1  Introduction

New Zealand has slipped down many OECD league tables since the 1950s, but not the table for fertility rates. In 2000, New Zealand’s fertility rates placed it fifth in the OECD, some way behind Turkey and Mexico, but only marginally behind the United States and Iceland.[1] Higher fertility rates generally mean a younger population and continued labour force growth. Many commentators argue that a younger population and growing labour force is good for economic growth. New Zealand’s relatively high birth rates may therefore give New Zealand a slight economic advantage over other OECD countries. This needs to be taken into account when assessing New Zealand’s prospects for returning to the top half of the OECD. It also needs to be taken into account when assessing the relevance of imported policy prescriptions about maintaining growth rates in the face of an “old age crisis” (World Bank 1994; OECD 1998). Yet demographic trends have received little attention in recent debate on the New Zealand economy.

This paper surveys the likely effects of New Zealand’s slightly unusual demographic profile on its prospects for growth in GDP per capita. “Demography” is defined narrowly to mean population size, growth, and age-structure. Some topics that are occasionally included under the heading of demography, such as education levels or population “quality”, are deliberately excluded. The paper also abstracts away from many country-specific details. For instance, when looking at the effects of population ageing on labour force participation, the paper ignores cross-country differences in age-specific participation rates.

The decision to focus on the demographic basics was taken partly on pragmatic grounds—the paper needed to be restricted somehow—and partly in reaction to previous research. With some important exceptions, such as the work summarized in Bloom (2001), the international literature on the economics of population has placed relatively little emphasis on detailed exploration of underlying demographic trends. For instance, of the 30 background papers that the OECD commissioned for its 1998 report Maintaining Prosperity in an Ageing Society, none looked specifically at the demographic trends (OECD 1998: 138-9). Some demographers have been conducting detailed analyses of demographic trends with likely economic significance (Pool 2000; McDonald and Kippen 2001), but this has had limited impact on economics. The result is that the pool of stylised demographic facts drawn on by most economic analyses is very limited.

The first part of this paper gives a broad overview of trends in population size and age structure in the OECD, and at the underlying trends in fertility, mortality, and migration. It begins by looking at the OECD as a whole, and then moves on to comparisons between New Zealand and other countries and regions. The second part of the paper combines demography and a little economics. It describes selected demographic trends in more detail and discusses their potential economic significance, including their likely impact on New Zealand’s ability to raise its GDP per capita closer to that of wealthier OECD countries. The emphasis of the paper is generally on relative, rather than absolute, GDP levels and growth rates. The paper does not consider the relationship between changing demography and savings, a large topic that has received detailed treatment elsewhere (Hurd 1997; Weil 1997).

The paper concludes that future trends in the proportional share of the working-age population and in the balance between young and old dependants will advantage New Zealand compared to Europe and Japan, but not compared to Australia and North America. The advantage is likely to be relatively small: it would be unrealistic to expect narrowly defined determinants such as population size and structure to have a large influence on a phenomenon as complicated as economic growth. But the predictability of demographic change means that incorporating demography into discussions of future economic prospects can nevertheless be valuable.