Massey's Alison Brook shows that even fast improving productivity, as unlikely as that may be, won't be enough to ward off the impacts of an ageing population. Without population growth in younger cohorts, consequences will only get tougher

Massey's Alison Brook shows that even fast improving productivity, as unlikely as that may be, won't be enough to ward off the impacts of an ageing population. Without population growth in younger cohorts, consequences will only get tougher
Photo by Fauzan on Unsplash

The 1960s were a remarkable time in terms of the world’s growing labour force. Women began entering the workforce in increasingly large numbers and the baby boomer generation – the largest living adult generation - came of age.

Many, particularly Western economies prospered, and the world economy expanded six fold in the following decades due to this combined demographic windfall.

According to a report from Bain & Company, labour force and population growth contributed one-third of the total economic growth for OECD nations between 1960 and 2015. This trend is now reversing as baby boomers reach traditional retirement age and fertility rates are falling globally. At the other end of the spectrum, young adults are entering the workforce later than previous generations. Many are staying in education longer, while others find themselves without the right skills for the rapidly evolving workplace.

Impact of a declining population

A declining population is not all bad news. It is likely to be much better from an environmental point of view and to place less strain on the world’s resources. Recent research indicates that having one fewer child reduces a parent’s carbon emissions by 58 tonnes of CO2 a year.

 In the near term, it could also be good for workers, as a shrinking labour market creates opportunities for those who are left. However, while it will be a prosperous period for highly skilled employees, those with low- or mid-level skills may not be so lucky. These cohorts are likely to face the most disruption from the new technologies that are set to change the nature of work.

On the other hand, it is clear that automation won’t be rolled out uniformly across all industries at the same time. Bain and Company predict some sectors will continue to use lower-cost labour for some time rather than invest in automation.

Baby boom to baby bust

Declining fertility rates are not caused by the natural decline of individual fertility. While opinion is divided on the exact causes, falling fertility rates seem to relate to three key factors:

  • declining child mortality rates and women tending to have fewer babies as a result
  • greater access to contraception and family planning advice
  • increased numbers of women in education and work.

In the 1950s women had an average of 4.7 children over their lifetime. By the end of 2003 over half of the world’s population lived in countries where the fertility rate was under 2.1, below the long-run replacement rate. The indications are that countries with rates of less than 2.1 will eventually see their populations starting to shrink. By 2017 around half of the world’s 195 countries recorded fertility rates of below this replacement level. And the United Nations predicts that by the year 2100 the global fertility rate will be 1.9 births per woman over their lifetime.

World fertility rates estimates 1950-2100

Source: United Nations, Department of Economic and Social Affairs, Population Division, World Population Prospects 2019

An aging population

Low levels of fertility, coupled with increased longevity, mean that for virtually all countries their populations are getting older. For New Zealand and Australia, the UN predicts that the percentage of people aged over 65 years will double between now and 2100. However, on the flip side, many people are choosing (or needing) to work for longer and tend to be healthier into old age, reducing the impact on the labour force in the short term.

Replacement migration

A report from the Global Burden of Diseases points out that many countries in the West have not yet had to face their declining populations, as low fertility rates have been compensated by increases in international migration. Large scale “replacement migration” has been touted as a possible way to rebalance the dependency ratio of nations. However, as the entire world’s population shrinks and ages the global “migration solution” will be less and less effective.

Population growth is just one factor in determining economic growth, albeit an important one. McKinsey Global Institute explains that productivity improvements could compensate for declining population growth but productivity growth would have to be 80 percent faster than that achieved over the last half-century. In New Zealand’s case, unless it can turn around its persistently low productivity growth rates, this is an unlikely saviour. Like Japan, we could soon be grappling with the economic and social effects of a shrinking and aging population.


*Alison Brook is from the Knowledge Exchange Hub at the Massey University campus at Albany, Auckland. She is on the GDPLive team. This article is a post from the GDPLive blog, and is here with permission. The New Zealand GDPLive resource can alos be accessed here.

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61 Comments

Interesting article Alison, well done. It's always interesting to me how few companies even actually track labour efficiency, what chance do managers and executives have of doing meaningful work if they don't measure what they are doing?

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It's only interesting in terms of the position of ignorance it starts off from.

Sigh - here we go again. Energy does work, labour is less than 1% of the work-done globally, so this article is all about a percentage of one percent.

This is where economics stuffs up. The article even suggests that population increases add to 'economic growth'. FFS, of course more people consuming will add up to more consumption. That's not the point. It's what we're consuming, where we're excreting it, and at what rates compared to the stocks remaining and the sink-capacity remaining. Those are the only counts in town.

And the writer has had more than enough put under her nose, to do better. And this is a university? Spare me. We never did get very sapient, did we?

When did "work" come into this? When economists say "work" they don't typically mean it in the sense of classical mechanics.

That's exactly where they fail.

And exactly why they cannot understand why 'productivity' is trending to flat-line.

And why they can't predict anything until after the fact. And why, even then, they can't work out why.

Mind you, when the energy runs out, the labour share of work will necessarily have to increase.

Was talking to a chippie last weekend, and he recalled his apprenticeship without nail guns.

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This article makes it clear that migrants who have above average productivity may help a country and those with less than average will handicap its economy as they in turn age. It would be useful if NZ published stats for the productivity of its migrants; it would not be difficult to link visa approvals with IRD returns. I suspect the reason the stats are not published is because despite many talented, experienced, well trained skilled migrants NZ also has too many who are simply low paid doing unskilled work. Is the best guide to the productivity of a worker their hourly rate of pay.?

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We already know that our migration policy is not targeting highly skilled, highly productive people - when the stats were released it showed 7 of the 10 most common occupations were low skill/hospitality roles. Our migration policy is all about pumping up GDP statistics to make it look like we are generating growth ... the realty is we are increasing the size of the pie at a slower than we are increasing the number of people who consume a share of the pie.

How are we going to attract high value immigrants when in reality we have no jobs for them? Was reading recently about a St John ambulance coordinator who is highly trained in a related field yet has apparently filled a position I would suggest he is overqualified for...great targetting of immigration policy there.

Online. Nearly all jobs are visible to overeas applicants when advertised there. Both our last hires were overseas, skilled, and young when they read the job ad and werent fazed at all. They've been great too.

I hope you are paying them well. Did INZ delay the recruitment - reputedly there are long processing delays? Back in 2003 when I arrived it took just a couple of months to get my Visa and my employer could wait.

I don't believe you, most likely you overcooked your INZ application so your pizza delivery guys can work for you or they lied about their quals.... Bitter truth is that truly qualified persons don't even consider NZ as they go straight to California. We get the uber drivers. Brilliant.

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Very interesting article. And yes it's not surprising that birth rates are dropping here and in most of the developed world. For Millennials and even GenX it's far too expensive for us to have children here even in NZ, you only need to take a quick look at property prices to realize that.

And remember Boomers didn't have to compete with massive amounts of immigration, decades of wage suppression from competition from Globalization and international Money Launders when they were starting their families and buying their homes.

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Exactly. I don't understand why people find this so mysterious - if you want to know why millennials aren't doing the things that previous generations did (buying houses, buying cars, having kids etc) the answer is almost always that they don't have any money.

Also, a reasonable percentage of people don’t want children at all. Societal pressures on this have changed markedly over the last few decades, at least in NZ.

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sadly populations arent just getting older,they are also getting fatter and lazier requiring others to mow their lawns,cook their meals and even cut their toenails as they are too fat to reach them.

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Theres little point worrying about falling productivity in NZ as broadly speaking we do very little in a highly productive manner anyhow. So if the relatively inept generation of babyboomer 'Management' would kindly shuffle off to the nearest Rymans it might allow their replacements to rescue whats left of the countries longterm aspirations and improve things somewhat. One things for sure, sourcing workers from countries that have even lower productivity than ours makes no sense as their skills will not raise our talent pool nor our productivity deficit. This is something boomers have been doing since the 60s and 70s with the Pacific Islands and lately India as the feedstock for our hopeless local industries. Clearly its not working and Gen X will move in an entirely different direction, hopefully by extincting the pointless low productivity industries that boomers have so selfishly sustained with warped policy for so long.

Yes totally agree with you as speaking as a GenX in our NZ tech industry. What we really need is our government to reduce NZ Corporate Tax rate for business that are NOT related to those pointless low productivity industries which is mostly the Property Market.

Even the UK has a their corporation tax at 19%, Hong Kong is 16.5% and NZ currently having to compete in the global market place at 28%. We're currently paying one of the highest business tax rates in the world so how can we be competitive? We need special reduced rates to encourage new "Productive business growth" this is fairly common around the world.

Really?
Many of the larger companies and employers of people are foreign owned, most of whom pay little to 0% tax on profits which are transferred out - can't get much lower than that

The NZ tax authorities still can't get tax out of the digital giants Facebook, Google, Amazon

That's why a lot of countries tax Overseas Corporate branches at a much higher rate, to allow resident business to compete. And yes there are some giants who are very much trying to wriggle out of paying tax both home and abroad but the tax net is tightening on them so they won't be able to keep doing that. Unless they move to a tropical island with zero tax rate but then they could be quite literally under water in a few years. ;)

I could have added Wellington Power Corp which is Hong Kong owned doesn't and hasn't paid tax

Well that's why we need to relook at NZ Corporate Tax rate. There's also astronaut families, where the wage earner will work abroad for much of the year paying tax over there and not here.

Most analysis of corporate tax I've read suggest that around 75% of company tax is borne ultimately by employees in the form of lower wages anyway. So I'd be in favour of lower company taxes (this also results in less reason to tax headquarter elsewhere). Instead, we should stop giving land a free ride and collect a little from land tax, taxing the unproductive instead of the productive.

We cannot hope to increase productivity while we incentivise investment in property rather than investment in productive enterprise.

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Yeah, bring more and more migrants in, who will, presumably will age, themselves, so what then? Rinse and repeat? Or maybe we could force women to have children? Gee, now that's an idea.
How about we take advantage of the time, embrace and endorse our much reducing our impact on this planet. Might have to do some things differently, but I'm sure it will be worth it in the end.
I am over the "growth" dogwhistle - growth, growth, growf, growf, rowf, rowf.

Agree. What's that Einstein quote about stupidity?
To be fair though, this is a pretty balanced article, although it does seem to implicitly suggest that this issue is more of a problem than an opportunity.

A stuffed planet would be a far, far greater problem

Careful PocketAces forcing women to have children won't help, that would only increase poverty in an economy like ours where the cost of living is already far too high. How would they afford to educate them? Problem is, we're competing against wealthy elites who have a vast labour forces not to mention all the ones who benefit from dodgy dealings and then clean their cash over in Western countries like ours, that has massively pushed up our cost of living especially in the last decade.
So how is a small country like NZ supposed to compete with this for example? : BBC article: China Uighurs 'moved into factory forced labour' for foreign brands. https://www.bbc.com/news/world-asia-china-51697800

Here is something to think about, the only reason the human population has grown like it has is because women have been forced to have children, by various means, some of which still exist in parts of the world, it is only very recently that the choice has been there.
If you have become familiar with my favourite topics, top of which is the limit to growth, you will be aware that I am very much a proponent of women having freedom of choice, but it will create another dilemma down the track, but it is not one we face today.

You might want to expand and clarify you're point of view. You still sounds like you're essentially blaming women.

Blame women? What for?

See there I agree with you, blaming 50% of the population is a bit extreme. :)
And that 50% is on the front line in so many ways, now even more so: Coronavirus: Five ways virus upheaval is hitting women in Asia. BBC https://www.bbc.com/news/world-asia-51705199

All I am saying is, basically, women are key to population, and what has become abundantly clear is that once choice and control come into women's lives they choose to delay reproduction, choose fewer births and some decide it is not for them at all. It is the most sensible option for us to address our overpopulation of the planet, but could cause a problem down the track if our numbers do not stabilize. Could we end up forcing women to reproduce (Handmaids Tale). It is essentially done in many countries and even the USA is trying to walk back some women's freedoms and Russia is thinking of trying to incentivise higher birth rates, all of which is concerning to me.

Here's just another factual anecdotes: Both India & China have surpassed the 1.1billions population, the gender still more into Male preferences by means of old culture/belief etc. (for sure it's been decreed as illegal).. but the census facts still remains.
Now, NZ has never recover their male population since WWI & II, add to that the current one already succumbs to generation of alcoholism..guess what? check their tad pole motility under the microscope.. you'll see the result. SO? go figure from those unrelated trivia.. as to 'what should we do?'

We all know how some countries achieve an excess of males, you don't suppose there is actually a surfeit there, rather than a lack here, do you?

Love that woof wof roof.. But seriously? even for this Covid19 eventuality, how many dare to open book on seasonal workers requested by our seasonal produce? eg orchard, winery etc. From my observation, either govt & it's NZIS ministerial under their command usually always under a lot of silent pressure from all those industries lobbyist. They always presented the case as 'rock & hard place' - don't do it?, then we'll fold away soon.

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So what is this mysterious productivity thing. I'm guessing I'm one of the unproductive ones being low skilled and uneducated, but I do produce around 1,000,000 litres of nutritious food each year which is around 1,000,000 litres more than the average highly educated economist.
I probably should look it up but I'm to busy doing my low skilled unproductive work.

I work in health and safety and produce more in one day, than you do in an entire year!

Redcows produces hardly anything, not even 1% of that million litres, it's all done by the petrol in in his tractor, the electricity running to the milking shed, the photosynthesis of the grass, the fusion of the sun and the bacteria in the cow's multiple stomachs.

And Zac Smith criticises redcows from his armchair for using his resources to produce a tangible product. He is likely employed in a job where he provides nothing of value to society aka a pen pusher

No. Zac Smith understands energy.

Depending what you count in (build energy of vats, for instance) it is reasonable to assume 20 calories of fossil oil, to one calorie of produced milk.

You can work out how many calories Redcows took to do the milking (fossil oil delivered his/her breakfast, for starters, plus gumboots....

pen-pushers are perhaps useful to the society we have constructed, but we agreed to 'pay' them in an era of much more surplus energy. As the surplus energy dwindles, we will triage with exponentially-increasing speed. I suspect interest-charging and middle-personing will be goneburgers. We can already see the problem with Universities - which will be behind the need for this article and others in it's stream - we aren't diverting as much surplus energy at them, as we could 50 years ago. That's why student loans. They weren't needed 50 years ago - there was surplus.

Jared Diamond is a worthwhile read

Totally logical pdk, no disagreement whatsoever. My point is simply that I do actually produce something, which is infinitely more than the average pen pusher despite my lowly economic standing.
Interesting point about the uni student. It's easy to how that applies all around.

My question to you (and to everyone) is, what are the barriers to you producing more?

The productivity conundrum is not about who-is-the-more-productive, it should be about "who are the ones in the way of improving productivity". How do we get them to stop blaming others for pressure they may feel.

I thought replacement migration was just a "conspiracy theory"?

Except it is way beyond replacement here

Sigh!

Another advocate of ponzi prosperity!

Let me guess we need all these young migrants to first pay 100k at Massey University and then join the nz economy.

I had a thought if the average 4 bedroom home cost $250k would we see another baby boom?

Funny overseas students are currently paying around $90k to $100k in overall costs (Uni fees and living costs) to attend Universities here in Auckland. Ironically most of the lectures are only working part-time. And when I say part-time that's not even for the full year. They're only paid by Semester usually over 12 weeks at a time and not paid over the long holiday breaks. Welcome to NZs low wage economy.

Why don't we cut out the uni and just offer Visas to the highest bidders?

Wasn't Mr Key doing that for the Money Laundering visa, Err I mean his Entrepreneur visa.

Great idea lupan

But the export subsidy gravy train that keeps the over inflated universities and staff in the life they have become accustomed to wouldn't stand for it.

How about another knowledge wave conference?

My prediction

Negative rates by next year. Immigration will be running at 250k per year. Cash transactions over 2k will be illegal.

It is not a problem on multiple counts
! Less labour will push up wages. High labour costs will push up productivity. Those companies that cannot raise productivity to support the higher wages will go broke. So they should, business failure is a valuable component of a healthy competitive economy which culls out non or poorly contributing enterprises. The economy will only advance in real terms by means of increasing productivity and moving up the product value chain. All labour will be employed at the highest possible wage. No body will suffer except the owners of unviable businesses, who in the event of their failure will have no trouble finding a well paid job or start up a new business where there is scope for increasing productivity and income. If we continue to suppress wage demands through low wages we could get wages so low that we could in the extreme compete with the Bangladesh garment industry. This would then create a shortage of clothing workers which we could bring in as immigrants and house in shanty towns around Auckland (we could never afford to pay them enough to buy a home). You can see elements of this happening now. Is this the direction that we want to be headed?

2 Although politicians refuse to acknowledge it, increasing population and increasing living standards are at the root of all the worlds environmental problems. There are simply too many people consuming too much. Whether we like it or not, we need to accept that a continuing increase in the population is not sustainable and will end in disaster. In fact this is already happening. It is a bit like the frog being boiled to death. The water temperature is only increasing slowly, so by the time he notices, it is too late. As Jeanette Fitzsimons campaigned all her political career; we need to change our economic model to one that does not rely on endless growth. Ultimately this is not a choice, Nature will take the matter out of our hands and is starting to do so.

3 There is no correlation between increasing population and increasing GDP per head. Actually there is a slight negative correlation. I know this because I have analysed the performance of most of the worlds counties over approximately 10 years. There are a number of the best performing economies in the world where the population is decreasing.

I used to work for a company that couldn't keep up with productivity growth and increasing wages, none of us got paid, not even the Irish guys on 'working holidays'.

So the best thing for everyone would have been for it to go broke as quickly as possible and a labour supply and demand economy that offered viable alternative employment.

It amazes me that someone could read my post 2nd down, upthread, then posit what you just have.

What happened to thinking?

I stated - and there has been no rebuttal - that labour represents less than 1% of work-done. Thats noise. Mere noise. Yet here you are chanting the Adam Smith mantra, 200 years after fossil energy made a mockery of his pre-surplus-energy statements.

As do all economists - even when the physics of it is placed under their noses.

Companies are diverting their focus to software task automation. Add in robotics and you solve your wage issues =you need less people/wages/tax. Not a win for society but allows higher wages for the staff that remain, and protects the housing bubble.

The UN says half the worlds countries have fertility rates at the sub replacement level of 2.1, yet predicts it will take another 80 years for the global rate to fall to 1.9. Consider developing countries such as Bangladesh where the fertility rate fell sharply from 6.72 in 1960 to 2.10 today, this in half the UN modelled period. A similar story in India. For the UN prediction to be actualised it'd be necessary for the progress of female emancipation in high fertility countries to be dramatically slower than has occurred in the sub continent over the last several decades, a proposition that seems pessimistic.

NZ's population pyramid isnt that bad.
https://www.populationpyramid.net/new-zealand/2017/
There is no massive bulge of older age people moving into retirement & the birth rate is close to replacement.
The projected population to 2100 continues to rise albeit more slowly.

Italy & Japan have much more pronounced bulges & projected declining populations.
https://www.populationpyramid.net/italy/2017/
https://www.populationpyramid.net/japan/2017/

Corona may take care of those two bulges.

Akh the article photo: Just FYI, to those curious; It's an Indonesian Civil work workers gathering, Dept of Civil Work, bit like Ministry of works in NZ until late 80s before being privatised under Lange's govt... now into breakable the likes of Fulton Hogan what we've seen today. But yea, back to the article. Isn't it the answer is through massive import of people migration?.. or not?

Interesting article but there are gaps in the logic. In the paragraph 'Baby Boom to Baby Bust' is the biggest gap i can see. In the 1950's the economics of the time meant that most families only had one breadwinner. Traditionally this was invariably the male who went and earned an income, while the female stayed home, was the 'homemaker' and had children, hence the 'fertility rate' of 4.7. A reasonably good standard of living was maintained by most. This period for NZ at least will have lasted through to the early 80's. Introduce the 'Free Market' economy and its consequences. Now to maintain any kind of a standard of living both partners in a relationship must work, so time to bear and raise children is severely curtailed.

Ironic really, the long term consequences of the rich and powerful manipulating the economy so they can get richer, is to effectively cut their labour force out from under them. For Governments the earners in society (low and middle income earners) have traditionally been the prime source of tax while the rich and powerful have multiple means to avoid tax. But again the impacts of buying into the 'free market' and implementing policies to support this has/will erode their prime tax base. Time to re-assess? Another irony is to PDK's points - a reduced birth rate essentially means a slow down in consumption (at some levels) which gives more time for the species to realise the damage it is doing to the planet and act on preserving it.

I think it is time for the government to hold another "catch the knowledge wave" conference.

It will boost productivity and hopefully the entire population can go to university. Forget trades etc..

Left wing logic is because people who went to University made good salaries then all we need to do is send everyone to university and we will all make great salaries duh..

What a merry go round. When was that moment the economy become something that must be served, rather than vice versa? Message from reality, to the economics profession, the Earth is finite! Cramming it with more humans, so your equations add up to more consumption, goes beyond stupidity. Beyond insanity in fact!