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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, fertility and human capital investments. Potential short run channels include: the 'second demographic dividend', changes in industry composition, 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 per cent 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.
I wish to thank several anonymous referees and Treasury staff for their helpful feedback.
The views, opinions, findings, and conclusions or recommendations expressed in this Working Paper are strictly those of the author(s). They do not necessarily reflect the views of the New Zealand Treasury or the New Zealand Government. The New Zealand Treasury and the New Zealand Government take no responsibility for any errors or omissions in, or for the correctness of, the information contained in these working papers. The paper is presented not as policy, but with a view to inform and stimulate wider debate.
Table of Contents
- Executive Summary
- 1 Introduction
- 2 Terminology and framework for analysis
- 3 Population ageing and labour productivity
- 3.1 Age-specific productivity
- 3.2 New discoveries and technology adoptions
- 3.3 Complementarity of workers by age
- 3.4 Fertility and human capital investments
- 3.5 Changes in industry composition
- 3.6 Age-specific saving rates: the second demographic dividend
- 3.7 Rising relative price of labour
- 4 Policies to address the costs of population ageing
- 4.2 Policies to reduce the national economic burden of ageing
- 4.3 Policies to reduce the fiscal burden of ageing
- 5 Conclusion