Finding labour 'the hardest it has ever been', and it's about to get worse, report says

Tuesday, 28 February 2023

An ageing population and declining birth rate means New Zealand’s worker shortage is likely to get worse. (File photo)

New Zealand will face a shortage of workers in the future as the population ages, making an already tight labour market even worse, according to a new report.

The country will be short 250,000 workers by 2048 if current trends continue, according to a report on the future of workforce supply by economic consultancy Sense Partners for BusinessNZ.

An ageing population and declining birth rate means New Zealand will soon have more people approaching retirement than joining the workforce, the report says.

“Historically, we have had far more people coming of working age than those approaching retirement,” the report says. “But an ageing population and declining birth rates means that this will reverse.

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“Labour shortages have intensified over time and will intensify further with an ageing population.”

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The prime working population, which includes people aged 15 to 64, has peaked and is predicted to shrink from the early 2030s unless there is more immigration, the report says.

New Zealand’s employment rate is at a record high 69.3%, and the country is experiencing the greatest labour shortage of comparable OECD countries, according to the report.

“Labour shortages are acute around the world. However, the New Zealand experience is particularly intense,” the report says.

“Finding labour is the hardest it has ever been.”

Demand for talent was global and competition would increase in the future with ageing populations across the developed world, it says.

The report estimated New Zealand’s total population would increase by 15%, or 550,000 people, by 2048, but due to retirement, employment would only increase by 4%, or 110,000 people.

“While the supply of new workers is set to slow, the demand for workers from a still growing (but ageing) population will continue to increase. In part, this is because older people tend to consume more services, which are more labour intensive,” the report says.

An analysis of study areas showed that an inflow of young people would offset retirees for many fields of study, but not all.

Current trends suggested the country would be oversupplied with workers in management and commerce, creative arts, food hospitality and personal services. But it would come up short in education, engineering and related technologies, health and society and culture.

“Our population is already ageing,” the report says. “If there is no net migration, it will age faster. Slowing inflow of new younger workers and retiring older workers will mean the number of willing workers will likely not keep pace with demand.”

The report suggested a combination of policy efforts to meet the gap.

While net migration was the most direct solution, an influx of people would also add to demand, so an extra 700,000 people would be needed over the period, the report says.

“The issue is global and hence the competition for talent will also be global,” the report notes. “While we have used immigration as an important source of labour in the past, we will need to be more consistent and deliberate on our immigration policy in the face of global demand for talent.”

The report notes there was also a large local pool of available workers which could be tapped, with low employment rates among Māori, Pasifika, women and older workers.

Closing ethnic employment gaps could add another 100,000 workers, and closing the gender employment gap could add another 175,000 workers. About a quarter of over 65s worked, and increasing that by 5% would add another 40,000 workers, the report says.

“Making better use of currently underutilised pools of people will need resolving myriad issues from childcare, flexible working arrangements (time of day and school term time for example), discrimination, recognition of qualifications and higher pay,” the report notes.

More women may want to and be able to work if barriers to work were removed or reduced, the report says.

Still, higher pay on its own would not be enough to draw older people into work. Some, especially those in physical work, could no longer do those jobs while for others, the value of their leisure time in retirement may be too high to give up for being back in work.

The report notes a declining core worker age population would require firms to invest more capital to increase the productivity of fewer available future workers.

Economic modelling by Sense Partners suggested wages would rise 7% above baseline because of the labour shortage, but there would still not be enough resources for the economy, meaning economic growth would falter and interest rates would fall.

Older people may spend less as lower interest rates would reduce their retirement incomes, while younger people could spend and save more because of higher incomes.