Pacific Peoples Economic Participation Report: Implications for the New Zealand Economy

Executive Summary

Research objectives

The Ministry of Pacific Island Affairs commissioned the New Zealand Institute of Economic Research (NZIER) to undertake this research on Pacific people’s participation in the New Zealand economy. The Ministry gave the following research brief.

In economic terms, the Pacific population performs on average worse than the New Zealand population; the Pacific population is growing faster than the New Zealand average population and will be a considerably larger proportion of the New Zealand working age population in the future. This has social and economic implications for New Zealand now and in the future.

There are two main questions behind the objectives of this research. Firstly, to find if historical data suggests this disparity is likely to correct itself in the future without intervention?

And identify what the economic implications of this disparity for the New Zealand economy are now and in 2021.

Approach

This study is primarily quantitative as it examines past trends in the wage incomes and employment rates of Pacific peoples. It also looks at the factors contributing to those trends (such as age, gender, and qualifications) and the implications of these trends for the future collective contribution of Pacific peoples to the New Zealand economy. Wage income is used as a proxy for economic contributions because in many circumstances, wages reflect the value added (GDP) contributed by people in the paid workforce.

Over the period to 2021, factors including the broader economic context, and social and cultural factors peculiar to Pacific peoples, will influence the economic experience of Pacific peoples, as individuals and their economic contribution. Within the scope of this project, we have limited our review of the literature to those elements most pertinent to our modelling and for which there is robust time series data for Pacific peoples, which can be used in the model.

The aggregate economic contribution of Pacific peoples will also be influenced by government intervention not just with migration, but also through policies which influence education, skills acquisition or labour force participation. Those aspects of government intervention are pertinent to this brief and are discussed in the report, but we do not make any firm recommendations.

The objectives of the report are to:

 Describe the data we have assembled and analysed.
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 Discuss historical trends in the economic contribution of Pacific peoples since 1986.
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 Suggest explanations for these trends, based on relevant literature and the story emerging from the data.
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 Describe the structure of the model used for projecting the future economic contribution of Pacific peoples.
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 Discuss the results and the reasons for them and set out the base data and detailed results in a separate Appendix.
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The main elements of this research are summarised below.

Starting point for analysis

A starting point of 1986 was chosen because the census data collected at that time had the requisite detail on Pacific peoples and is more or less consistent over the period from 1986 to 2001. The starting point means the analysis begins with the extreme disruption to Pacific peoples’ employment caused by the sequencing and timing of the economic reforms.

Because of this the economic performance of Pacific peoples starts from a low point, which is not typical of contributions prior to the mid-1980s. However, the adjustment problems highlighted by the reforms do demonstrate the vulnerability of the Pacific peoples workforce, in terms of the flexibility of the work skills they commanded in the 1980s and any discriminatory effects that existed at the time like terms of employment attachments.

Trends - 1986 to 2001

Over the period from 1986 to 2001, it appears the wage incomes of Pacific peoples has been raised to 82% of those of their non-Pacific counterparts. Much of this converging trend is due to higher levels of education and training, but it is also due to recoveries in labour force participation rates and rates of employment for New Zealanders, especially Pacific peoples. It is also likely that lying behind these numbers is a story about improved health status amongst Pacific peoples influencing longevity and work spans and also declining Pacific peoples fertility rates.

The projections – to 2021

Our projections suggested that continued convergence of Pacific peoples wage incomes towards the incomes of non-Pacific is dependant on a number of key assumptions, underlying the Statistics New Zealand population projections. These include increased longevity, lower birth rates and migration levels. Also, if the education and training levels of the current generation of Pacific peoples children can be accelerated to meet current levels attained by non-Pacific, then Pacific peoples wage incomes could be close to around 96% of non-Pacific rates by 2021. It could be close to 100% with accelerated re-training and productivity incentives among older generations.

To achieve these gains the economic environment has to be receptive to the efforts of Pacific peoples. But Pacific peoples can’t achieve all these gains on their own. There does appear to be continuing discrimination of some sort against Pacific peoples. It takes the form of a wage gap between Pacific peoples and non-Pacific with the same age and qualifications, and to some extent, an employment gap, though the later effect is disappearing. While the discrimination effect is strong and statistically very significant, it causes are not entirely clear.

Economic convergence (bringing Pacific peoples’ wages and employment rates relative to those of non-Pacific) by 2021 would bring a benefit to the New Zealand economy of up to $5 billion, in 2001 price terms. Up to 80% of this gain is very likely to occur without major changes in current interventions because the Pacific peoples workforce is increasing much faster than the non-Pacific workforce. Also training and education subsidies are likely to continue at current levels. The remaining 20% will require important changes to identify and correct wage gaps affecting Pacific people.

Further research

The study does not focus on self employed people because the main formal economic contribution of Pacific peoples to the New Zealand economy stems from paid employment. The study also does not attempt to examine broader economic contributions outside the paid workforce, because research resources did not permit that.

These exclusions limited the coverage and detail of this study and suggest an agenda for further economic and social research. These include extending the analysis to cover the self-employed, as well as estimating more detailed wage equations.

The framework can be extended to draw out closer links between wages and productivity. One way to do that is to examine Pacific peoples’ employment from the point of view of employers. Such extensions would enable us to better understand the wage gap estimated in this study, to help focus corrective action. This gap is discussed in Section 5.2 of the report:

“There are factors associated with Pacific peoples (but not with non-Pacific) that cause wage rates for Pacific peoples to be below those of non-Pacific. The most obvious factor that could be creating this effect is ethnic discrimination, as reviewed by Darity (2000). The effect can, of course, reflect discrimination (on ethnic grounds) by employers, but it could, at least partly, be caused by attributes or work characteristics of Pacific peoples employees (not exhibited to the same extent by non-Pacific)”

ENDS

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