Industry Training stocks and flows... and the effects of the economic downturn

Industry training

3.1 Industry training new starts

Industry training new starts refers to people entering industry training for the first time.⁶ The year of commencement refers to the first year in which a trainee is active in any form of industry training. This measure enables us to make an assessment of the flow of new entrants into industry training, as it ignores transfers between programmes within industry training for existing learners.

There were fewer new entrants to industry training in 2008 and 2009 than in the period 2005-2007. The proportion of new starts to total industry training activity has declined from 34 percent in 2003 to 25 percent in 2009. Table 4 shows the number of new starts in each calendar year, the total throughput ⁷ of people active in industry training, as well as the proportion of new starts.

In 2003 and 2004 there was some stability in the proportion of new starts to throughput. However, the proportion has dropped by an average of 2 percentage points per year since then. Overall throughput has increased during this period, at an average of over 7 percentage points per year, but throughput growth is declining.

Figure 1 shows the year on year percentage growth of the number of new starts in industry training, and compares this to the overall GDP growth in New Zealand. It includes a line of best fit for both variables (labelled ‘linear’).

There was a general decline across the 2004 to 2009 period in the annual percentage growth of GDP. Overall, the number of new starts in industry training has reflected the change in GDP growth in each year since 2004. Both have dropped on average across the period, with the smoothed trend showing commencements dropped at a slightly faster rate than overall GDP growth.

Other contextual factors include the Government’s raising of the industry training funding cap each year between 2003 and 2007. ⁸ Total government funding for industry training (including Modern Apprenticeships) increased from $97.5m in 2003 to $190.5m in 2007, or by 95 percent.

It seems that the additional funding has not led to a proportionate increase in the number of new trainees. There was a 24 percent total increase in new starts between 2003 and 2007, or an average of 5 percent per year in industry training. Starts in Modern Apprenticeships grew 37 percent in total, or an average of 7 percent per annum. Much of the additional funding has financed retaining existing trainees rather than funding new starts, largely because each new starter is expected to remain in the system for several years.

Figure 1 – Industry training commencement growth compared to national GDP growth

Source: the Tertiary Education Commission and Statistics New Zealand.
Note: GDP growth is annual growth, March quarter.

3.2 Industry training new starts by ITO

Figures 2 and 3 show the proportion of new starts in relation to the total throughput of trainees in each ITO by year. The data does not give a precise idea of the industry in which trainees are active,⁹ but the ITO gives a reasonable, if rough, indication of the industries where training is growing. Figures 2 and 3 show wide variation in new starts compared to throughput between industries during 2005 and 2009.

ITOs where commencements grew in 2009 include sports, fitness and recreation, boating, community support services, social services, flooring, NZITO (covering the dairy manufacturing and meat processing industries) and retail training.

Figure 2 – Industry training new starts by ITO as proportion of total throughput 2005-2009 where new starts increased compared to throughput in 2009

New starts in most industries declined between 2005 and 2009. Serious declines in new starts compared to throughput occurred in building and construction, building service contracting, creative trades, FITEC (forestry and furniture industries), joinery, motor, retail meat, plumbing gasfitting and drainlaying, extractive, opportunity (crane, scaffolding, rigging, industrial rope access and elevating work platform industries) and the hospitality ITOs.

These declines are most evident in 2009. However, for some ITOs, such as building and construction, building service contractors and creative trades, the decline in commencements began much earlier than 2009, possibly as a consequence of the early reductions in capital flows caused by financial market disruption.

Exceptions include the real estate industry, where new requirements for real estate agents to hold a qualification have led to a sharp increase in new participants.

Figure 3 – Industry training new starts by ITO as proportion of total throughput 2005-2009, where commencements decreased compared to throughput in 2009

3.3 Industry training terminations and unexplained exits by ITO

A withdrawal from training may occur for any reason. Withdrawals are recorded in the industry training administrative dataset as terminations, or can be subsequently coded as unexplained exits. The total number of withdrawals is counted each year, irrespective of whether the learner subsequently re-engages in industry training at a later date.

The most obvious reasons for withdrawal from training are:

• a trainee may change employers
  
• a trainee may leave employment and not continue working
  
• a business may cease to operate
  
• a trainee may die, or retire from work
  
• the employer may cancel training for employees (but retain the employee)
  
• a trainee may simply abandon training.¹⁰

A Statistics New Zealand/Department of Labour study (Crichton, 2009) found that jobs ending (with no immediate re-employment) accounted for around 17 percent of terminations in industry training, and changing jobs accounted for a further 10 percent of terminations.¹¹ This leaves roughly 73 percent of terminations that could be allocated to the third, fourth, fifth and sixth scenarios. Two of those scenarios -- the employer cancelling training for employee and the business ceasing to operate -- are more likely to occur during a period of economic downturn than during a period of sustained economic growth.

Employers may also respond to business cycle troughs by suspending training for their employees while times are tough, but retaining the employees. This scenario would almost certainly show up in the dataset as an unexplained withdrawal. If training resumes at a future date, then the enrolment will automatically reactivate.

Table 5 shows the proportion of terminations and unexplained exits (withdrawals) in relation to the total throughput of trainees in each ITO by year of exit. The proportion of withdrawals in relation to total industry training activity increased from 30 percent in 2007 to an estimated 39 percent in 2009.

Figures 4 and 5 show the proportion of withdrawals in relation to the total throughput of trainees in each ITO by year. As with new starts, many ITOs seem to have had large changes in the number of withdrawals compared to total throughput in 2009. ITOs with large increases in the number of withdrawals relative to previous years include: apparel and textile, FITEC (forestry and furniture), NZITO, plumbers gasfitters and drainlayers, extractive, horticulture and local government.

Figure 4 – Industry training withdrawals by ITO as proportion of total throughput 2005-2009, where withdrawals increased compared to throughput in 2009

Withdrawals decreased in a number of ITOs during 2009. Withdrawals peaked earlier than 2009 for the agriculture ITO and the building and construction ITO, which both had very large numbers of exits in proportion to throughput in 2008 and 2006 respectively. 2007 seemed to be a transition year for the electricity supply ITO, with withdrawals representing almost 70 percent of throughput.

The retail training ITO saw large numbers of withdrawals compared to throughput in 2005, and steady decreases in withdrawals since then.

ITOs with genuine decreases in withdrawals in 2009 – that is, with relatively stable levels of withdrawals in relation to throughput in prior years – are relatively few, and include the hairdressing and flooring ITOs.

Figure 5 – Industry training withdrawals by ITO as proportion of total throughput 2005-2009, where withdrawals decreased compared to throughput in 2009

3.4 Industry training demographic change

Table 6 shows the percentage change from year to year of new starts by ethnic group, age of learner at start and wide regional area.

In 2009, new starts for younger learners declined, while new starts for older people increased by similar proportions. New starts by European apprentices declined more slowly than those by Māori or Pasifika people. New starts grew in some regions, such as Auckland and Waikato, but declined heavily in South Taranaki, Southern and Northland districts.

Given the change in the unemployment rate for people aged 24 or younger in 2009, we might be able to infer that the reduction of new starts in 2009 for young people is a consequence of a change in labour market dynamics.

Overall changes in industry training demographics could be a consequence of the stratification of people in industry training and in each industry, rather than a reflection of recruitment preferences of employers during a recession.

For example, some industries, such as retailing, employ high numbers of young people compared to older people, ¹³ and participation in training managed through the retailing ITO may or may not reflect this. Similarly, some ethnic groups are more likely to participate in some ITOs than others, and likewise for geographic differences. From 2004-2008, the proportion of trainees aged 30 or below participating in training with the retail ITO was 55 percent on average. By 2009, this figure had dropped to 42 percent. Retailing GDP dropped by over 3 percent in 2009. We might therefore assign some part of the drop in the number of young people participating in industry training to the decline in retailing.

In 2008, over 55 percent of all participants in industry training were under 30, but this number dropped to 41 percent in 2009. Traditionally, trainees in hairdressing, equine, retail meat, hospitality, motor, joinery, boating, creative trades, flooring, building and construction, plumbing gasfitting and drainlaying and agriculture are younger than those with other ITOs. Table 7 shows the proportion of all industry trainees active with these ITOs each year who are aged under 30.

ITOs with steep drops in trainees under 30 include equine, boating and flooring. Yet new starts in equine, boating and flooring all increased in 2009, while withdrawals in equine and flooring dropped (see figures 2 and 5 above). Therefore, we can assume that the new recruits in these ITOs were generally older, and were perhaps existing workers.

Footnotes

6. This section deals with industry training participants, and excludes Modern Apprentices. Modern Apprentices are examined in later sections.
7. The term ‘Throughput’ used throughout this analysis refers to the total number of distinct learners active in any one calendar year. See appendix tables 2 and 3 for the throughput for each ITO involved in industry training and Modern Apprenticeships 2003 to 2009.
8. See appendix table 1.
9. ITOs may span several industries.
10. Another reason is that an ITO may substantially change a programme, in which case a new programme is created and trainees are withdrawn from the old one. The number of trainees affected by the transfer scenario is relatively small; Mahoney (2009a) found that the majority of learners in industry training participate in just one programme during their time in training.
11. Pg. 47.
12. Unexplained withdrawals allocated to the fourth quarter in 2009 have been estimated based on the relationship between total terminations in each year and unexplained withdrawals occurring in the fourth quarter of each year.
13. See Department of Labour 2009.pg.31.