Labour force participation in New Zealand: Tecent trends, future scenarios and the impact on economic growth.

Abstract

This paper examines labour force participation trends in New Zealand, how we compare to the rest of the OECD and how participation and economic growth might be affected in the future by population ageing. Participation has risen significantly over the past 20 years despite an increase in the average age of the working­age population. We have looked at how participation has changed by age, gender and ethnicity. By contrast, average hours worked has declined over the past 20 years and we consider the reasons for that. Population ageing means the recent growth seen in labour force participation is likely to come to an end, with the participation rate projected to decline over the medium term. Falling participation will have a dampening effect on economic growth. We have investigated the impact of declining participation on gross domestic product using official labour force projections and identified a range of scenarios for what participation might look like in the year 2029. In each scenario, we discuss the impact on economic growth. Most other OECD countries are in a similar situation to us with respect to population ageing. We have looked at the latest Australian projections for economic growth in the long term and the increased growth in New Zealand’s productivity that would be necessary to begin to close the gap on Australia.