Education-specific labour force and demand in Norway in times of transition

Labour is classified into five levels of education and 28 education groups. We illustrate possible imbalances in these educational groups in the future.

In this report we define the labour force as the number of individuals that participate in the labour market. Projections of the labour force are based on the assumption that individuals make educational choices that are similar to the observed patterns during the last five years. Demographic trends and labour force participation rates also are incorporated in the projections. However, the projections of labour force by education do not depend on developments in the Norwegian economy. For example, whether unemployment is believed to be high or low in the future and whether the outlook for future income changes, does not affect the labour force projections.

Demand for labour is defined as employment, which is determined in a macro model of the Norwegian economy. Global economic developments, fiscal policy and the petroleum industry, largely determine the demand for various goods and services in this model, which determines the firms’ price-setting behavior and thus the developments in relative wages for the 5 educational levels. The composition of the 5 educational levels (i.e. the share of each of the 28 educational groups) is based on historical data in the period 1986-2012.

The industry composition in the future is crucial for the development of labour demand for the 5 different levels of education. In general we assume that the historical averages of unemployment for the 5 education levels also apply in the future.

The results indicate a large employment fall in the petroleum industry and other petroleum related activities. Firms in these industries employ many workers with upper secondary vocational education and workers with tertiary education. Consequently, it is likely that the demand for these types of workers decreases when activity is reduced. The reduction in demand for workers with upper secondary vocational education in the petroleum sector is partly offset by an increase in the demand in other industries, in particular, the growth in the construction industry. The decline in demand for labour with tertiary education from petroleum-related activities is partly offset by a higher demand for this kind of labour from other industries. The service sector is projected to grow steadily until 2035, and industries that contribute most are those that employ workers with higher education levels. Some examples are research activities, market-oriented education and health care.

The labour force with higher education also increases. In particular, projections indicate an increase in the labour force with education in economics andadministration and some health programs at both bachelor and master level. Within these educational fields there are few people who will retire in the near future, but many who choose such educations. This means that the inflow of labour is higher than the outflow. Projections also show an increase in the proportion of the labour force with unknown educational background resulting from more immigrants in the population projections.

Projections of the labour force and demand for labour by education are carried out separately. However, they rely on the same assumptions regarding demographic development, and the same educational classification. It is thus possible to compare these projections and discuss possible surplus or shortage of labour within educational groups (if the projected labour force and demand show different growth rates).

A projected surplus or shortage of a particular type of labour must be interpreted with caution because labour market mechanisms or policy interventions are assumed away, and of course as they are based on a number of assumptions. Moreover, in reality both firms and workers react to perceived labour surplus and/or shortages. For example, firms may hire alternative types of labour, increase wages, and/or change the composition of the employed, which in turn can affect educational choices and consequently the composition of the labour force.

According to our projections the share of workers with upper secondary general education decreases both for the labour force and the labour demand. However, the share falls to a larger extent for the labour force, resulting in excess demand. Our projections indicate a higher growth in the labour force of workers with tertiary education, providing an oversupply. This is especially true for people with higher education in economics and management and humanities.

Earlier projections show a lack of personnel with education in healthcare and education in the future. The current projections show far lower shortages of workers with a degree in educational sciences. Demand for workers with such educational background is lower because of lower projected birth rates. Demand for workers with education in healthcare services is also slightly lower. However, if labour saving productivity growth in the Health Sector is lower than 0.5 percent per year or the quality of the provided healthcare services is to increase, a substantially higher employment in this sector is required.

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