How can tertiary education deliver better value to the economy?

Publication Details

This paper asks how tertiary education can deliver better value to the economy. It is based on a presentation given at the New Zealand conference of the Association of Tertiary Education Management in Auckland in July 2010.

Author(s): David Earle, Tertiary Sector Performance Analysis and Reporting Division [Ministry of Education]

Date Published: December 2010

Why is New Zealand’s productivity so low?

As shown before, New Zealand has had a substantial growth in the workforce with tertiary qualifications. There is evidence that a more qualified workforce is linked to higher productivity. Figure 4 above shows the relationship of educational attainment to GDP per capita. A very similar graph can be drawn using labour productivity measures, with New Zealand in the same position of high education and low labour productivity (see Earle 2010a).

This raises the question of why New Zealand’s labour productivity is relatively low for the proportion of the workforce with tertiary qualifications. A number of reasons contributed to this in recent years.

From 1999 to 2007, the expanding economy led to an expanding workforce. At the same time, high labour demand in Australia led to net emigration from New Zealand to Australia. Many of the additional workers entering the New Zealand workforce had lower qualifications and less work experience. This resulted in reduced average production per worker (Earle 2010).

New Zealand had a high reliance on skilled immigration between 2000 and 2007 to fill workforce gaps. In 2006, 20% of degree holders and 30% of postgraduates in employment in New Zealand had arrived within last 10 years – of these, 60 percent have English as aan additional language (Earle 2009b). It takes time for migrants to adjust to a new country and become fully productive. Recent research suggests it takes ten to twenty years for immigrants with bachelors degrees to move into occupations that match their educational levels (Poot and Stillman, 2010). Having English as an additional language is a further barrier to being employed at full potential in New Zealand, even for people who have good English-based literacy (Earle 2009b and 2010a).

The structure of the New Zealand economy also contributes to low productivity. New Zealand has a relatively large proportion of the workforce in low value-added sectors, such as agriculture (Mason and Osborne, 2007). New Zealand also has relatively low capital intensity, compared to its trading partners. Private investment in research and development is also linked to productivity, and is low in New Zealand (Earle, 2010a).

Finally, economic geography works against New Zealand. Economic geographers have shown that over half the gap in labour productivity between New Zealand and the OECD can be attributed to geography. The small size of the economy further increases the gap. The global trend is towards the concentration of capital and skilled labour in major cities. This has the effect of encouraging the outflow of both towards Australian cities (McCann 2009). Hendy (2009) found that innovation, as measured by number of patents per capita, is strongly related to city size. He showed that New Zealand cities perform as well as similar sized Australian cities on this measure. However, we do not match the rate of the large Australian cities.