This report argues that the ageing New Zealand population will see fewer productive workers in proportion to the number of retirees which will drive up wages, and that firms need to prepare.
Ageing will impact on firms’ costs of doing business
New Zealand’s ageing has a profound impact on the costs of producing goods and services. Ageing shrinks the future pool of labour as a fraction of society. That drives up wages as firms bid for talent.
As firms respond, we show higher wages reduce output in labour - intensive sectors like manufacturing. This continues the long - run trend in that sector with firms moving away from competing on cost and moving toward competing in niche manufacturing based on specialised knowledge and expertise .
Opportunities from changes in demand for firms who adapt
Challenges and opportunities exist on the demand side too. Consumption effects are driven by:
(i) how our needs and desires change at different points of our lives
(ii) how consumption by a particular age changes over time: today’s sixty - year old is not the same as the sixty - year old of yesteryear.
Some changes to demand for goods and services will be clear and industry specific: health, travel and insurance are likely to profit from an older population.
But demand changes can be subtle.
Firms will need a plan to make the most of shifting opportunities in their sector.
Global and regional factors intensify the impact of ageing
New Zealand is also ageing unevenly. Some regions show the impact of in-flows of older cohorts at the same time as opportunities in urban areas offshore are hollowing out younger cohorts. This amplifies the impact on regional labour markets and will shift regional patterns of demand.
Meanwhile global competition for talent will amplify the impacts of labour in short supply further bidding up wages. If the environment for producing labour - intensive goods is challenging now, higher wages make that environment look even tougher.