Population and labour force changes

Demography is a logical starting point for telling a story about the future labour market. Key trends of significance for the future labour market are:

• ageing population and a slowdown in labour force growth
• changing ethnic composition
• changing levels of participation across age

Ageing population

New Zealand is still relatively youthful, but as in many other developed countries, the median age of the population will continue to rise slowly – increasing from 36 years of age now to a projected 39 years in 2020. The ratio of the population aged 65 years and over to the population aged 20 to 64 is likely to grow from 23 percent in 2006 to 50 percent by 2050, catching up to the OECD projected average.  This ageing effect is a result of fertility below replacement rates (at least until very recently), increased longevity and the ageing of the baby boom generation. 

Figure 1: Ratio of the population aged 65+ to the population aged 20-64

Long Description for Figure 1

Sources: OECD and Statistics New Zealand.

Slowdown in labour force growth

Largely because of population ageing, New Zealand will experience a slowdown in labour force growth. The labour force grew by about half a million in the period 1991 to 2006, whereas the period from 2006 to 2020 is projected to see growth of only about 320,000. Out of this projected growth, net migration will contribute about 70,000, increases in labour force participation will contribute about 80,000 and changes in age structure will contribute about 170,000 because more people will move into ages with higher participation rates. Beyond 2020, the labour force will plateau in size. Around 80 percent of the current workforce will still be in the workforce in 2020. 

Figure 2: Projected NZ labour force

Data Table for Figure 2

More older workers

General population ageing will also lead to a significant increase in the number of older people in the labour force (those aged 55 and over). Currently, there are about the same number of older people in the labour force as younger people aged 15-24, with both age groups containing around 400,000 people. By 2020 the older aged labour force is likely to have risen to about 600,000 persons, whereas numbers in all other age groups will increase fairly modestly if at all.  By 2020 around one in four people in the labour force is likely to be aged 55 years and over, including many more people likely to be working beyond the traditional “retirement age” of 65 years.

Figure 3: Labour force projections by main age band 2006 - 2020

Data Table for Figure 3

Greater ethnic diversity

The ethnic mix of New Zealand’s population will change in the next 10 to 15 years. The proportion of Maori and Pasifika is expected to grow because of their higher fertility rates and because their populations are younger. The Asian population share should grow even faster, driven by net migration.  However, we should note that because a substantial and increasing proportion of the population identifies with more than one ethnic group, projections of changes in ethnic composition are more uncertain than those relating to the general population.

Ethnic share of New Zealand population 2006 and 2021 (1)

Year	European or Other	Maori	Asian	Pasifika
2006	76.8%	14.9%	9.7%	7.2%
2021	71.3%	16.2%	14.5%	9.1%

(1) People can and do identify with more than one ethnicity, and SNZ includes these people in each ethnic population, hence the percentages sum to more that 100 percent.

Source: Statistics New Zealand Ethnic Population Projections, April 2008, series 6 (2006 base).

The growing international demand for both higher and lower skilled workers will change the nature of migration, with more people moving between countries for short-term contracts, rather than permanently migrating. The changing nature of work will intensify this trend, with a continuing move to flexible workforces with shorter term or temporary employment arrangements, particularly for high skilled workers with internationally transferable skills.  The pattern of greater diversity in source countries for our migrants will continue. New Zealand will increasingly compete with other  countries which are moving to develop policies to attract and retain these highly skilled visitors, such as attracting top quality international students.  Many international students are likely to remain in New Zealand after their studies. [1]

Record participation and employment

Currently New Zealand has one of the highest labour force participation rates in the OECD and its rise over recent years has been a substantial contributing factor to labour force growth. One trend has been the strong improvement in the participation rates of older workers since the beginning of the 1990s. Another trend has been steadily greater female participation and slowly abating male participation. Employment rates are also high by international standards, especially for older workers, as shown in Figure 4.

Figure 4:  Employment rate of people aged 55-64 and 25-54 in 2006

Data Table for Figure 4

Source: OECD Factbook 2008.

However, the Department’s analysis suggests labour force participation rates will decline from their current peak. Aggregate labour force participation rates in New Zealand are projected to fall to 63 percent by 2020, from the current rate of 68 percent.  The trend of rising female participation rates will fall off and start to reverse – down from the current all-time high of 62 percent to around 57 percent in 2020 (and 50 percent in 2050) driven by an ageing population. Slower labour force growth or even contraction will exacerbate skill and labour shortages, slow economic growth and may lead to unsustainable increases in public social expenditures. 

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