4.5  Projections of labour force participation

Statistics New Zealand (SNZ) projects future participation rates, by age and sex, to 2011. Projected participation rates for women—under high, medium and low scenarios—are shown in Figure 11. The most notable feature of these projections is the significant increase in participation rates for older women. This reflects an increasing flexibility in the age of retirement, with no compulsory retirement age, and increasing life expectancy. Increasing participation by older women is also consistent with the cohort analysis in Figure 6, where younger cohorts have entered the labour force in larger numbers than previous generations. As these women age, their higher participation patterns seem likely to persist.

Figure 11 – Projected participation rates for women, 2001 (base) and 2011, under three scenarios

Source: Statistics New Zealand.

High, medium and low refer to the three variants of participation rates produced by SNZ.

It is well known that New Zealand’s population is ageing as result of the large “baby-boom” cohort growing progressively older, and because of increasing life expectancy. How will this affect the labour force of the future? Table 6 shows the results of applying the projected participation rates for women from Figure 11 to SNZ’s medium population projections, to give a picture of the female labour force of the future. Projected participation rates are held constant after 2011.

Under all three scenarios, the female labour force increases in size and the average age of female participants grows (Table 6). The overall participation of women aged 15-64 years rises in the short-term, but not necessarily in the longer-term. Overall participation is greater in 2031 under the medium and high scenarios, but slightly less under the low scenario.

Source:Statistics New Zealand (2004a) and National Population Projections, 2001 base.

High, medium and low refer to the three variants of participation rates produced by SNZ.

Calculations are based on the Series 5 population projections, which assume medium fertility, medium mortality and long-term annual net migration of 10,000.

One key measure to consider in these projections is the proportion of the total population, both men and women combined, who are in the labour force. This gives a sense of the future “load” which will be carried by the labour force. This measure will be influenced by the changing age structure of the New Zealand population as well as by changes in participation rates. Table 7 calculates this measure, using SNZ’s projected participation rates and projected populations for men as well as for women. Currently, just over half of the New Zealand population is in the labour force, but this proportion—after initially rising—may drop to less than half the population by 2031.

Table7 – Proportion of the total population who are in the labour force, 2001 (base) to 2031, under three scenarios

Source: Statistics New Zealand (2004a) and National Population Projections, 2001 base.

High, medium and low refer to the three variants of participation rates produced by SNZ. Calculations are based on the Series 5 population projections, which assume medium fertility, medium mortality and long-term annual net migration of 10,000.

Are these projections reasonable? At first glance it might seem implausible that participation rates for women aged 24 to 49 years should remain unchanged under the medium scenario, with only a small increase under the high scenario and a small decrease under the low scenario (Figure 11). In none of these three scenarios does the dip in women’s participation flatten out. However, the projections in Figure 11 do continue the trends shown over the last 8 years in the HLFS (Figure 12). Over this time there has been little change in the labour force participation of prime-aged women, a slight decrease in the participation of younger women, and a marked increase in the participation of older women. These trends can also be seen by comparing women’s participation in the 1996 Census and the 2001 Census (Figure 5a).

Figure 12 – Women’s participation rates from the HLFS, 1996-2004, for various age groups

Source: Statistics New Zealand, Household Labour Force Survey.

What is perhaps more questionable is the application of the 2011 participation rates to populations in 2021 and beyond. Participation rates will almost certainly continue to change after 2011, but SNZ are understandably loathe to project them out any further. More importantly, these projections of participation rates do not take into account dynamic effects within the economy. If population ageing means that labour becomes a relatively scarce resource, for example, then we should expect to see firms bidding up wages and thereby drawing people into the labour force. A model which takes account of these sorts of dynamic effects is a much more difficult undertaking, although attempts have been made to construct such models (eg Börsch-Supan 2001).