New Zealand’s labour market will be buffeted by two major issues over the next 20 years: a rapidly ageing workforce and low productivity. The issues intertwine in an increasingly global marketplace and with the country plummeting in the OECD for output per hour worked, solutions are critical.
"Two key labour market issues will confront New Zealand in the coming decades. The first involves a rapidly ageing population. Currently, the ratio of the population aged 65 and over to the 'working age' population aged 20 to 64 is about one-quarter. By 2050, this so-called 'dependency ratio'is expected to rise to more than one-half. This will mean fewer workers supporting more non-workers.
"This scenario is not unique to our country. All developed economies will soon have to deal with rapidly ageing populations. What is unique to New Zealand is our relatively high (and still growing) participation rate for older individuals in the labour market.
"Among 38 OECD countries, New Zealand is second only to Iceland in the employment rate of those aged 55 to 64. This can be a mixed blessing.
"On one hand, a high participation rate among the elderly can mitigate the consequences of a rising dependency ratio. On the other hand, growing proportions of older workers in the labour market will likely alter the very nature of work, and the rules and regulations put in place to protect workers in this country.
"The second issue that will face New Zealand is how to lift our recently poor productivity performance.
"Over the last few decades we have fallen even further behind Australia, the US and the OECD average in terms of output per hour worked. Why this has happened and more importantly, how we can reverse this trend are issues that are not very well understood.
"We do know however that rising labour productivity is essential to any long-term increase in our standard of living.
"We also know that two key drivers for productivity growth are 'capital accumulation'and 'technological change'. Part of the technology story involves both promoting basic Research and Development (R&D), and maybe more importantly, the dissemination and absorption of recent technological advances.
"Much of this relies on our capacity to conduct R&D and to exploit these results in a wide array of industries. This can only happen if we have a long-term commitment to adequately fund our tertiary institutions."
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