National Labour Force Projections 2006-base

Method

Population

The 'cohort component' method was used to derive the population projections. Using this method, the base population is projected forward by calculating the effect of deaths and migration within each age-sex group (or cohort) according to the specified mortality and migration assumptions. New birth cohorts are added to the population by applying the specified fertility assumptions to the female population of childbearing age.

The stochastic approach involves creating 2,000 simulations for the base population, births, deaths, and net migration, and then combining these using the cohort component method.

Labour force

The labour force projections are derived by multiplying the projected population by the assumed labour force participation rates, by single year of age and sex. Stochastic labour force projections are derived by applying the 2,000 simulations of labour force participation rates to the 2,000 simulations of the population.

Population projections

Labour force projections for 2006–10 are based on population estimates for that period. Labour force projections for 2011–61 are based on the 2011-base national population projections released on 19 July 2012. In brief, these population projections assume:

• a base estimated resident population (ERP) of New Zealand of 4.185 million at 30 June 2006
• fertility rates varying throughout the projection period. The median period total fertility rate declining gradually from 2.05 births per woman in 2012 to 1.96 in 2021, and to 1.90 in 2036 and beyond.
• death rates varying throughout the projection period. The median assumption has male period life expectancy at birth increasing to 84.3 years in 2036 and 88.1 years in 2061. The corresponding female period life expectancy at birth increases to 87.3 years in 2036 and 90.5 years in 2061.
• migration varying throughout the projection period. The median net migration (arrivals less departures) increases from -3,000 in 2012 to zero in 2013, to 7,000 in 2014, and to 12,000 in 2015 and beyond.

Labour force participation

Labour force participation rates (LFPRs) measure the proportion of the population in the labour force, either part-time or full-time. LFPRs differ significantly across age for both males and females.

Assumed LFPRs are formulated from analysis of trends in the Census of Population and Dwellings and the Household Labour Force Survey (HLFS). Although the same definition of labour force is used in the projections as in the census and HLFS, some important differences exist:

• The HLFS provides the official measure of the labour force using an interviewer-administered survey of about 15,000 households and 30,000 people each quarter. By comparison, the census provides a snapshot of the labour force every five years.
• The HLFS measures labour force status over each quarter, while the census question refers to labour force status in the week before the census date.
• Unlike the HLFS, the census is not subject to sample error (although both data sources may contain non-sampling errors). As a result, the census can provide information at a more detailed demographic level (eg single year of age) than the HLFS.
• Non-response in the HLFS is minimised through the use of best survey practices. Because the census is self-administered, higher rates of non-response occur.
• The HLFS generally excludes people in the armed forces and non-private dwellings (eg retirement homes, hospitals, prisons), while the census includes everyone who is in New Zealand on census night.

These differences explain why LFPRs, as well as numbers in the labour force, vary between census and HLFS. These differ again from the base for these labour force projections, which is the estimated resident population of New Zealand in the labour force at 30 June 2006.

Compared with the HLFS, the 2006 Census generally indicated higher LFPRs for males and females at ages 65+ years. The 2006 Census also indicated lower LFPRs for males at ages 25–54 years.

LFPR assumptions are formulated by single year of age and sex, and for each projection year including the base year. Important considerations in formulating LFPR assumptions are:

• comparability of LFPRs across age (eg consistency between adjacent ages)
• comparability of LFPRs across projection period (eg consistency between adjacent years)
• comparability of male and female LFPRs at each age and each projection year
• plausibility of LFPRs (eg 0 ≤ LFPRs ≤ 1).

The main features of the median LFPR assumptions are:

• significant increases in LFPRs for males aged 55+ years and females aged 50+ years.This reflects increased flexibility in the age of retirement (with no compulsory age of retirement), changing attitudes to retirement, and increasing life expectancy and wellbeing in the older ages.
• small increases in LFPRs for females in main childbearing ages, 21–49 years. This partly reflects declines in completed family size and increases in childlessness.
• small decreases in LFPRs for males and females aged 15–20 years. This reflects the impact of the global economic recession, as well as increasing rates of participation in tertiary education.
• static LFPRs for males at ages 21–54 years.

Future labour force participation trends are uncertain and depend on a range of factors:

• Changes in population composition and different trends in population subgroups (including ethnic groups).
• Trends in fertility including the timing and number of births.
• Trends in the patterns of education (especially tertiary education) and work, including the timing, duration, and proportion of time dedicated to those activities.
• Trends in the balance between paid work, unpaid work, family, and leisure activities at different ages.
• Changing macro-level conditions (eg global and national economic conditions, government policies) that affect the labour market and demand for labour.
• Trends in health and mortality, affecting well-being and life expectancy, especially at ages above 50 years.
• Changes in financial considerations, including eligibility for government superannuation, especially at ages above 60 years.

Simulations of LFPRs are produced using a simple random walk with drift model. Random errors are sampled from a normal distribution with mean of zero. For the base year (2006) of each simulation, a random number is multiplied by the assumed standard error for each age-sex, then added to the base LFPR. For subsequent years of each simulation, a random number is multiplied by the assumed standard error for each age-sex, added to the standard error from the previous year, then added to the median LFPR. The assumed standard errors in each year are formulated by expert judgement. The drift function shifts the median of the LFPR simulations to follow the assumed median LFPRs. So LFPR simulations are correlated across age-sex (ie if LFPRs are high, they are high at all ages for both males and females), but vary randomly from year to year.