Population ageing and productivity: A survey with implications for New Zealand

Abstract

This paper critically evaluates the effects of population ageing on labour productivity with particular reference to New Zealand. A number of potential long-run mechanisms are considered: complementarity of workers by age, age-specific productivity of individuals, new technology discoveries and adoptions, and fertility and human capital investments. Potential short-run channels include the ‘second demographic dividend’, changes in industry composition, and incentives to seek labour-saving technologies. Simulations tentatively suggest that workers could become more complimentary by age which would boost labour productivity. The magnitude of this effect on living standards could entirely offset the projected 12% fall in the support ratio over the next 40 years. The most effective policies for mitigating the national economic burden of ageing are policies to boost labour participation of older workers and to boost immigration.

Keywords:

• population ageing
• labour productivity

Notes

1. Population projection is Statistics New Zealand's Series 5 projection, assuming medium fertility, medium mortality, and medium net migration (12,000 net migrants per annum from 2015). Labour participation rates for males and females are actual rates for 1987–2011 (Statistics New Zealand); the 1987 rates are assumed for years prior to 1987 and the 2011 rates are assumed for years beyond 2011. The ‘very high fertility’ projection assumes a total fertility rate of 2.5 from 2011–2012. The ‘very high migration’ projection assumes net migration of 25,000 per annum from 2012.

2. Unemployment may still persist, although it is likely that it will be lower than today as the available labour supply falls relative to labour demand in response to population ageing.

3. For an econometric analysis of the effect of population ageing on housing demand and house prices in Australia, see Guest and Swift (2010).

4. Guest (2011) presents data on Australia and the United States and models the net effect of population ageing on aggregate capital intensity, labour productivity, and living standards for these two countries. Sectors with relatively high capital intensity include utilities, mining, agriculture, transport, and telecommunications. Sectors with relatively low capital intensity include health and community services, personal services, retail trade, manufacturing, and construction.

5. The OECD is currently (mid 2011–2014) conducting a follow-up review of its major report: ‘Live longer, work longer: A synthesis report” which surveys the policy initiatives that have been taken, and are planned to be taken, to boost the employment of older workers. http://www.oecd.org/employment/employmentpoliciesanddata/ageingandemploymentpolicies.htm.