Labour input

Owned by Philip Stevens
Last updated: Aug 24, 2022
6 min read

The main source for information on Labour input in the LBD/IDI is the IR 348 Employer Monthly Schedule. This is a monthly tax return filed by employers, which summarises the monthly wage and salary payments made to each of their employees, and the ‘pay-as-you-earn’ (PAYE) income tax deductions made. Total employment is usually calculated as a combination of employees and working proprietors at an enterprise. Working proprietors are employees who receive self-employed income, and may also receive a wage or salary from the same firm.

Since April 2019, IR has shifted from monthly filings under the Employer Monthly Schedule to compulsory payday filing under the Employment Information (EI) system. This follows a transition period since April 2018 in which firms could select whether to file monthly or through the payday filing system. For consistency, Stats NZ has made a processed version of the EI data available. Stats NZ allocates payday information to calendar months and includes these records as part of the EMS tables.

Measuring individual labour input

Employment can be calculated as a Rolling Mean Employment (RME), which takes the average of employment from each month’s EMS (as 15th of the month), or as Full Time Equivalent (FTE) units. Due to the absence of information on hours worked or paid, it is not possible to accurately identify FTE in the data.  However, an adjustment can be made to account for clear violations of the full-time work assumption.  Fabling & Maré (2015)  calculate an FTE adjustment which accounts for observed employment in more than one enterprise, and for workers whose earnings are low enough that they would be earning below the statutory minimum wage if they were working a 40 hour week.  While the adjustment is partial - in particular it overestimates the labour input of highly-paid part time workers - it provides a better measure of total labour input in industries and population groups with high rates of part time work (eg, students, hospitality workers).

Recent changes to IR's PAYE tax data collection should, over time, provide a more comprehensive measure of FTE.  As part of the move to payday filing under the EI, IR added a field for employers to report hours paid for each employee. However, this field is described on IR’s website as optional (https://www.ird.govt.nz/employing-staff/payday-filing/payday-filing-version-2 ), and coverage remains quite low. 

Alongside  paid employees, the IDI also captures information about firm owners through annual tax returns (IR3, IR7/IR7P, IR4S).  In their labour tables, Fabling and Maré (2015) provide an estimate of annual working proprietor labour input which adjusts for part-year firm activity (WPs are assumed to provide 0.5 FTE in entering and exiting firms) and multiple-firm ownership (WP are assumed to work equal amounts of time across their businesses. They also strip WPs out of the employment and labour earnings data for the firms they own, to avoid double counting of WP labour input and contamination of earnings data with WP self-paid earnings. See Fabling and Maré (2015) for more detail on the process for determining whether an owner of shareholder is counted as a working proprietor.

Details

Excerpt from Fabling & Sanderson (2016), A Rough Guide to New Zealand’s Longitudinal Business Database (2nd edition):

Purpose

Detailed employment data in the LBD is sourced from IR data, collected as part of the tax administration system. Until 2015, these were processed by Statistics NZ and provided to researchers in the LBD as aggregated firm-level employment data, generated through the LEED processing system. From 2015 onwards, this aggregation has been discontinued, with researchers instead provided with access to the underlying individual level data the Employer Monthly Schedule (EMS), Company Shareholder Details (IR4S), Income Tax Return for Partnerships (IR7/IR7P), and Individual Tax Return (IR3).

Content

Fabling & Maré (2015) provides a detailed description of these data and a methodology for using the annual and monthly tax information together to generate monthly estimates of headcount and full-time equivalent employment, and annual estimates of working proprietor labour input. These data are available in ibuldd research tables pent_year_L_IDI_YYYYMMDD and pent_pbn_month_L_IDI_YYYYMMDD, where YYYYMMDD refers to the IDI instance the tables are based on.

Coverage

The EMS is a mandatory monthly reporting requirement for all employing firms. We assume that the absence of employment data implies zero employees on the grounds that personal income tax non-compliance is likely to be negligible in the population of firms that meet the mandatory GST filing threshold. Annual income tax returns are mandatory for the relevant types of businesses and individuals. IR3s are required of individuals who earned income other than salary, wages, interest, dividends and/or taxable Māori authority distributions. The IR4 (and IR4S) is required from all active New Zealand resident companies. The IR7P is required from all partnerships.

Allocation of individuals to work locations

Plant-level employment counts and employee information in the LBD rely on the allocation of individuals to physical locations (PBNs) by Statistics NZ. Multi-location firms provide Statistics NZ with employee counts for each of their locations as part of the BF/BR update process. This information is collected annually for known multi-location firms (see section 2.1 of Fabling & Sanderson, 2016). In order to link individual employees to work locations, Statistics NZ makes use of contact address information provided to IR, linking individual workers to the closest location to their address, subject to matching the LBF plant-level employment counts. Once an individual has been allocated to a work location, they remain associated with that location. When Statistics NZ receives updated information about plant-level employment, individuals can be reallocated across plants in order to satisfy the updated employment counts.

The accuracy of the allocation relies on worker addresses held by IR being up-to-date and identifying the individual’s residential address.1 Ongoing development of the IDI is expected to improve the quality of address information (including historical addresses) by allowing Statistics NZ to make use of address data from a range of sources. At the same time, ongoing reductions in the sampling coverage of the BR update survey imply that the ability to identify multiple location firms, and the frequency at which plant-level employment counts are observed, will continue to decrease over time (see section 2.1, of Fabling & Sanderson, 2016).2

Fabling and Mare (2020) provide a detailed description and assessment of Stats NZ’s allocation system and develop an alternative means of allocating workers to plants in the context of exploring changes in commuting patterns.

Notes:

  1. Contact addresses may not accurately reflect residential addresses if, eg, workers choose to receive IR correspondence through an accountant or at an alternate address. The move to greater use of online communications, such as through the MyIR system, further reduce the incentives for both IR and the taxpayer to maintain up-to-date address information. Accurate allocation also relies on geographic proximity being a sufficient indicator of employment location, which may be problematic if a firm has multiple plants within commuting distance.

  2. At the same time, the increasing availability of individual contact addresses due to the integration of additional individual-level data sources may enable new methods for identifying multi-location plants to be developed, using the existence of clusters of employees to indicate the potential location of new plants.

 

Contents of this page

Useful Reading

A Rough Guide to New Zealand's Longitudinal Business Database (2nd edition)

Addressing the absence of hours information in linked employer-employee data