Koi Tū's case for a New Zealand population strategy

At the end of last month, Koi Tū Centre for Informed Futures released a report arguing that New Zealand needs a population strategy. The report, by Georgia Lala, Paul Spoonley and Sir Peter Gluckman, received a lot of media attention (see here and here and here), and attracted a response on The Conversation from my colleagues at Te Ngira Institute for Population Research. My view is that the case for a population strategy is strong, not because it would allow New Zealand to control demographic change, but because it would force governments to plan more coherently for changes that are already underway.

Now, Lala et al.'s argument is that New Zealand is facing a demographic inflection point. I’m not convinced that 'inflection point' is quite the right term, at least in the mathematical sense, but the underlying argument is sound. It is clear that New Zealand is facing a number of intersecting challenges, including:

1. Slowing population growth - Lala et al. note that "annual growth dropped to 0.7% between June 2024 and June 2025 from 1.7% between June 2023 and June 2024", and that slowing growth means that New Zealand faces a 'double-edged sword' of a constrained tax base and increasing costs;
2. Declining fertility - This is a long-run trend that all countries are facing, and no country has developed a sustainable policy solution (see here for more on that point);
3. Growing reliance on immigration - Immigration has become increasingly important for growing the labour force and population (but isn't a solution for population ageing), but the problem is that immigration (and net international migration) is very volatile, and New Zealand doesn't stack up well against other countries in the competition for global talent;
4. An ageing population - Population ageing has implications in terms of a smaller tax base, and higher healthcare and superannuation costs; and
5. Growing ethnic and cultural diversity - Lala et al. especially draw attention to diversity in Auckland, but it is a reality that is playing out across the country (it is just that Auckland is ahead of other places in terms of diversity).

The issues are just as important, if not more important, at the regional and local levels, and Lala et al. draw attention to that as well. [*] In the section on immigration, I felt like there was too much focus on citizenship (of emigrants), which misses the point that people leaving New Zealand are also increasingly diverse, reflecting the diversity of the New Zealand population. And the large net outflow of Māori in recent years, which is obvious from Figure 10 in the report, probably needed further comment. That matters because Māori migration patterns are not just another component of aggregate population change. They have implications for whānau, iwi, regional labour markets, and the government's obligations under Te Tiriti o Waitangi.

Lala et al. argue for a population strategy, which they define as:

...both actions by a government to identify demographic trends and, subsequently, actions to address the effects of such change.

This seems like a sensible recommendation, and you might be tempted to wonder why we don't have this already, given that national and local government should be keenly concerned about, and adequately planning for, population change. However, once Lala et al. spell out what would be required for a coherent population strategy, it becomes clear that New Zealand falls well short (and, indeed, they can't point to a single country that does all of the things they want from a population strategy for New Zealand). According to Lala et al., the enabling environment for a population strategy requires three things (emphasis is theirs):

First, a population strategy would help elevate key demographic topics above day-to-day political contestation...

Second, a population strategy would help elevate policy planning beyond an election cycle...

Finally, a coherent population strategy could enable strategic decisions across multiple sectors of government including between central and local government.

The problem is clear. We don't really have any of those elements. Decision-making related to population is highly politicised (think about immigration policy, or support for families, for example), policies are subject to reversal with every change of government, and there is little coherence of planning between central and local government (consider the example of Auckland housing, where central and local government are in constant disagreement).

Finally, Lala et al. argue for an independent population commission to:

...provide a robust governance and implementation model to ensure the effective execution of a population strategy.

There is a lot to like in this proposal for a population strategy. New Zealand definitely needs to be more intentional in population planning. However, there are also some serious challenges, as my colleagues Tahu Kukutai, John Bryant, and Polly Atatoa-Carr note in their article in The Conversation. They draw attention to fertility trends, which have proven stubbornly resistant to policy-induced change. They also point to migration, which is not as easy to control as many politicians believe. This is because New Zealanders have the right to live and work in Australia and vice versa, with large flows between the two countries. There is also a huge diaspora of New Zealanders living overseas, who have the right to return at any time (as we saw during the COVID pandemic). Kukutai et al. also argue that a population strategy should have diversity as a foundational design principle, rather than an afterthought. Finally, they note the challenges of adopting a data-informed policy-making, when the quality of population data is in question with the changes to the census.

Kukutai et al. raise some valid points. However, those are challenges to a strategy that should be confronted during its design and development, not a reason to avoid having a strategy at all. I've argued in public forums in the past that a population strategy may fit into the 'too hard basket', in particular because New Zealand can't manage the international migration flows of New Zealand citizens, and so much population change in New Zealand is driven by the economic cycle in Australia. I now believe that also isn't a good reason for not having a population strategy for New Zealand, it is a good reason for us to have a strategy so that these challenges can be met head-on.

The future may be uncertain, but the future demographic challenges that New Zealand will face are already visible. A population strategy would help New Zealand to grapple with those challenges in a more coherent way. At a minimum, such a strategy would need to connect migration settings, regional planning, infrastructure, housing, health workforce planning, Māori and Pacific population futures, and the future of population data. Good on Koi Tū for making this case, and hopefully the government is listening.

*****

[*] And Paul Spoonley (one of the report's authors) and I will be working together on some further research looking in greater detail at regional population change, in the near future.

Migration won’t ‘solve’ ageing (and it definitely won’t solve it everywhere)

Every so often, someone wheels out the claim that migration is the obvious solution to population ageing. My previous research with Natalie Jackson (ungated version here) showed this for New Zealand overall, and for subnational (territorial authority) areas within New Zealand.

However, things are not straightforward at the subnational level. Local labour markets differ, as do the housing markets, educational and other institutions, local amenities, and job opportunities. All of these things will affect the age distribution of migrants, both into and out of a particular place. Some places attract retirees. Other places attract tertiary students, or young families. Some places do a bit of both. Other places just seem to be places that people want to flee.

In a new working paper with Courtenay Baker, we look at what’s happened to New Zealand’s working-age population (15–64) over the last quarter century (from 1998 to 2023), broken down across 66 territorial authorities and 21 Auckland local boards (TALBs), and five-year time periods. The key idea is simple: if the working-age population changes, where did that change come from?

Specifically, we disaggregate changes in the working age population into three components. The first component is 'cohort turnover', which is the the number of people ageing into the working-age population (basically, those aged 15-19 years) minus the number ageing out of the working-age population (basically, those aged 65-69 years). The second component is deaths among the working-age population. The third component is net migration at working ages, which we measures a a residual, because it can't easily be measured directly (and it is basically the change in the working age population, adjusted for deaths and cohort turnover).

Nationally, the working-age population grew in every five-year period we look at (see the table below). But the reason for that growth changes dramatically over time. In 1998-2003, the working-age population (WAP) grew 6.6 percent, and most of that change came from cohort turnover (5.5 percentage points). Migration helped (+2.1 percentage points), and deaths nudged things down a bit (-1.0 percentage points). However, by 2018-2023, the working-age population grew 5.1%, and net migration contributed 4.6 percentage points of that change. Cohort turnover only contributed 1.3 percentage points (and deaths contributed -0.8 percentage points).

So yes, the working age population is growing at the national level. And yes, migration is contributing a bigger proportion of that change over time. However, the real story here is the decline in cohort turnover as the population ages, as well as how this is playing out at the subnational level. For many TALBs, negative cohort turnover has become a reality. There were no TALBs with negative cohort turnover in the 1998-2003 period, but there were 30 TALBs that had negative cohort turnover in the 2018-2023 period. In other words, more than one-third of all areas are experiencing more people ageing out of the working-age population than the number of people entering the working-age population at young ages. This overall shift towards more negative (and less positive) cohort turnover is demonstrated in the leftward shift of points between Figure 1 (on the left, showing 1998-2003) and Figure 2 (on the right, showing 2018-2023) from the paper:

A natural response might be to say, "Those places should just try to attract more migrants." And sometimes they do! Across TALBs, cohort turnover and net migration tend to move in opposite directions (there is a moderately strong negative correlation between cohort turnover and net migration). Notice that in the two figures above, there is a downward-sloping trend line in each of them (and in each of the other five-year periods as well).

But 'sometimes' and 'tend to' are not a reliable policy prescription. When we look specifically at places with negative cohort turnover, most places do indeed offset it with positive migration, but not universally, and not consistently. In 2018-2023, two areas only partially offset negative cohort turnover (Kaikōura District and Dunedin City), and two had migration that actually made things worse (Waitematā local board and Chatham Islands Territory).

The takeaway is, again, that migration cannot be relied on to solve population ageing (or cohort turnover, in this case). Our decomposition basically shows that some places are increasingly reliant on migration to keep their working-age population from shrinking, and migration is highly unstable and cannot be relied on. In particular, migration is sensitive to policy changes at the national level, as well as sensitive to business cycle changes (and international migration, in particular, is sensitive to changes in Australia). These are things that local policy makers and planners have little control over.

To be clear, this doesn't mean that TALBs should be fatalistic about changes in the working-age population. But they need to be realistic. Not every area is Hamilton, with a young population and a growing university, attracting busloads of young people and maintaining a relatively young age structure and a growing working-age population. Not every area can aspire to have those features.

A realistic approach to planning for population ageing and a declining working-age population involves treating cohort turnover as a sort of 'warning light', and recognising that migration may not be a realistic solution. The good news is that our 'migration won’t save us' result isn’t a dead end for local areas that have declining working-age populations. It's an opportunity to improve their planning. They should treat negative cohort turnover as an early warning sign, work on realistic migration scenarios, and stress-test the basics, such as workforce needs, housing, infrastructure, and local services. Migration is a bonus when it arrives, but resilience is what they need to design for.

Where the prime-age population goes, so goes the economy

Globally, and especially in developed countries and in China and some other developing countries, the population is ageing rapidly. That population ageing is making a lot of people nervous because of its implications for the economy. In the future, a larger proportion of the population who are retired older people will need to be supported by a smaller proportion of the population in the labour force. However, such an 'old age support ratio' conception of the economic problem of population ageing only paints a partial picture. 

We can decompose GDP per capita as follows (as shown in this post):

[Y/P] = [Y/L] * [L/WA] * [WA/P]

where Y is output, P is population, L is the labour force, and WA is the working age population. This identity simply says that GDP per capita (or output per person, Y/P) is made up of labour productivity (or output per unit labour, Y/L), labour force participation (L/WA), and the share of the working age population in the total population (WA/P). As the population ages, WA/P decreases, and that should contribute to lower GDP per capita - that is, lower economic growth (unless, as noted in this post, it is offset by increasing productivity).

Both of those conceptions of the economic problem of population ageing are related to relative decline - the older population as a share of the total population increasing (what is referred to as structural ageing). The problem gets much worse if the size of the working age population declines in absolute terms. That is the problem that this 2024 working paper by Charles Kenny and George Yang (both Center for Global Development) looks at (with less technical summary here). Specifically, Kenny and Yang investigate the economic implications of a declining prime age population (those aged 15 to 65 years), focusing on:

10 year bond yields, consumer price indices, total and female labor force participation, GDP, government expenditures, government revenue, and stock returns.

Using data from the UN World Population Prospects, Kenny and Yang categorise countries into those where prime age population growth (PAPG) is positive, and those where PAPG is negative, and then compare the two groups. First though, the share of countries with positive and negative PAPG is instructive, in terms of demonstrating population ageing. Here is Figure 1 from the paper, which shows the number of countries with positive (pale blue) and negative (red) PAPG:

Prior to 1995, few countries experienced negative PAPG, but by 2060 more than half of countries will experience a declining prime age population. Does the degree of PAPG matter? Kenny and Yang show that it does, finding in a two-way fixed effects regression model that:

...higher PAPG is correlated with lower government expenditure, greater revenue, higher 10 year yields, and greater stock index returns, but suggests an insignificant effect on growth and labor force participation.

Interestingly, Kenny and Yang also find that higher PAPG is associated with higher inflation. Turning all of that around, lower PAPG is associated with higher government spending, lower government revenue, lower bond yields, lower stock returns, and lower inflation. That is consistent with governments having to spend more on pensions and health care, receiving lower tax revenues from a smaller labour force, and lower investment returns as portfolios are shifted to less risky options (bonds, rather than shares). 

Kenny and Yang also find a significant discontinuity between countries with positive and countries with negative PAPG. Even controlling for a linear effect of the level of PAPG, negative PAPG is associated with lower economic growth, higher government spending, higher inflation, lower 10-year bond yields, as well as lower female and total labour force participation rates.

Kenny and Yang conclude by noting that there are few effective strategies for mitigating the impact of declining prime-age population growth. One suggestion they make is migration. However, as I have noted before, migration cannot be a solution to population ageing. Kenny and Yang dismiss the idea of technological change, such as robots and AI, but it seems that it might be the only way to preserve high living standards (at least, as measured by GDP per capita), by rapidly increasing productivity.

Read more:

• People are retiring later in life, and why that might be a good thing
• Will population ageing lower economic growth?
• Migration and working age population decline in Europe

The economics of the falling total fertility rate in New Zealand

Earlier this week, I was interviewed by Paul Brennan on Reality Check Radio, on New Zealand's declining birth rate. You can listen to the interview here. We didn't have time to go through all of the questions I was given beforehand, so I thought I would add some points here, along with some links to some of the underlying data and research.

First, we need to understand what the numbers mean. The age-specific fertility rate is the number of births per women of each year of age (often it's reported in five-year age groups). The completed fertility rate is the number of births per woman over their entire childbearing years (typically assumed to finish at age 50, since so few women older than 50 give birth). Ideally, we want to know the completed fertility rate for each cohort, but we have to wait decades to find that out. So instead, national statistical agencies like StatsNZ measure the total fertility rate, which is the number of babies a woman would be expected to have, on average, if they experienced each of the age-specific fertility rates in that year.

To maintain a stable population (ignoring the impact of migration), a population needs to maintain a completed fertility rate of 2.1. This is more than two (which is theoretically all you would need to replace each couple), because not all women live to childbearing ages. So, each woman that lives to childbearing age needs to have more than two children to maintain a stable population. Now, it is worth noting that the total fertility rate is not the same as the completed fertility rate, because age-specific fertility rates change over time. In fact, when birth rates are falling, the total fertility rate probably over-estimates the completed fertility rate, but that's a story for another post.

Here's the total fertility rate for New Zealand since 1921 (source here):

The baby boom is easy to see, with the total fertility rate peaking at 4.31 in 1961. It then declined to approximately replacement level by the late 1970s, and until about 2012 the total fertility rate remained at or around replacement level. In fact, since 1978 the total fertility rate has only been above the replacement level in 1989-90 and 2007-2010. After 2012, the total fertility rate has been falling, down to 1.56 for the year ended December 2023. It is this recent decline that has many people freaking out.

What has contributed to the decline? In my view, there are two factors. First, children are really expensive. As noted here, JUNO estimated in 2021 that the cost to raise a child to age 18 in New Zealand was $265,680. That's pretty expensive, especially when you consider that the cost of housing has grown a lot in the last decade or so. According to Infometrics, the ratio of house price to income has grown from 4.9 in 2010 to 7.0 in 2024 (the period when the total fertility rate has been declining). Before 2010, the ratio was relatively stable (back to 2005, based on that dataset). As housing costs go up, that squeezes family's ability to afford to raise children.

Second, there are two long term social changes at play (and I only mentioned one of them in the interview). Women have been delaying fertility. As shown here, the median age of mothers giving birth to their first child was 27.4 years in 1998, but had increased to 29 years by 2018. Women delay fertility for a number of reasons, but two contributors are a longer period spent in education (more women going on to and completing tertiary study), and a greater focus on career development before having a family. One consequence of women delaying the start of fertility is that it leaves fewer years of childbearing age to have children (and so women have fewer children), and greater likelihood of fertility problems (and so more women remain childless).

The second social change is higher labour force participation of women. Even though the gender wage gap remains persistent, women do earn more than in earlier decades, which means that the opportunity cost of time spent out of the workforce has increased. This increases the 'implicit cost' of having children.

Of course, New Zealand is not alone in facing declining total fertility rate. It's been a trend across many (but not all) OECD countries (and most other countries as well). Here's the trends since 2012 (New Zealand is the red line, and the OECD average is the bold black line):

Can countries turn the trend in declining fertility around? The extreme example here is Hungary, which has offered some very large incentives to increase fertility, including a lifetime exemption from paying taxes for women with four or more children. Estimates vary, but Hungary may spend as much as 6 percent of GDP on families. How much extra fertility has that spending 'bought'? Hungary's total fertility rate increased from 1.25 in 2010 to 1.59 in 2021, a 27 percent increase (although some have claimed that the increase in total fertility rate is just an artefact of the data).

Closer to home, Australia introduced a baby bonus in 2004, worth AU$2500 per baby (now AU$5000 per baby). The baby bonus has been estimated to have increased the Australian total fertility rate by about 7 percent, which is hardly a huge change. In fact, Australia's total fertility rate was indistinguishable from New Zealand's in recent years, and was just 1.63 in 2022.

Taken together, it seems unlikely that countries can have a large enough impact on the total fertility rate to fight the tide that is driven by costs and long-term social changes. At least, it can't be done at the current levels of spending (and now South Korea is talking about introducing an incredibly generous baby bonus worth US$70,000).

The main demographic consequence of a falling total fertility rate is an ageing population. The median age will increase over time, and the proportion of the population in older age groups will grow. The main economic consequences relate to a need to recalibrate the infrastructure and social services that the population will need in the future. We may need fewer early childcare centres and schools, more elder daycare and rest homes, and greater healthcare capacity for people who are living longer (albeit also possibly healthier for longer). We will also need more age-friendly policies. Whether there will be a negative fiscal impact is less certain.

A declining total fertility rate is not something for us to fear. However, it is something that we need to take account of.

Japan's population decline is both a crisis and an opportunity

New Zealand's Population Conference is on in Auckland this week, so population issues have been on my mind. In the past, I've written about population decline in Japan. Things have escalated since that earlier post, as the Guardian reported last month:

Every one of Japan’s 47 prefectures posted a population drop in 2022, while the total number of Japanese people fell by nearly 800,000. The figures released by the Japan’s internal affairs ministry mark two new unwelcome records for a nation sailing into uncharted demographic territory, but on a course many other countries are set to follow.

Japan’s prime minister has called the trend a crisis and vowed to tackle the situation. But national policies have so far failed to dent population decline, though concerted efforts by a sprinkling of small towns have had some effect.

Wednesday’s new data showed deaths hit a record high of more than 1.56 million while there were just 771,000 births in Japan in 2022, the first time the number of newborns has fallen below 800,000 since records began.

Even an all-time high increase in foreign residents of more than 10%, to 2.99 million, couldn’t halt a slide in the total population, which has declined for 14 years in a row to 122.42 million in 2022.

The decline in Japan's population is intimately linked with population ageing. An older population has fewer births and a greater number of deaths. When deaths exceed births, demographers refer to this as natural decline. If natural decline is not offset by net migration, then the population will decline, and this has become the experience of many of Japan's prefectures (in others, net outward migration is a driver, with or without natural decline as well).

Pervasive population decline has impacts across society. Some impacts are clearly negative. However, in every crisis there is an opportunity, and as the population ages new or expanding business opportunities are arising. As the Guardian article notes:

Japan’s ageing population is already affecting nearly every aspect of society. More than half of all municipalities are designated as depopulated districts, schools are closing and more than 1.2 million small businesses have owners aged about 70 with no successor.

Programmes on the Broadcast Satellite (BS) channels are geared to an older audience, with the commercials a procession of offerings for funeral services, supplements to relieve aching joints and incontinence pads.

Japan’s underworld has not escaped unscathed either: a majority of yakuza are over 50 and there are now more gangsters in their 70s than in their 20s. Meanwhile, senior porn is a growing niche, populated by a handful of silver stars in their 60s, 70s and even 80s.

Japan is in the vanguard of population ageing and population decline globally. Many European countries are not far behind. New Zealand may have a younger population overall, and relatively higher levels of net international migration, but will not be immune to these effects either. New Zealand's outlying regions are ageing rapidly, as Natalie Jackson and I pointed out in a 2017 article in the Journal of Population Ageing (ungated earlier version here). I expect to write a lot more on this topic in the near future.

In the meantime though, business owners should really be thinking about how they can market to an older (and still ageing) population. There are opportunities there that seem to be under-exploited right now (and not just in the aged care sector).

Read more:

• Forget 'zombie towns', there's entire 'zombie districts' coming to a rural area near you
• Winners and losers in population growth
• Newsflash! Population growth will be highest on the fringes of fast-growing urban areas
• The Maxim Institute on dealing with population decline
• The relative (un)certainty of subnational population decline
• Japan will be able to teach New Zealand about dealing with rural population decline
  

Ageing and inequality in China

Two major ongoing trends for China over the last decade or more have been increasing income inequality, and an ageing population. Could they be related? That is the research question addressed in this 2018 article by Xudong Chen (Baldwin Wallace University), Bihong Huang (Asian Development Bank Institute), and Shaoshuai Li (University of Macau), published in the journal The World Economy (ungated earlier version here). They use data from the China Health and Nutrition Survey (CHNS), which includes longitudinal data on 4400 households from 36 suburban neighbourhoods and 108 towns, collected over nine waves between 1989 and 2011. They look at how within-cohort inequality varies over the life cycle within their data, and find that:

An increasing age effect on income inequality is observed for most cohorts, although not linear...

The coefficients on age, our main variable of interest, are significantly positive, indicating that ageing population enlarges inequality in both income and durable consumption.

The implication is that, as the population ages in aggregate, overall inequality will increase. That is because as birth cohorts age, the within-cohort component of inequality increases. It is also because more of the population will be in older age groups, where within-cohort inequality is higher.

However, there is an important piece of the puzzle missing in the Chen et al. paper. That is the between-cohort component of inequality. Chen et al. include cohort fixed effects in their models, but they don't tell us anything about whether the inequality between birth-cohorts is increasing, decreasing, or remaining steady over time. If the income gap between successive cohorts is narrowing, that could offset the increasing within-cohort inequality. On the other hand, if the income gap between successive cohorts is increasing, that will make inequality even worse. We just don't know, and yet there is evidence that inequality in China may have started to decrease (see here).

The Chen et al. paper therefore gives us some insight into only part of the question about how an ageing population may overall contribute to increasing inequality over time. Interestingly, that is one potential contributor to global inequality that could have used more thorough exposition in Branko Milanovic's book Global Inequality (which I reviewed yesterday). After all, China is a large contributor to global inequality (see here).

Now, there are good theoretical reasons to believe that ageing populations increase inequality (and those reasons, starting with Modigliani's lifecycle theory, are briefly explained in the Chen et al. paper). How much extra inequality we may have as a result of population ageing, and the consequences (if any) of increasing inequality that arises from population ageing, are interesting questions that thoughtful researchers are hopefully considering. I just hope that they are considering both the within-birth-cohort and between-birth-cohort components of inequality.

Migration and working age population decline in Europe

It is more than simply a truism to say that populations are ageing over time. Structural ageing (changes in the age distribution of the population, whereby older people constitute a larger proportion of the total population) is a real phenomenon, observed across all countries and regions of the world. However, the areas worst affected by structural ageing tend to be remote regions, where young people are out-migrating to cities in large numbers.

One way that structural ageing can manifest is in the size of the working age population (this can be defined in various ways, but a common approach is the population aged 15-64 years). As the population ages, a larger proportion of the population is aged 65 years or over (and no longer in the working age population), and so the working age population shrinks. Similarly, as young people migrate out of a country or region, the working age population shrinks.

So, I was interested in this recent article by Daniela Ghio, Anne Goujon, and Fabrizio Natale (all European Commission Joint Research Centre), published in the journal Demographic Research (open access, with a shorter non-technical summary available on N-IUSSP). They look at to what extent cohort turnover and migration effects affect the size of the working age population for regions across the European Union countries (specifically, for NUTS3 regions - the smallest disaggregation of regions used by Eurostat) over the period from 2015 to 2019. Cohort turnover is specified as the difference between the size of the cohort of young people at labour market entry age (15-19 years) and the size of the cohort of older people at labour market exit age (60-64 years). Migration is the net migration of the working age population. Comparing those two values with change in the working age population over the period, Ghio et al. categorise four different types of regions. The first type of region was:

NUTS3 territorial units where both components are positive represented approximately 8% of territories (13% of EU working-age population in 2019), mainly distributed across the following countries: the Netherlands (20 territories), Belgium (15), Spain (12), and Germany (11).

In the vast majority of territories (94), the positive effects coincided with an increase in the size of the working-age population during the 2015–2019 period...

Next:

The cluster with positive cohort turnover effects and negative net migration was the smallest one: only 5% of EU territories accounting for 11% of the EU working-age population in 2019, mostly located in France (30). Among these, the majority (54 territories, corresponding to 8% of the EU working-age population) reported a decrease in the size of the working-age population.

Third up: 

The cluster with negative cohort turnover effects and positive net migration included the largest share (63%) and number (738) of EU territories, representing 54% of the EU working-age population in 2019.

Finally:

The cluster with both negative cohort turnover effects and net migration was the second largest and consisted of 266 territories, corresponding to 23% of EU territories and 22% of the EU working-age population in 2019, mostly distributed across eastern EU MS such as Bulgaria (18), Romania (31), and Hungary (9); central eastern EU MS such as Poland (40); south-eastern EU MS such as Croatia (18); and southern EU MS such as Greece (18) and Italy (41).

The four types of region are nicely illustrated in Figure 2 from the paper:

The overall decline in the size of the working age population is readily apparent in the first panel of the figure, on the left. Notice that much of that change is due to population ageing (the cohort turnover in the third panel, on the right) rather than net migration (the middle panel). I suspect this would be a general feature not just for Europe, but for all western countries, including New Zealand and Australia.

This is a nice paper, which offers an interesting characterisation of regions across two dimensions: (1) whether cohort change is increasing or decreasing the size of the working age population; and (2) whether net migration is increasing or decreasing the size of the working age population. I have done similar analyses in the past (unpublished as yet), but also looking dynamically as to how the changes in components (in my case, it was natural increase or decrease [births minus deaths] and net migration) move over time. This is the sort of analysis that local planners and policy makers are really interested in. Importantly, it doesn't require much in the way of data or heavy analytical skills. It would be really interesting to see a similar analysis for New Zealand - a good potential project for a future Honours or Masters student.

[HT: N-IUSSP]

It's the demography, stupid

I don't often write about macroeconomics. A lot of the research on macroeconomics is highly mathematical, and a lot of it is, frankly, voodoo. Macroeconomics has rightly taken a beating since the Global Financial Crisis for unrealistic models (see here and here, for example). One of the things that most surprises me about macroeconomic models is the absence of demography. So many models ignore the population, as if it's only something that matters in terms of the size of the labour force, and as a denominator to turn GDP into GDP per capita. But the population age structure matters. Labour force participation, and saving and borrowing behaviour, depend on the age structure of the population. So population ageing matters (for example, see this post).

So, I was interested to recently read this 2018 article entitled "The demographic deficit", by Thomas Cooley (New York University) and Espen Henriksen (BI Norwegian Business School), published in the Journal of Monetary Economics (ungated presentation version here). Cooley and Henriksen calibrate overlapping generations models for the U.S. and Japanese economies for 1990 and 2007, and include increasing life expectancy and the age distribution of the populations as key inputs into the model. As they explain:

Growth accounting shows that that growth differentials both across countries and over time are not only driven by TFP and capital accumulation, but labor supply on the extensive margin, labor supply on the intensive margin, and (obviously) population growth. One straightforward way in which demographics impact changes in aggregate economic activity is through their impact on aggregate factor supply. Data show that households steadily decrease labor supply both on the intensive and extensive margin in the latter part of their working lives. This is in contrast to the usual assumption in overlapping-generations models, that households supply labor inelastically until retirement age. Changes in life expectancy and cohort distributions will therefore affect both labor market participation and average hours worked. Faced with in- creases in life expectancy individuals need to provide for more years in retirement during their working life. In addition, aging populations means more people will be in their highest savings years. This may lead to changes in aggregate capital supply. Lastly, demographic change affect the composition of the work force and its productivity. Changes in the average efficiency of the individuals working will manifest itself in changes in TFP.

Cooley and Henriksen show with their calibrated models that:

...about 1/6 of the level of growth for both United States and Japan, net of population growth, can be accounted for by changes in life expectancy and in the cohort distributions.

There is clearly a non-trivial share of economic growth attributed to demographic change. And that means that demographic change might help explain some of the growth slowdown since the Global Financial Crisis. Older populations have fewer people working, workers working fewer hours, and less saving. All of those contribute to slower economic growth. The contribution of demographic change to slowing economic growth is complementary to the other recent explanations for the growth slowdown, including secular stagnation (from Larry Summers), and technological slowdown (from Robert Gordon).

Cooley and Henriksen's article is complemented by a comment in the same issue of the journal, by Etienne Gagnon, Benjamin Johannsen, and David López-Salido (all Federal Reserve Board). If you don't understand Cooley and Henriksen's article, then Gagnon et al. provide a summary that is actually much simpler to understand. However, what struck me was this from the conclusion of the comment:

As populations in the advanced economies continue to age, understanding the consumption and labor supply decisions of older workers is becoming an increasingly urgent task for deriving projections of aggregate variables. Henriksen and Cooley’s paper is a most-welcome step in this direction.

That is both good, and bad. It's good that macroeconomics is taking steps towards meaningfully including demographic change in its models, but bad because we're not already there.

Read more:

• Will population ageing lower economic growth?

No, economic growth won't save us from the increasing fiscal costs of population ageing

Last week I wrote a post about ageing and creating tax incentives for older people to work longer. The impetus for the tax incentives is the projected increase in the older population, and reductions in support ratios (the number of working people for each older person). However, the issue may not be as bad as assumed by most people (including me).

This new article by Ian McDonald (University of Melbourne), published in the journal Australian Economic Review (sorry I don't see an ungated version online) tells a different story. McDonald first outlines the problem:

The likely prospect of an ageing population, that is, an increase in the share of old people in the population, will put upward pressure on the level of government expenditure in the future. High government expenditures per old person multiplied by the increase in the proportion of old people in the population will drive an increase in government expenditure. This is a major fiscal challenge which we are starting to experience.

He then goes on to summarise projections of government spending, based on assumptions about population growth, and an assumption of unchanged government policy (which is a standard assumption - we can't easily forecast what future government policy may be). He finds that various projections (by McDonald himself, and others):

...suggest that an increase in government spending due to the ageing population somewhere in the range of 4.9–7.8 percentage points of GDP over the 40‐year period seems to be a reasonable projection assuming unchanged government policy.

So, essentially the government would need to either increase spending by 4.9-7.8 percentage points of GDP. McDonald seems to suggest this is not a big deal, but given that government spending in Australia is around 40 percent of GDP, that would entail a 12-20% increase in government spending. That means taxes would need to be 12-20% higher than currently, or government services (or service quality) would need to be cut to compensate for the extra spending.

McDonald's argument that the costs are not prohibitive rests on this:

The prospect of an increasing proportion of old people raises the spectre that our continuing support will be impossible. However, this fear ignores the fact that because of the continuing growth of labour productivity, we who will finance this support will be better off than we are today and will indeed be well able to support older people.

Specifically, he finds that the increase in government spending required for the ageing population is dwarfed by the increase in GDP itself. I don't find this argument entirely persuasive, because if taxpayers were happy to give up some proportion of their income growth in higher taxes, the government could do that right now. In fact, governments tend to be moving in the opposite direction, decreasing taxes even though income per capita is increasing. That suggests that there is already an unwillingness, either by taxpayers or by government, to increase taxes to offset increased costs due to ageing.

I don't think you can just wave your hands, cite 'economic growth', and 'poof!' - all problems relating to the increasing costs of an ageing population disappear. And that appears to be what McDonald is doing. Which is disappointing - I usually like the 'For the Student' section of the Australian Economic Review, but this is one article that falls short of the mark.

Tax incentives can encourage older people to delay retirement and work longer

Developed countries are facing a problem. Increasing life expectancy, coupled with low fertility, is leading to a rapidly ageing population. Countries that have publicly funded old age pensions are likely going to face challenges to their continuing affordability, because there will be fewer working age taxpayers for each pension recipient (what economists refer to as a lower 'support ratio'). The options available to policy makers include increasing the age of eligibility for pensions (as several countries have done in recent years), decreasing the real value of pensions (such as by not adjusting them for inflation), or shifting from universal pensions to means-tested pensions (where older people with high income or wealth would not be eligible to receive the pension).

All of these changes are politically tricky to implement, because as the population ages, older people (and those soon to become eligible for the pension) become an even larger share of the voting population. Also, reducing the real value of pensions (or delaying eligibility for them) may lead to increases in poverty among older people. Another alternative that may reduce these poverty concerns, is to encourage older people to delay retirement, working until they are older and, depending on the pension rules, potentially delaying their receipt of pension benefits (even when the age of eligibility has not changed). One way to encourage people to work more is to allow them to keep more of their labour earnings, such as by lowering the tax rate on labour income.

A reasonable question, then, is how much difference can a tax change make to the labour market behaviour of older people? This 2017 article by Lisa Laun (Institute for Evaluation of Labour Market and Education Policy, Sweden), published in the Journal of Public Economics (open access) provides some indication. Laun uses linked Swedish data from the "Income and Tax Register (IoT), the Longitudinal Database on Education, Income and Employment (LOUISE) and the Employment Register", which allows her to track nearly 190,000 people who turned 65 years old within three months either side of the year end, between 2001 and 2010. Importantly, there were two changes in the tax regime that occurred at the start of 2007, as Laun explains:

The first labor tax credit studied in this paper is an earned income tax credit that reduced the personal income tax on labor income only. It was introduced on 1 January 2007 for workers of all ages, with the purpose of increasing the returns from working relative to collecting public transfers. Motivated by the particular importance of encouraging older workers to remain in the labor force, the tax credit is substantially larger for workers aged 65 or above at the beginning of the tax year...

The second labor tax credit studied in this paper is a payroll tax credit for workers aged 65 or above at the beginning of the tax year. Like the earned income tax credit, it was introduced on 1 January 2007... The payroll tax rate for workers above age 65... was reduced from 26.37% in 2006 to 10.21% in 2007. Since then, it only includes pension contributions. The payroll tax credit thus reduced the payroll tax rate for older workers by 16.16 percentage points.

Laun evaluates the effect of the combination of these two tax rate changes on the labour market participation of older people. Specifically, she looks at the impact on the 'extensive margin' -whether older people work or not (as opposed to the 'intensive margin' - how many hours they work, if they are working). She essentially compares workers who are aged similarly, but on either side of the January date on which their tax rate changes. She finds that there is:

...a participation elasticity with respect to the net-of-participation-tax rate of about 0.22 for individuals who were working four years earlier.

In other words, a one percentage point decrease in the tax rate increases labour force participation by 0.22 percentage points. Given that the employment rate just before age 65 appears to be about 63 percent, and the tax rates dropped by around 20 percentage points, the effect of the Swedish tax change amounts to about 4.4 percentage points of additional labour force participation, or an increase of about 7 percent. The results are robust to various other specifications, and are similar to results from other countries in other contexts not related to retirement. Laun also shows that the retirement hazard (essentially similar to the probability of retirement) decreases by a statistically significant amount as a result of the tax change.

However, pension receipt does not change - people are just as likely to receive the pension after the tax change as before. Interestingly, in Sweden pension receipt is voluntary (but universal and not tied to  whether or not an older person is working or to their earnings, similar to the case in New Zealand), and delaying the pension allows a higher amount to be claimed later (a feature of pension systems that many countries have, but New Zealand does not). So, if working longer led to a delay in eligibility for pensions, you can bet that the effect of the tax change would be much smaller (and potentially zero).

The take-away from this paper is that incentives do matter. It is possible to incentivise older people to work longer, even when they remain eligible for the old age pension. However, this sort of change isn't going to make pensions any more affordable unless the value of pensions in real terms is reduced as well. If people are working more, then the pension could potentially be less generous without substantially increasing poverty among older people. However, that doesn't make any changes in this space any easier to introduce politically.

Japan will be able to teach New Zealand about dealing with rural population decline

I've written a number of times about population decline in New Zealand's rural and peripheral areas (see here and here and here and here). New Zealand has seen a period of significant population growth driven by historically high net international migration. That might have been enough to turn around the fortunes of some previously-declining areas (although we won't know for sure until the delayed Census results are released), mainly through internal migration out of the larger cities (or, at least, that has been the main source of positive population change when it has occurred for those areas). However, the reprieve is likely to be short-lived as we return to more 'normal' net international migration. So, what is a declining region to do?

The Maxim Institute released a report in 2017 that made some suggestions (which I blogged about here). However, New Zealand is not the first country to face population decline in rural and peripheral areas. Japan is the poster child for population decline, and as one indicator of its ageing and declining population, consider this: Japan has been closing hundreds of schools each year over the past decade or more. The scary thing is that New Zealand's outlying regions are ageing rapidly, as Natalie Jackson and I pointed out in a 2017 article in the Journal of Population Ageing (ungated earlier version here).

What can Japan teach us about how to deal with declining regional populations? Last year, Brendan Barrett (RMIT University) wrote an interesting article in The Conversation on Japan's decline:

Everyone in Japan is aware of the challenges posed by a rapidly ageing, declining population with low birth rates. The media cover these concerns extensively.

Local governments have been trying to encourage people to move back to rural areas by providing work opportunities and sharing details of vacant houses...

There are no simple answers to these challenges. The Japanese government has been very active but past policies have tended to focus on infrastructure development and construction of public facilities (roads, dams, town halls, libraries, museums, sport facilities), rather than on the economic needs and welfare of local people...

While lots of ongoing initiatives aim to attract young people back to rural areas, the biggest concern is one of livelihoods as long-term job prospects are limited. Yuusuke Kakei covers this topic in his 2015 book Population Decline x Design, presenting proposals for new local economic activity that puts women, creativity and community at the centre. To this we should add what Joseph Coughlin describes as “The Longevity Economy” to respond to the economic and technology needs of an ageing population.

Interest in the notion of the universal basic income has also surged recently in Japan. Some commentators argue that it could play a significant role in revitalising Japan and in making rural life more attractive to young Japanese by providing them with long-term financial security.

One major challenge for local economies is access to finance, especially to support new businesses. While there are several innovative crowdfunding initiatives, Japanese municipalities should also look at the Transition Town movement for inspiration with its focus on “reclaiming the economy, sparking entrepreneurship, reimagining work”.

Specifically, it is worth exploring the potential of local entrepreneur forums. These bring together local investors from within the towns or villages with local entrepreneurs to support new, small business ventures.

The result is that communities pool their resources to support young people who have business ideas but lack financial resources. This is in line with both Masuda’s and Kakei’s recommendations to focus on local needs, rather than physical buildings and infrastructure.

Most of the initiatives highlighted by Barrett seem a little too promissory and results are lacking. A universal basic income might even make the problem of rural population decline even worse, as it allows those who lack the necessary skills for an urban job the opportunity to afford to live in an urban area (taking a broad definition of urban). Anyway, if policymakers are concerned about population decline and want to develop policy to mitigate it, they we should be keeping a close eye on initiatives in Japan, noting what works and what doesn't work. Although there will be important cultural differences to take note of, Japan is leading the way here and we will not want to make mistakes that they have already uncovered.

Read more:

• The relative (un)certainty of subnational population decline
• The Maxim Institute on dealing with population decline
• Newsflash! Population growth will be highest on the fringes of fast-growing urban areas
• Winners and losers in population growth
• Forget 'zombie towns', there's entire 'zombie districts' coming to a rural area near you

Population ageing can't be balanced by migration

A headline in The Conversation today attracted my attention for all the wrong reasons:

Migration helps balance our ageing population – we don’t need a moratorium

I'm not sure if the researcher who wrote the article (Liz Allen of Australian National University) should be held responsible for the headline, but the data in the article doesn't support the headline, and neither does years of research in Australia and New Zealand, including by Natalie Jackson and myself.

To illustrate, one of the key figures from the article is reproduced below (you can find the actual data in The Conversation article). The vertical axis shows the 'dependency ratio' (the number of people aged 0-14 years old or 65 years and over, for every 100 people of working age (15-64 years)). The different coloured lines track different population projections for the Australian population, based on different assumptions about annual net international migration (between zero migration - the red line, and 280,000 net international migration per year - the grey line). Notice that the dependency ratio increases regardless of migration scenario. Irrespective of the projected level of net international migration in Australia, the dependency ratio increases. While the zero net migration scenario is the worst, there is clearly no 'balancing' of population ageing by international migration.

The reason for this is simple. International migrants may be younger (on average) than the domestic population, but migrants get older just like the domestic population does. In order to offset the ageing of the domestic population plus the ageing of the newly arrived migrants, you would need to increase migration even further. In fact, you would need accelerating net international migration in order to offset population ageing. That simply isn't realistic for mathematical reasons (you'd soon run out of young people internationally who wanted to move to your country), if not for political reasons.

This isn't a new insight for Australia or New Zealand. Rebecca Kippen and Peter McDonald wrote a number of papers in the late 1990s and early 2000s on this issue, based on Australian data (see here and here and here). Natalie Jackson and I had a paper published last year in the Journal of Population Ageing (ungated earlier version here), which included a similar analysis for New Zealand. In that paper, we wrote that:

...extremely high migration levels would have only minimal impact on the proportion of the population aged 65 years and over in 2068. Zero net migration (Scenario 8) would see around 28.1% aged 65 years and over in 2068, while net migration of 150,000 per year would reduce that to 23.6% (Scenario 1). The resulting populations would number around 5 million and 16.3 million respectively. Thus, the reduction of 4.6 percentage points in ageing (by comparison with the zero migration scenario) would come at a ‘cost’ of 11 million additional people. Similarly, the addition of 10.4 million migrants over the period 2013–2068 would reduce the proportion under the equivalent of Statistics New Zealand’s medium variant projection (Scenario 7) in 2068 by just 3.5 percentage points.

In other words, it requires unrealistic levels of net international migration to have an appreciable impact on population ageing. And you can see that for yourself if you look back at the diagram from Allen's article I reproduced above. The difference between 200,000 net international migration and 280,000 net international migration per year is almost imperceptible in terms of the impact on the dependency ratio. It would take millions of annual migrants to 'balance' the increasing dependency ratio arising from population ageing. And then, as I note above, millions more to offset the ageing of those migrants. And so on.

Notwithstanding all the analysis in the papers I mentioned above, international migration actually could be a solution to population ageing. However, this solution only presents itself if the migration is the outward migration of older people (not the inward migration of younger people). As far as I know, no one is yet advocating for rounding up oldies and jetting them off overseas to see out their remaining days, in order to lessen the burden on the working age population.

So, forget balancing population ageing with migration - it isn't going to happen.

Will population ageing lower economic growth?

Globally, the world population is ageing, and it is ageing in some countries (mostly developed countries, but also China) faster than others. That leads to a potential problem. Older people are less likely to work than younger people, and some consider that older workers are less productive (although that point is contested - see here). [*] So, it is reasonable to wonder: will population ageing have a negative impact on economic growth?

If we take GDP per capita as a measure of living standards or wellbeing (and hence, economic growth is represented by an increase in GDP per capita), we can decompose GDP per capita as follows [**]:

[Y/P] = [Y/L] * [L/WA] * [WA/P]

where Y is output, P is population, L is the labour force, and WA is the working age population. This identity simply says that GDP per capita (or output per person, Y/P) is made up of labour productivity (or output per unit labour, Y/L), labour force participation (L/WA), and the share of the working age population in the total population (WA/P).

For an ageing population to decrease the growth in Y/P, then it must decrease either:

1. Labour productivity - contested, but possible, especially if you consider manual-labour-intensive tasks;
2. Labour force participation - seems possible, since older workers are less likely to be in the labour force, especially in countries where they have access to pensions or can draw from retirement savings; and/or
3. The share of the working age population in the total population - almost certain, given that as the population ages overall, then young people (who are not in the working age population) make up a smaller and smaller proportion of the total population.

So we've established that, in theory, the ageing population should reduce economic growth. But what does the empirical evidence tell us?

A recent NBER working paper by Daron Acemoglu (MIT) and Pascual Restrepo (Boston University) looks directly at the available data on population ageing and economic growth (ungated version here), and finds that:

...since the early 1990s or 2000s, the periods commonly viewed as the beginning of the adverse effects of aging in much of the advanced world, there is no negative association between aging and lower GDP per capita... we show that even when we control for initial GDP per capita, initial demographic composition and differential trends by region, there is no evidence of a negative relationship between aging and GDP per capita; on the contrary, the relationship is significantly positive in many specifications.

In other words, countries that are ageing faster actually also have faster (not slower) economic growth. What is going on? Acemoglu and Restrepo argue that it is the rise of labour-saving technology, in the form of robots and artificial intelligence, and they show that:

...countries experiencing more rapid aging are the ones that have been at the forefront of the adoption of one important type of automation technology: industrial robots.

Going back to our identity from earlier in the post, it seems that even if labour force participation (L/WA) and the share of the population that is working age (WA/P) are decreasing, they are being more than offset by an increase in labour productivity (Y/L). It is difficult to say whether this situation can continue indefinitely, but for now, perhaps those that believe that population ageing will have negative effects on economic growth are just as wrong as Malthus about unsustainable population growth, and for the same reason (technological change)?

[HT: Marginal Revolution, this time last year]

Read more:

• People are retiring later in life, and why that might be a good thing

*****

[*] Also, the secular stagnation hypothesis suggests that, when interest rates are low (and the real interest rate is negative), an ageing population will lead to lower growth (see here). 

[**] As per this earlier post, I note that this decomposition comes from a discussion with Jocelyn Finlay from Harvard School of Public Health, when I was on Study Leave there back in 2016.

Congratulations Dame Peggy Koopman-Boyden

I was delighted to learn on Monday that my former (now retired) colleague, Peggy Koopman-Boyden was made a Dame Companion of the New Zealand Order of Merit. Dame Peggy and I have a long history of collaboration in research on ageing, dating back to 2006 when we were brought into the beleaguered Enhancing Wellbeing in and Ageing Society (EWAS) project (see here for details on that project). That was followed by two projects funded by the Foundation for Research, Science and Technology (see here for details), and the Ministry of Science and Innovation (later the Ministry of Business, Innovation and Employment) (see here for the final output of that project). However, despite all those projects we were both on, we actually only co-wrote one research paper together - this 2015 working paper entitled "Labour Force Participation, Human Capital and Wellbeing among Older New Zealanders" (co-authored with Matthew Roskruge at Massey).

I suspect there are probably some people who are pretty unhappy about this honour. Dame Peggy was responsible for handling the merger of the School of Social Science and the School of Arts at the University of Waikato, and that process ruffled a lot of feathers. However, her honour has less to do with her work here, and more as a recognition of the immense contributions she has made in service of older people in New Zealand - service which it has been a privilege for me to observe first-hand on many occasions. The Waikato Times article gives only a small taste of her contributions:

Dame Peggy led major research projects for the Foundation for Research, Science and Technology during the 1990s and 2000s and recently completed a multiyear programme of research on active ageing funded by the Ministry of Business, Innovation and Employment.

In 1997, she was appointed a Companion of the New Zealand Order of Merit for her services to the elderly. 

And in 2005, she became the founding president of the Waikato branch of the New Zealand Association of Gerontology, a position she held until 2012. She has been a member of the Age Concern Advisory Research Committee since 2010.

She has also been chair of Hamilton City Council's Older Persons Advisory Panel and now chairs the steering group of Hamilton's Age Friendly accreditation of the Institute of Healthy Ageing.

Dame Peggy was made Emeritus Professor of the University of Waikato last year. She was previously Director of NIDEA for a short time before retirement, but retirement has clearly not slowed her down and she is actively involved in a number of projects, including her goal of Hamilton becoming New Zealand's first age-friendly city.

Dame Peggy was a great mentor to me as I was starting out my independent research career (and finishing off my PhD), and has always been a great source of advice and ideas for continuing research. I am blessed to have had her share part of my career journey, and I look forward to being able to use her formal title in person soon (I'm sure that will draw a smile and a gentle rebuke).

Congratulations Dame Peggy Koopman-Boyden!

Winners and losers in population growth

I was quoted at length in a story by Michael Daly published in Stuff last week. My comments were based on my ongoing research programme (with many collaborators) on subnational population projections and migration:

While New Zealand's population was continuing to grow it was becoming much more concentrated in the main centres, Cameron said. "For a lot of regions it really is about managing the decline." 

Declining areas could have a reverse momentum. "You can get young people moving out of the area. You're going to get less natural increase, that's going to reinforce population decline," Cameron said.

Declining rural areas tended to have more older people, while the larger centres had tertiary education opportunities that drew in the young.

"Areas that have more job growth, better income availability, lower unemployment, those tend to be places that are attractive for people to live," he said.

Good amenities were also important. "There's quite a difference between the sorts of things you can do in Auckland from Taumarunui, for instance. People like to be able to be able to do things, and urban centres tend to have more of those opportunities."

Migration was one factor contributing to fast growth in some areas but so was natural increase - the difference between births and deaths.

Although some migrants were retirees, most tended to be younger than average. "Younger people have more babies so that reinforces itself."

Cameron did not expect there would be a tipping point where Auckland's high house prices and traffic congestion would lead to an avalanche of people moving out. "It's a trickle rather than a torrent," he said.

But Auckland's high property prices were benefiting Hamilton and the Waikato District. While some people were commuting north into Auckland, jobs were also spilling over from Auckland into Waikato, where land was much cheaper.

Waikato also had good road and rail links to the ports in Tauranga and Auckland, Cameron said. The dairy boom, although ending 18 months or so ago, had also brought considerable income into Waikato, as well as into Taranaki.

Hamilton did have a similarity with Dunedin that counted against the cities. "They have the university there (Dunedin), which brings in a lot of young people but once they finish they are all heading out of Dunedin. We have the same thing here in Hamilton."

Dunedin's slow growth was a long term trend. It had been New Zealand's largest city in the 19th century and it was hard to pull out the causal factors that had led to its decline in importance.

Queenstown had a booming tourist industry, which was labour intensive, Cameron said. "There's a lot of jobs available. Those jobs pull in people. The more people you have the more hairdressers and things you need. It gets a little bit of momentum going."

Nelson had the same sort of sunbelt migration that Tauranga did, including the arrival of many retired people. Gisborne was "so far away from everywhere. It's very isolated out there."

The notoriety of Wellington's weather didn't seem to be a massive disadvantage, Cameron said. He had looked into the effects of climate on migration, and while it had an effect it wasn't very large.

"People do tend to move to sunny, warmer, less wet places, but the actual size of that effect is pretty small."

Some work had been done on whether regions could arrest population decline by attracting migrants, he said. "But the amount of migration you would need to offset both the ageing population and the fact young people want to move out - it's unrealistic."

Overseas, where areas with declining populations had managed a resurgence, it was usually because of some sort of black swan event. For example, the only thing that turned the population change in North and South Dakota around had been the fracking boom. "It was really a one-off," Cameron said.

One small district that had done a good job of turning around declining fortunes was Otorohanga, which had been losing people for a long time before growing between the last two censuses.

"They managed to retain a lot of their young people," he said. Dale Williams, who was mayor from 2004-2013, had a compact with local employers to make jobs available for young people.

"Because young people could stay in Otorohanga and have a good job, many chose to stay. Then you have more natural increase in the population, as well."

Daly did a good job of collecting and summarising my comments. The key point is that the areas that are already growing fast (especially Auckland, Tauranga, and Hamilton - the so-called 'Golden Triangle' of the upper North Island) are doing so not solely because of migration. Migrants tend to be younger than non-migrants (even for Tauranga a lot of in-migration is young people), and younger people generate additional population growth because they have children. At the other extreme, rural and peripheral areas of the country are experiencing sustained out-migration of the younger population, which is a double-blow (again because there will be fewer children as a result). It could be (and may yet become) worse though - consider the situation in Japan.

The idea that there will be 'winners' and 'losers' in future population growth is nothing new. Consider the discussion of 'zombie towns' in New Zealand (which I discussed here). The Marsden funded project Tai Timu Tangata (led by Natalie Jackson, and including me) will begin producing some final outputs over the coming months. I look forward to outlining some of those outputs here.

People are retiring later in life, and why that might be a good thing

Simon Collins quoted me in the New Zealand Herald on Sunday:

For thousands of years, people of all ages worked together in hunting, farming and domestic work as long as they were physically capable.

That legacy still lingers in our farming sector. Dr Michael Cameron of Waikato University says it is the only industry whose share of employment in every age group above 55 is above the national average, rising from 7 per cent across the whole workforce to 35 per cent of those still working at 85 or over.

I was a bit surprised, since I knew I hadn't talked to Simon this past week, but then I realised he was drawing on this 2014 working paper I wrote. I thought it might be worthwhile to add a bit more explanation. The working paper was a purely descriptive analysis of working among older people (aged 55 years and over), based on Census data from 1991 to 2013. There aren't too many surprises in there. However, a couple of points are worth drawing out.

First, as Simon notes Agriculture, Forestry and Fishing (AFF) stands out among other industry groupings as having the oldest age profile. Here's the corresponding figure from the working paper (where you can see AFF has the smallest proportion of workers aged under 55 years, and the largest proportion aged over 65 years):



Second, the older labour force is growing, within every age group, as this figure shows:



You might suspect that this is because the cohorts moving into the older age groups are larger (the baby boomers, for instance), but that is only part of the story. Labour force participation rates have been increasing for every successive cohort:



Now we come to the big question: why is this a good thing? If we take GDP per capita as a measure of living standards or wellbeing (yes, it's a very imperfect measure of wellbeing, but it's a place to start), we can decompose GDP per capita as follows [*]:

[Y/P] = [Y/L] * [L/WA] * [WA/P]

where Y is output, P is population, L is the labour force, and WA is the working age population. This identity simply says that GDP per capita (or output per person, Y/P) is made up of labour productivity (or output per unit labour, Y/L), labour force participation (L/WA), and the share of the working age population in the total population (WA/P).

Now consider what is happening given our ageing population. The share of the working age population in total population is falling, as the share of population older than 65 (as one example) has been increasing. Now, labour productivity is only growing slowly (New Zealand's labour productivity performance is rubbish, but that's a topic for another day), and labour force participation is fairly constant (we've had increasing labour force participation over time, but that is mainly due to increases in women's labour force participation, and that effect is probably almost tapped out). So, the last term in the equation above is decreasing (and at a faster rate), the middle term is likely to stay pretty flat, and the first term is increasing (but slowly). That means that we can expect economic growth to slow appreciably because of population ageing.

That is, unless we can increase output from outside the working age population, i.e. increase output from older workers, by increasing their labour force participation (through people working until they are older, whether that be full-time, part-time, or bridging from full-time to part-time work to full retirement). Alternatively, you might be thinking that increasing the labour force through migration is a good solution (this is what many areas of regional New Zealand are thinking). Unfortunately, even though migrants are younger on average than locals, they also age as well - Natalie Jackson and I have a forthcoming NIDEA Working Paper which demonstrates that population decline cannot be arrested by increasing migration.

Simon Collins concludes that young people might never be able to retire. That might be true, in the sense of a 'traditional' retirement, at least if we want to maintain living standards.

*****

[*] I'm grateful to Jocelyn Finlay, a colleague at the Pop Center at Harvard School of Public Health, when I was on Study Leave there last year, for an interesting discussion on this topic at a workshop in early 2015.