Brian Fallow: Working on those mums

There is a tinge of forlorn futility, if not desperation, to Government plans to boost the labour supply by sending musterers' dogs out to round up expatriate Kiwis.

Wide income gaps have opened up between New Zealand and its erstwhile peers, which suggests it will not be easy to get a lot more expatriates to return than would have anyway.

In Australia, where the majority of expatriates live, incomes are higher by about $170 a week after tax on average.

The rationale of the expats-come-home push is obvious enough: with the unemployment rate down to 3.6 per cent and the net inflow of migrants reduced to a trickle of about 500 a month, labour supply is a major constraint on economic growth.

Other policies with the same object include welfare reform aimed at facilitating the transition to work and measures like increased childcare spending designed to raise the proportion of women who are in the workforce.

It is called the participation rate: the proportion of people of working age who are either employed or available for work and actively seeking it.

Treasury economists have calculated that if our overall participation rate (both sexes) rose to the average level of the five developed countries with the highest rates, it would expand economic output by just over 5 per cent.

Clearly that is worth having but, to put it in context, it is about as much as the economy grew last year.

Narrowing the focus to the women between 25- and 34-years-old, the gap between our participation rate and the average for the top five (mainly Scandinavian) countries is about 11 percentage points.

Closing that gap would bring 29,000 women into the labour force and grow the economy, the Treasury reckons, by about 1 per cent.

The question is how to narrow the gap. The OECD has done some research on participation rates among what it, somewhat ungallantly, calls "prime age" women (aged between 25 and 54) in its member states. New Zealand has 745,000 women in that age range, of whom 76 per cent are in the labour force. That puts us in the middle of the OECD range, ahead of Australia but behind the United States. The object of the OECD's exercise, summarised in a report called "Going for Growth" published last week, was to try to discover what policy differences affect participation rates.

Childcare subsidies loom large. The OECD estimates that if New Zealand were to match Danish levels of publicly funded childcare (the top of the range), it might boost the number of women in the workforce by about 60,000.

That would be just about the same number of women added to the labour force during the past two years. (As the OECD notes, the state of the overall labour market is also a large influence on participation rates.)

The trouble is that New Zealand's childcare spending is nowhere near Denmark's and is unlikely to be in the foreseeable future.

The Danes spend a hefty 2.7 per cent of their, rather larger, gross domestic product on publicly funded childcare (formal daycare and early childhood education).

In New Zealand, it is more like 0.4 per cent of GDP even after the modest boost announced in the last budget.

Our spending is only about 30 per cent of the OECD average, as a share of GDP, despite the fact that the number of children a woman is higher than in most developed countries. Among women aged 25 to 34, labour force participation has been creeping up during the past 15 years, but more slowly than among developed countries generally and it remains well below the middle of the range.

Education may account for some of the difference. Although New Zealand educational attainments compare quite well with other developed countries on average, that average masks a wider than normal variation.

At all ages, women with no qualifications have the lowest participation rate, although it increases steadily until 45- to 49-years-old and then declines. In general, women with tertiary qualifications have higher participation rates.

To the extent that education, or the lack of it, is the barrier to entering the workforce, it is not a hurdle that can easily or quickly be overcome.

It also suggests that an increase in employment from this quarter would not be matched by a commensurate increase in economic output. Their productivity, in other words, is likely to be lower than that of the existing workforce.

New Zealand has a comparatively high proportion of single mothers, for whom holding down a job is more likely to be difficult than for those who are in couples.

Possibly for that reason just over a third of working women have part-time jobs compared with only 13 per cent in the US and 24 per cent across the OECD as a whole.

In the most recent (December 2004 quarter) household labour force survey, most of the strong increase in employment was in part-time jobs.

This was a break from the pattern of the past couple of years and may be more a matter of necessity than choice from the employers' point of view.

All of this suggests that the 180,000 or so women aged between 25 and 54 who are not already in the labour force represent a rather smaller potential source of employees than might first seem the case.

In any case, as the Treasury says, it's not clear to what extent increased participation by young women would lead to a real increase in output.

"If the effect is simply to substitute paid for unpaid work such as childcare, there might be an effect on measured GDP, but the real effect on the economy might be overestimated." Put more simply, taking care of children is a valuable thing to do whether it is paid (and, therefore, reflected in GDP statistics) or not.

That does not mean that measures aimed to lift women's participation in the labour market are not a good thing as a matter of social policy. There are benefits (social inclusion and self-esteem) which no one can put a dollar value on. But the idea that the potential for increased labour force participation is some sort of coiled spring that will propel New Zealand back into the top half of the OECD is fanciful.