the published data is only available on an total basis and not by age groups. The age group figures in the table below are estimated. Nevertheless they illustrate that the size of youth unemployment can be exaggerated.

Labour Market: Year ended June 2005.

Age Group Standard
15-19 years 14.2% 5.5% 53.5% 77.9%
20-24 years 7.7% 5.6% 72.5% 80.8%
25-64 years 2.6% 2.5% 68.6% 68.9%
WAP 3.9% 3.1% 67.5% 70.5%

Source: Household Labour Force Statistics.
* Treating Study as Work.
(WAP = Working Age Population)

The adjustment by treating study as work halves the late-teenage unemployment rate from 3.6 times the national average to 1.8 times. At the same time the late-teenage participation rate is above the national average if study is included, instead of being markedly below it.

This does not reduce the importance of the Youth Labour Market Guarantee. There are still over 12,000 teenagers (and another 12,000 in their early twenties) who are unemployed, and probably making are poor transition to to adulthood. There are others, maybe almost as many, who are so discouraged that they are not seeking work but would take it up, were it available.[2] And as previous sections have pointed out, many young people have jobs, but are not obtaining sufficient skills for long run employment success.

[1] Comparing the two middle columns the younger cohort is generally better trained than the older cohort. The one exception is that the proportion of ‘skilled vocational’ is much lower, reflecting the collapse of apprenticeship training in the 1990s.
[2] Those ‘jobless’, which includes others who are not sufficiently vigorously seeking work to qualify as unemployed, is just under double the unemployed for the population as a whole.
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