2  Demographic change

The age structure of New Zealand’s population is projected to change considerably in the first half of this century. This demographic change is a dynamic, multi-faceted phenomenon. The aggregate age structure of our population will change and so will the age structure in different regions in New Zealand. Furthermore, these demographic changes have the potential to affect and be affected by human behaviour. This section seeks to introduce these issues of population ageing, spatial differentials in population ageing, and individual ageing, which necessarily underpin any discussion of the economics of population ageing.

2.1  Population ageing

Three demographic phenomena summarise age-structural change in New Zealand’s population (Statistics New Zealand 2000; 2001c). Firstly, fertility rates have declined to sub replacement levels (that is, less than 2.1 births per woman in 1999), which means that the base of New Zealand’s age-distribution pyramid is “thinning”. Secondly, fertility rates between 1947 and 1973 rose above 3 births per woman for the entire period, peaking at 4.3 births per woman in the early 1960’s. The first cohorts of this “baby boom” will start to retire by the year 2010, and subsequently the age-distribution pyramid is beginning to “fatten” at the top. Thirdly, the average life expectancy for newborn males has increased from 68.2 years in 1956 to 74.3 years in 1996, and for women there has been an increase from 73 years to 79.6 years over the same period. These increases in life expectancy further accentuate the fattening at the top of the age-distribution pyramid.

By the year 2050 we may expect that the number of people in New Zealand over the age of 65 will make up 26 percent of the population, up from 12 percent in 1999. Furthermore, we may expect a change in the overall population growth rate. If in the future fertility remains at a sub-replacement level and migration trends remain the same (an assumed net average annual gain of 5000), then the New Zealand population growth rate will move into negative figures some time around 2040, with the total population peaking at about 4.75 million[1] (Khawaja 2001).

The most frequently cited summary statistics regarding these projected demographic changes are so-called “dependency ratios”. The old-age dependency ratio is the number of people over the age of sixty-five relative to the number of working aged people (15-64). Similarly we measure the youth dependency ratio as the ratio of the number of people in the population less than fifteen years of age relative to the working age population. The total dependency ratio is the sum of those people above and below the working age, all relative to the number of people in the working age population.

These conventional definitions of “dependency” provide an incomplete picture. As we shall see later individuals are apt to leave the workforce at ages younger than sixty-five. Furthermore, the ages at which people join the workforce varies considerably from individual to individual; certainly the lower bound of age fifteen leads to an overestimate of labour force participation now that compulsory education in New Zealand continues until the age of seventeen and rates of tertiary enrolment continue to increase. Also, the degree to which people outside the working age population represent a burden upon productive members of society depends largely on their needs, such as healthcare or education, and respective consumption patterns.

It is possible to create more complex definitions of dependency ratios[2] but even in their crude form they provide readily understood summary statistics of the way in which the age-structure of a country’s population is changing (Grimmond 2000). Figure 1 plots the projected ratios for New Zealand. From a low point of 50 percent in 2010, the total dependency ratio is projected to rise by over 20 percentage points by 2040, with the majority of the increase occurring by 2030.

Source: Statistics New Zealand (2000) Table 3 (Series 4 Projections).

Demographic projections are, in general, fraught with uncertainties that are important to think about when considering the economic implications of population ageing. The number of elderly in New Zealand’s population over the next fifty years can be projected fairly accurately given that the relevant cohorts have already been born. However, we cannot be sure what the future path of mortality rates will be and so our projections of the number of elderly in population carry some degree of uncertainty. Furthermore, fertility rates are difficult to project because they are disposed towards major structural change – one example being the spike in fertility rates that drove the baby boom. Subsequently projections of the size of the future labour force and hence future dependency ratios carry large degrees of uncertainty and this uncertainty grows with the length of the projection horizon.

The current approach for predicting future population changes is to use scenarios based on different levels of input variables such as fertility, mortality and migration (Statistics New Zealand 2001b). Assumptions are made as to the future levels of these variables and scenarios are created where high, low, and medium rates of growth for each variable are bundled together. Notably, these static scenario based models do not provide us with a measure of the size of likely errors in our projections. As such it is important to recognise that while they are useful one ought not to treat them as anything more than projections.

2.2  Spatial aspects of ageing

Another important aspect of population ageing in New Zealand concerns the spatial differentials in age-structural change. Regions of New Zealand will experience the effects of population ageing in different ways depending on their respective age-structures currently and inter-regional migration patterns in the future (Lepina 2000).

Currently, region specific age-structures differ considerably and one of the major drivers of this is ethnic composition. For example, Auckland has a large Pacific Island population (the largest of any city in the world) and twelve percent of the population is Maori (24 percent of New Zealand’s total Maori population). These groups have relatively young age distributions[3] (Koopman-Boyden 1993), which means that population ageing will probably be less severe in Auckland compared with other regions in New Zealand. Conversely, Southland is a region that is predominantly Pakeha - a group that dominates the number of elderly in New Zealand. As such we expect Southland’s population will age at a faster rate than Auckland (Koopman-Boyden 1993).

Future region-specific age-structures are also likely to be shaped by the migration of elderly to “retirement zones” in New Zealand. A number of different regions have retirement zones in them, often in the periphery of urban areas. These retirement zones, referred to as “sun-belts”, will almost certainly grow in years to come. Furthermore “Almost all regions that will have a rapid growth in their elderly population are equally well the areas whose overall growth will exceed that of New Zealand as a whole”(Lepina 2000, p.406). Such a change in the spatial-variation of New Zealand’s population would almost certainly have important implications for the economy.