Section 2: Issues for Sustainable Development
The population trends outlined in Section 1 raise many issues for sustainable development.
- By international standards, New Zealand will always have a small population size and density. Consequently we will always have a small domestic market and a limited ability to take advantage of economies of scale, a limited ability to create human capital, and a limited capacity to match people's capability with opportunities. However, a small population may mitigate environmental and social costs.
- New Zealand's population will become more mobile - domestically and internationally. The need to attract, retain and regain the people needed for sustainable development has implications for communities, regional development, business opportunities and jobs. Increased mobility also has implications for patterns of settlement, infrastructure and the environment.
- Fertility will continue to drive future changes in the size and composition of the population. Incentives for women to be in paid employment will increase. Unless workplace conditions are responsive to families, this is likely to add to downward pressure on fertility, accelerating population ageing and reducing the future labour force.
- Migrants arriving from an increasing range of countries, faster-growing Māori and Pacific populations, and an increased number of people identifying with several ethnic groups contribute to a richer ethnic mix. This richer ethnic mix has implications for policy development. It highlights the importance of flexible institutional structures. A challenge facing New Zealand is the development of shared social values common to all ethnic groups, including core democratic values, while building tolerance of diversity.
- There will be growth in the population share of older people. The trend to an older population will change the nature of work. It also has implications for government spending in the areas of health, education and the tax and welfare systems. The changing age structure highlights the need to ensure that young people are fully prepared today to meet the challenges of a changing world.
- The labour market will be affected by the ageing workforce, the smaller size of birth cohorts, and an increasingly global market for labour. The ability of the economy to deliver jobs and improve standards of living will depend on New Zealand's ability to maintain a labour force that has the education, skills and innovative capacity required.
These issues are discussed in more detail below.
2.1 A Relatively Small Population
The population is unlikely to grow substantially. New Zealand will continue to have a small internal market. We have a limited ability to attract and use a wide range of skills and talent by comparison with larger countries. The implication of a small population for sustainable development is that the focus to achieve economic growth must be on enhancing the skills of the population and using the advantages of being small.
Economic Implications
A big population is sometimes argued to make a country more economically productive.20
Because large populations in industrialised countries provide a large domestic market, firms in those countries are able to reduce costs through large production volumes.21 Large, densely concentrated populations may generate more ideas via a greater ability to share specialised thought on a face-to face basis.22
Exporting and lowered costs of communications relieve these problems of small size. But they are unlikely to wholly solve them.
A further constraint on economic performance resulting from a small population is difficulty accessing technology.23 For example, smaller countries source more of their technology offshore. But technologies suited to small countries may not be justified in small production runs.
In addition, if small economies have less specialised firms, their need for highly specialised technology is lower. As such technological change is centred on increasingly specialised equipment, this may be problematic.24
Large labour markets can reduce the matching problems between workers and firms. In addition large labour markets allow specialised skills to be used, which is attractive to people who wish to employ their specialist skills and have no desire to be "Jacks and Jills of all trades".
Large population size has a number of other economic benefits. Tax burdens in large economies may be lower because costs of publicly provided goods such as a legal system, health, education, defence, customs and the network infrastructure can be more widely shared.25 Large product markets also tend to support greater competition, driving greater efficiency. Firms benefit from greater access to sophisticated financial markets.
A further economic benefit from a large population arises from the significant cost savings (called agglomeration economies) available to firms from locating in densely peopled areas. These benefits of size include lower transport, negotiation and advertising costs, and reduced costs in finding workers.26 Agglomeration also facilitates innovation by providing networks that can efficiently distribute knowledge and magnify the interchange of productive ideas.
However, big is not always better. Diminishing returns may set in as a result of industrial congestion, which leads to an increase in scarcity of inputs like land and labour. Transport congestion can arise from high traffic densities.
Nor does population size alone increase productivity. Productivity depends on how well resources like land, physical capital and people's skills are combined.
Furthermore, exporting in order to earn foreign exchange to fund imports allows small economies of scale that would not be available in the presence of trade barriers. The economies of scale from specialisation in exporting allow a reduction in production costs, importing allows local consumers to enjoy the cost advantages of foreign economies of scale, and the result is a net welfare gain.
Nor are economies of scale the only reason for specialisation. Firms can exploit economies of scope, for example by focusing on the design aspect of a product rather than its production. An alternative approach is to develop in areas where economies of scale are not as critical for competitiveness, such as where economies of scope or adaptability are more important. If adaptability is relatively more important than scale production in a small, isolated economy, then economic performance is likely to be more reliant on the quality of information flows to investors, adapting and absorbing technology, and the institutional arrangements that promote flexibility and the movement of resources.
Smallness also provides opportunities for niche marketing of exports. Smallness means that change can occur more rapidly. Smaller individual shifts can have a greater aggregate effect on the economy. A smaller and relatively less industrialised and specialised population provides flexibility to take advantage of future trends.
Environmental Implications
New Zealand's primary industries - agriculture, horticulture, forestry, fishing, and marine farming - generate much of our wealth. Land-based and marine industries rely on biological processes that depend on the continuing sound functioning of the ecosystems of which they are a part. Tourism too draws heavily on New Zealand's natural environment. The natural environment makes New Zealand an attractive place to live and work - a significant factor in attracting migrants.
People put pressure on natural capital and the long-term environmental carrying capacity of countries. In general, the more people a country has, the greater the environmental burden (or footprint) on its soil, water and atmospheric resources. Large populations and high population density put pressure on habitats (see section 2.2).27
Therefore although New Zealand's small population has disadvantages for the economy, the opposite may be the case environmentally.
However, this is not always the case. Consumption and production patterns are potentially more important than size of population in determining the ecological impact of a society. This is especially true where economic growth, such as from intensive agricultural production and tourism, does not take account of its impact on the environment.
Small populations may also miss out on economies of scale in the provision of environmental amenities like parks, environmentally friendly practices like well built landfills, and the clean-up of sites polluted by earlier practices.
A small domestic population also creates the necessity for high levels of international trade, which involves high transport requirements. Low population density, combined with New Zealand's long, thin and mountainous geography, makes our transport and electricity transmission systems less efficient and less environmentally friendly (more fuel intensive, higher wastage) than those in many other countries.
Social Implications
The influence of population size and density on society is not clear cut. There are both benefits and costs from more or fewer people.
Large and dense populations bring distinct benefits to society. They provide people with better schools, hospitals, roads and communications. People who live in large cities also tend to have more open attitudes. They more readily tolerate change and accommodate diversity. Large populations can also be more welcoming to new immigrants. They can provide for culturally specific infrastructure such as churches and community halls, or activities such as minority sports and special holidays.
On the other hand, increased density can be associated with social isolation, as well as crime and anti-social behaviour. These costs make living in smaller towns more attractive. Small populations may also involve people more closely in democratic processes and processes for change, as government is more accessible to the public. In smaller populations, the integration of minority communities into the wider community is necessary, thereby creating greater societal cohesion.
The World of Our Children and Their Children
Our children and their children are likely to live in a country with a similar population size to our own. But their standard of living will depend on how well New Zealand can innovate and adapt. It will not be the size of the country's physical, human, natural and social capital that will determine their prosperity, but how these resources are used. Finance and skills drift towards their highest returns. The issue is not whether we can enjoy the benefits of a big population, but the options available for New Zealand's development that focus on the quality of our resources while enhancing the benefits of having a small population.
Selected Areas of Work by Government with Links to This Issue
- Treasury research into the economic importance of size and distance
- Ministry for the Environment research into the environmental impacts of population.
2.2 Mobility and Patterns of Settlement
Patterns of settlement in different parts of New Zealand and in New Zealand or overseas will have a major impact. Employment opportunities are a major influence on people's decisions about where to live, whether within New Zealand or overseas. Additionally, cultural and personal factors will have a considerable influence on decisions. The numbers of people who leave and arrive through international migration, and the skills and talent they bring or take, will affect New Zealand's ability to develop sustainably.
Regions with a young population, a strong skill base and low unemployment are likely to experience faster economic growth. They are more likely to provide opportunities to enhance the wellbeing of their population. Regions that are unable to retain or attract young and skilled people are likely to decline, with associated lower levels of wellbeing for the people who remain.
External Migration
External migration will have a limited impact on absolute population size and on age structures. For example, a net migration inflow of 5,000 migrants per year over the next 50 years increases population projections for 2050 by around 360,000. It reduces total dependency projections by less than two percentage points.28 The main reason for this limited impact is that migrants also age and require support. Nonetheless, international migration can have a significant impact on sub-groups of the population and on the population of certain regions, such as Auckland.
Migration trends in New Zealand are changing. Immigrants are coming from a wider range of countries. The increasing range of source countries means that immigration is a major driver of ethnic and cultural diversity. Arrivals and departures are growing both in size and as a proportion of the total population.
Net external migration has a small impact on total long-term population growth. But as it is highly variable year by year it has a big short-term impact. From May 2001 to May 2002, net migration shifted from a loss of 11,100 to a gain of 31,200, a rate unprecedented in the past 30 years. This rapid change creates problems. Various sectors, such as housing, transport and schooling, need to adapt at speed.
The small long-term net contribution of migration to the total population disguises growing inflows and outflows of people, as shown in Figure 13. Average annual net migration between 1979 and 2002 shows an annual net gain of fewer than 500 people. But there has been a tremendous turnover or "churn" of people. Departing New Zealand-born people have been replaced by migrants from other countries. Many of these new migrants may also move on as increasing numbers of people have global working lives.
Figure 13: Permanent or Long-Term Arrivals and Departures by Citizenship, 1979-2002
The increasing flow of people via international migration brings both opportunities and risks.
Skilled New Zealanders have more opportunities to gain work experience in other countries. This experience can be passed on should they return. On the other hand, skilled New Zealanders have a growing incentive to move overseas permanently, because of the relaxation of immigration policies in other OECD countries and because our economic growth has not matched that of other countries. It is more difficult to attract new migrants to replace our own skilled citizens.
People who migrate to New Zealand have, on average, higher measurable skills than the general population. However, they often face barriers to using those skills.29 While inflows have replaced outflows in terms of numbers, integration into the wider community often takes time. Ensuring successful settlement outcomes is a key factor in retaining migrants' skills.
High levels of "churn" and adjustment strains are likely to become features of New Zealand's economy and society. If not done well, this adaptation could lead to a loss of productivity. The specific labour market effects of this are discussed later in The Nature of Work.
The social impacts of churn may also be large. High churn tests New Zealand society's capacity to integrate new people. Migrants who do stay long term are likely to participate more in New Zealand society. More of a challenge may be the "transient" migrants, who stay for only a limited period and have less reason to participate in society.
In addition, not everyone in New Zealand has the same view of the desirability of immigration. While there are overall social and economic gains to New Zealand, some New Zealanders gain and others lose. It would be unrealistic to expect those who lose to be enthusiastic about immigration. 30
Immigration
New Zealand has historically addressed skill shortages via immigration. But international demographic developments are likely to increase international demands for skills.
For example, there are population projections suggesting the working-age population in Europe could fall by 65 million during the next 25 years.31 In addition, technology advances and social integration are lowering the barriers to the international movement of skilled labour. Restrictions on the international movement of skilled people are easing.
Thus our traditional immigration policies are not expected to elicit the same responses as in the past. Some countries will become more successful at recruiting skilled migrants. Such developments will not only make it more difficult for New Zealand to attract skilled migrants, but also increase competition for New Zealand's own skilled workers.
The characteristics of people who come to New Zealand are conditioned by prevailing immigration policies. Selection criteria are important as well as New Zealand's image internationally. How New Zealand decides to market itself in source countries will play a major role in the type of people who come here.
Emigration
New Zealanders emigrate long term for a raft of reasons. The biggest group is made up of young, healthy, smart people investigating opportunities overseas. There are 700,000 to one million New Zealanders living overseas, including 400,000 in Australia.32 Some will return later in life. They bring back work experience, knowledge and advanced qualifications. But the existence of outflows of young people who leave permanently also raises risks of creating a pool of elderly people with no local family support.
Another key group that emigrates is older people following retirement. Older immigrants who leave are often retiring to their country of origin or following their children overseas. But they take with them accumulated experience and resources, particularly as they tend to be wealthier than their non-migrating peers.
Families with dependent children feature less prominently in migration flows, probably because of the logistics of moving children. When they do move it tends to be permanent. All emigrants are potential returning migrants. In addition we may leverage off their skills and talent through global networks.
Short-Term Migration
Short-term flows have also been increasing. The two categories of short-term visitors that have the greatest impact on sustainable development are tourists and students.
The number of tourists to New Zealand has roughly doubled in the past 10 years. Short-term arrivals of non-New Zealand citizens rose from around one million in 1992 to almost two million in the year to March 2002. Impacts from growing tourist numbers are discussed below.
Overseas student numbers have been growing rapidly. Numbers of overseas student approvals have increased in the last few years, from around 40,000 to nearly 70,000 per annum.33 Students are a mix of short- and long-term arrivals. Most growth has been from China. Overseas students are an important source of export earnings. They also provide a good opportunity to recruit skills and talent into the New Zealand population. As they already have experience of living in New Zealand, student migrants are likely to have better settlement outcomes and lower adjustment costs.
Internal Migration
Internal migration involves the permanent or long-term change of residence of people between regions. The majority of people who move do so within regions. But movement between regions has affected the distribution of the population, its age and ethnic composition, and levels of regional income. Internal migration plays a major role in regional growth and decline.
Internal migration can reduce inequalities if people move from regions with high unemployment to regions with low unemployment. But the movement of people also places pressure on both growing and declining communities. As a result, internal migration has a major impact on the sustainability of economic development, the maintenance of appropriate social infrastructures, and the environment. The movement of people affects the ability of regions to maintain services. This, in turn, affects their ability to retain young people and support local industry. Internal migration is an important consideration in designing regional development policy.
People are most likely to move to another region because of employment or educational opportunities. These opportunities are influenced by transport links, matching of jobs and occupations, and the skills and attributes of the local population.34
In New Zealand, decisions to move are influenced by age, education and skills, gender, family structure, home ownership, and ethnicity. Other factors include quality of life and access to amenities. For many Māori, hapu and iwi affiliations are an important factor in where they decide to live.
In general, Māori, younger people and people of retirement age, and the skilled are more likely to migrate internally.35
Table 6: Total Fertility Rate by Regional Council Area, 1995-1997 Statistics New Zealand (2002a).
| |
Total fertility rate |
| Northland region |
2.52 |
| Auckland region |
2.01 |
| Waikato region |
2.11 |
| Bay of Plenty region |
2.44 |
| Gisborne region |
2.53 |
| Hawke's Bay region |
2.32 |
| Taranaki region |
2.24 |
| Manawatu-Wanganui region |
1.94 |
| Wellington region |
1.85 |
| Tasman region |
2.07 |
| Nelson region |
1.79 |
| Marlborough region |
1.90 |
| West Coast region |
1.89 |
| Canterbury region |
1.67 |
| Otago region |
1.54 |
| Southland region |
2.08 |
| New Zealand |
1.98 |
Table 7: Geographic Distribution of Ethnic Groups, 2001 (Percentage)
| |
North Island |
South Island |
Auckland Region |
Wellington Region |
Canterbury Region |
Otago Region |
| Pacific |
94.0 |
6.0 |
66.7 |
13.9 |
3.7 |
1.1 |
| Māori |
87.6 |
12.4 |
24.3 |
9.7 |
6.0 |
2.0 |
| Asian |
88.3 |
11.7 |
63.7 |
11.7 |
8.2 |
2.4 |
| European / Pākehā |
71.5 |
28.5 |
26.3 |
11.5 |
15.0 |
5.8 |
| Total |
75.7 |
24.3 |
30.1 |
11.3 |
12.9 |
4.9 |
Natural Increase
Regional population growth is the result of current net migration from other regions and overseas and natural increase.
Tables 6 and 7 provide an indication of rates of natural increase in different regions. Table 6 shows the total fertility rate by regional council area, while Table 7 shows the geographic distribution of different ethnic groups. The distribution of the main ethnic groups indicates where growth from natural increase is fastest, as Māori and Pacific populations have higher fertility rates. Consequently Table 7 suggests that natural increase in the North Island and in Auckland will be faster than in the South Island.
Age Structure
Regional differences in age structure, partly because of fertility differences, have an influence on services, such as health, education and transport, needed in different regions. They influence the employment opportunities that are likely to be available, labour market participation rates, and the industries that a region can support.
Table 8 shows the age structure of selected territorial authority regions. Areas such as Kawerau, Manukau, Porirua and Gisborne, with youthful populations, are currently faced with youth unemployment, housing shortages, and other social problems.
Regional Development
Internal migration assists labour market adjustment.
However, many people are unable to move to improve their employment opportunities. They may lack the skills needed to make them employable elsewhere. They may face falling or low real estate prices so housing issues stop them shifting. In these cases, the impact of the "advantaged" leaving the "disadvantaged" behind may cause a vicious cycle of regional decline.
Nonetheless, part of the history of New Zealand is the story of decline of once-prosperous regions and the growth of other, more innovative ones.
Regional development policy is complicated by internal migration flows. Policy to improve the prospects of people in a particular region may be confounded by a large in-migration response. In these cases, assistance can end up benefiting new entrants to the region rather than the initial targeted population. More mobile parts of the population still capture the gains of regional economic change.
Table 8: Age Structure of Selected Territorial Authorities, 2001
| Territorial Authority |
% population under 15 |
% population 65+ |
| Central Otago |
19.9 |
17.7 |
| Franklin |
25.5 |
9.9 |
| Gisborne |
27.5 |
11.7 |
| Horowhenua |
22.7 |
18.5 |
| Kapiti Coast |
21.0 |
22.3 |
| Kawerau |
31.3 |
9.2 |
| Manakau |
27.0 |
8.3 |
| Porirua |
28.1 |
6.9 |
| Selwyn |
23.6 |
8.3 |
| Tauranga |
21.7 |
17.2 |
| Thames Coromandel |
19.4 |
20.5 |
| Timiru |
21.0 |
17.6 |
| Waimate |
21.8 |
17.6 |
| Waitakere |
24.7 |
8.8 |
| Waitaki |
19.9 |
19.4 |
| New Zealand |
22.7 |
12.1 |
Rapid changes in local populations make it difficult for planners to predict future community needs. Problems are exacerbated by the long lead times required to build facilities that retain industries and prevent population loss. Changing expectations and needs in the different regions highlight the importance of effective local institutions. Experience throughout the world shows that regions that succeed do so because their local institutions support innovation, and they have a strategy based on local resources.37
Patterns of Settlement
Changes in the mobility of New Zealand's population impact on patterns of settlement, which has implications for sustainable development. Changing patterns of settlement raise issues around the growth of Auckland, infrastructure needs, housing, and tourism and its environmental impact, including land use.
The Growth of Auckland
Auckland is New Zealand's only medium-sized city. Economic development creates growing geographic concentrations like Auckland until the advantages of getting bigger eventually peter out. The challenge for smaller countries, or regions, is to focus activity in a way that achieves scale economies on some, if not all, fronts.
Rapid growth in Auckland and regional decline elsewhere have seen the potential development of two separate economies - Auckland and the rest. This has major implications for sustainable development, if Auckland is booming and other areas are declining.
Internal migration has played a significant role in the growth of Auckland. But the drift north has recently slowed. Current growth is the result of new international migrants settling in Auckland. This growth has raised concerns that Auckland's limited infrastructure may act as a barrier to further economic development if the city cannot accommodate the skilled international migrants who are expected to want to live in New Zealand.
The population composition of central Auckland is also expected to change. There will be greater proportions of immigrants and of adults without dependent children. Alongside this trend is the increasing spatial concentration of poverty in greater Auckland, which has social implications especially if negative spill-overs result.
We live in one of the most urbanised nations in the world. The 2001 Census shows that nearly 86 percent of New Zealanders live in urban areas. These areas cover less than three percent of our total land area. Urban living can create noise, traffic congestion, air pollution, loss of privacy, and overloaded water supply and sewerage systems. Runoff from paved roads, footpaths and parking areas is contaminated with hazardous substances that pollute streams and estuaries. If left unattended these problems are expensive to fix.
Infrastructure
Infrastructure is a key issue in relation to patterns of settlement, particularly housing, transport, communications and the provision of public services.
Current housing location results from previous patterns of settlement and transport networks. New Zealand has high levels of home ownership. High levels of home ownership can slow down social adaptation and adjustment to changing employment if there is an increasing gap between the price of houses in growing and shrinking parts of the country.
The balance between the demand and supply of housing has also changed in recent decades as the result of a number of factors:
- the demand for housing is growing faster than the population as households become smaller38
- the number of childless couples and sole-parent families has been rising. Both these groups have different housing needs from the traditional New Zealand family
- there are growing numbers of reconstituted families, who have some of their children living with them for some of the time
- Māori and Pacific families tend to be larger than European/Pākehā families, so these groups have different housing needs
- housing status has implications for general wellbeing, particularly where living in overcrowded houses arises from economic hardship rather than positive choice
- access to adequate housing has long been recognised as a key issue for Pacific peoples
- some of the growing numbers of immigrants live in relatively large family groups. They need larger houses and houses that are designed differently from traditional New Zealand houses
- the younger age structure of the Māori and Pacific populations and their lower average incomes mean they are more likely to live in rented homes and less likely to own their own homes.
Second home ownership is becoming an important housing issue in many areas. Second home owners are generally welcomed by local authorities as they pay rates. But they may not contribute much else to the local economy, especially if they purchase their petrol, food and other goods elsewhere. This affects employment in the area of the second home, and increases local real estate prices. Second home ownership can push up local prices and mean that houses in some areas are beyond the reach of locals.
A significant number of non-resident land holders in an area also means that population density changes during the year. Changing density creates problems for the provision of services, such as water and sewage, and the area's social dynamics.
Because of a low density population, New Zealanders rely heavily on cars for mobility. Car numbers are linked to economic growth. In Auckland, the efficiency of public transport and the demand for road networks for private transport are a continuing challenge. In de-populating areas, transport issues include deteriorating access to public transport and diminishing ability to afford road maintenance.
Tourism
Tourism in New Zealand includes visits by both domestic and overseas travellers. Tourism is a big industry. It now accounts for one job in 10.
Over 50 percent of international visitors come to New Zealand simply for a holiday. About 25 percent are visiting friends and relatives. Around 10 percent come for business reasons. International visitors directly contributed $4.9 billion to the New Zealand economy in the year ended March 2001.
However, domestic visitors make the major contribution to tourism, spending $6.9 billion in 1999.
The impact of tourism arises from both the numbers of people in a place at any one time, and the goods and services tourists consume from other sectors. Furthermore, when people go on holiday their consumption patterns change. The nature of that change - for example whether people purchase more luxury goods and services or live in a more self-sufficient way - will have a major impact on resource use. However, even a change to simpler needs by going to beaches or hiking can have major effects on environments.39
Even when visitors stay only a short time, they have a major impact on the social density of places at different times of the year, and on patterns of settlement and the environment. For example:
- towns grow near tourist attractions
- tourist accommodation puts pressure on water, sewage, roads and other infrastructure. Problems are acute in tourist spots such as Punakaiki (West Coast of South Island) where a population of 300 supports the infrastructure for 650,000 visitors
- rapid growth in tourist numbers can limit access to particular areas. Growth has changed the outdoor experience of many areas that are traditionally part of the New Zealand lifestyle, such as the Abel Tasman National Park
- settlements that rely on income from tourism are highly vulnerable to changing tastes, economic circumstances in other places and the exchange rate
- these new settlements may exacerbate land issues for some Māori.
Tourism has economic benefits. But there is a risk that more tourists will increase environmental pressures. Consequently the sustainability of attractions that draw tourists to visit can be threatened. The "clean, green" image that New Zealand enjoys is eroded if natural resources are not protected.
Nearly half the international visitors to New Zealand are not here primarily to holiday. Other factors will determine growth in their numbers. For example, a significant number of visitors come for business reasons. Their numbers depend on available business opportunities and the extent of overseas links with New Zealand firms. Similarly, while many visitors who come for other reasons are stopping over, many are on working holidays and studying.
The Natural Environment
The main drivers of human impacts on the natural environment are population growth, economic structure, technology and affluence.
In general, the more people in a country, the greater the environmental burdens. New Zealand is not expected to experience significant population growth over the next 50 years, but the high level of population "churn" from both short- and long-term migration flows may increase the risk of environment exploitation. For example, tourists and residents who are not intending to settle in one place are less likely to have a long-term commitment to the local environment, or may have different attitudes to environmental conservation.
New technology affects environments in two main ways. The first is by enhancing industry's ability to extract raw materials that were previously not viable economically. For example, technology has made it possible to produce oil and gas from fields that were previously considered too small or that are in areas with extreme geographical conditions that make production and transportation difficult. The second is by reducing environmental damage or pollution through alternative technologies or cleaner processes. Examples include energy production from renewable resources, more efficient use of resources in the production process, and enhancing the ability of one industry to use the waste products from another.
Affluence influences the ecological impact of a society through consumption patterns, air and water quality and problems with waste disposal and transport and energy use.
Economic activity impacts on the environment in two broad ways: the extraction (or removal) of natural resources to provide inputs to the economy as raw material (including the destruction or modification of ecosystems), and the discharge of waste products that pollute land, water and air. The nature and extent of these impacts are strongly determined by the structure and nature of economic activity. The structure of the New Zealand economy is changing but is still dominated by primary industries, including agriculture, fishing, forestry and marine farming. This contrasts with other developed country economies where secondary (manufacturing) industries play a greater role. Changes in production systems are most likely to be driven by changing preferences in our overseas markets.
In many developed countries, such as those in Europe, the major environmental impacts are often caused by pollution. In New Zealand, the major environmental impacts are the loss of natural habitat (and the natural species that rely on this) and pollution of air, fresh water and coastal water from activities such as energy production and use (including transport). Also, runoff from intensive farming, and urban storm-water.
The World of Our Children and Their Children
Our children and their children will be more mobile. They will be more likely to spend some of their working lives abroad. They will also be more likely to live in an urban environment, with fewer traditional community ties, more likely to have neighbours from many parts of the world, less likely to spend holidays on the farm with relatives, and more likely to have to travel to other parts of the world to see their families. Future generations of New Zealanders are likely to be more environmentally aware. There will be opportunities for innovative firms to develop environmentally and socially sustainable solutions. Technology will also make it easier for New Zealand companies to compete in global markets in an environmentally sustainable way.
Selected Areas of Work by Government with Links to This Issue
- Toward More Sustainable Settlements Project, being led by the Ministry of Transport, the Ministry for the Environment and the Energy Efficiency and Conservation Authority
- Sustainable Cities and Settlements, a research project being funded by the Foundation for Research, Science and Technology
- Regional Partnerships Programme, by Industry New Zealand
- Ongoing immigration policy development and monitoring of external and internal migration trends and immigrant employment outcomes by the Department of Labour
- Housing Strategy, by the Housing New Zealand Corporation
- Transport Strategy, by the Ministry of Transport
- Climate Change, being led by the Ministry for the Environment
- Local Government Act, being led by the Department of Internal Affairs.
2.3 A Richer Ethnic Mix
Levels of social capital are a key characteristic of sustainable development and include the social systems, institutions, networks and relationships and interactions that facilitate co-operation and help society function effectively.40 The issues that arise from a more diverse ethnic mix in New Zealand relate most strongly to social and cultural capital. Social capital is a resource that exists because of and arises out of these interactions.
Social capital needs to be maintained and augmented as a way to move towards sustainable development.
Relationships between people who share family members, close friends and neighbours are bonds that play a significant role in people's lives. Activities such as work, sports, religion and other voluntary pursuits help build ties between people who would otherwise have weaker bonds. The links and interactions between citizens are important for maintaining high levels of quality social capital.
As the New Zealand ethnic mix gets richer, it is important for sustainability to develop the social capital that builds bridges between ethnic groups, as well as the social capital within ethnic groups.
Traditionally, ethnic groups have been distinguished by ancestry, cultural values and customs, beliefs, language and common history.41 As ethnicity data is collected on the basis of self-identification it picks up cultural differences, albeit imperfectly. Nonetheless, the ethno-cultural dimension is just one feature in the broader picture of how people are connected. Connections are also based on gender, social class, sexuality, region, and other activities such as work, sports, leisure and religion. In addition, inter-ethnic marriages create generational and inter-generational linkages across ethnic groups.
At the same time cultures evolve. Our cultural values differ from those of our grandparents. For example, attitudes towards women's roles, to raising children, to religion and to human rights have all changed. Additionally, it is important to acknowledge that within any culture there will be a wide range of values to be applied to issues.
Valid and reliable ethnicity data plays a crucial role in better understanding the complexities of contemporary New Zealand society. It helps in developing policies to better reflect the needs of New Zealand society in the future.
Government Interest in New Zealand's Ethnic Mix
Government has an interest in New Zealand's ethnic mix for several reasons.
Firstly, the effectiveness of government interventions may differ according to ethnic group. Delivery needs to address issues of ethno-cultural fit.
Secondly, different ethnic groups may have different average socio-economic outcomes. Governments may see such outcomes as undesirable, especially if the differences are likely to reflect discrimination or impact adversely on social cohesion.
Thirdly, ethnic differences may, in the absence of social capital that builds bridges between ethnic groups, lead to costly social conflict. Bridging social capital can be difficult to build and easy to destroy.
Finally, ethnic groups produce cultural products (such as language) that are important collective goods to members of the group. Government-driven actions may enhance wellbeing by making it easier for ethnic groups to produce these collective goods.
Key Ethnic Trends in New Zealand
The current and future ethnic pictures in New Zealand are complicated by the fact that ethnicity is a complex multidimensional concept imperfectly captured in official statistics.
The Māori and Pacific population groups are growing more rapidly because of their younger age structure and higher fertility rates. This contributes directly to ethnic diversity.
Additionally, there is a substantial and increasing proportion of the population that identifies with more than one ethnic group. A high rate of childbearing from mixed relationships means that this group will continue to grow. Multi-ethnic people may build bridging social capital between ethnic groups.
Nearly a third of a million New Zealanders (324,093) specified more than one ethnicity in the 2001 Census. Nearly 60 percent of that third (193,500) reported both European and Māori ethnicity. The second largest combination was the nine percent of that third of people (30,018) who reported both European and Pacific ethnicity. The third largest combination was about five percent of mixed ethnicity people (15,606) who reported a Māori and Pacific combination.
The most rapid growth in multi-ethnic people has occurred amongst Māori. The number of Māori reporting multiple ethnicities rose from 26 percent in 1991 to 44 percent in 2001. In absolute terms those reporting only Māori ethnicity declined by eight percent between 1991 and 2001.
People who report multiple ethnicities most commonly report European/ Pākehā ethnicity as part of the mix. But multiple ethnicities are least common in the European/ Pākehā population (10 percent). Of Pacific peoples, 32.5 percent identify with another ethnic group as well, while 11.9 percent of the Asian group have multiple ethnicities.42
Finally, the New Zealand population is becoming more ethnically diverse through changes in immigration patterns. New Zealand receives significant numbers of migrants from a broader range of countries than in the past. In addition, even given the country an immigrant is from, New Zealand now receives a greater variety of ethnic groups. For example, historically most New Zealand Indians have been from Gujarati or Punjabi ethnic groups. Today, Indian migrants are more varied in their ethnicity, including significant numbers of Sikhs, Tamils and others.
Implications of a Richer Ethnic Mix
Diversity brings a rich ethno-cultural mix. For many it is a positive addition to their lives. A richer ethnic mix means that New Zealand is exposed to a wider range of views, new goods and services, a greater variety of cultural products, linkages to other countries, and a broader understanding of how the world works.
Sustainable social development issues stem from three key themes. First is the importance of having nationally shared common norms across different ethnic groups, such as tolerance of diversity and acceptance of fundamental democratic values. Secondly, implicit and sometimes explicit agreements are needed about the degree of diversity that society tolerates. Finally, agreement is needed about the issues that need debate by all sectors. Sustainable development will require mitigating the uneven impact of change on different ethnic groups through education, access to institutions and networks, and building social connectedness.
Sustainable population growth requires a climate of inclusiveness and acceptance of cultural differences. This highlights the need to think carefully about how to promote social cohesion which promotes co-operation and lessens conflict. It also promotes greater social and economic gains. If New Zealand is to take advantage of opportunities arising from diversity, we need to change many of our traditional attitudes. This will require leadership from many sectors of society.
A key sustainable development principle is the need to take extra care when outcomes are irreversible. This highlights a critical sustainability issue related to Māori language.
Language is a tool for communication of common cultural meanings. For many New Zealanders, the Māori language is fundamental to Māori identity, and underpins Māori social and economic development. It also has symbolic value, in that it nurtures a sense of belonging in New Zealand. It provides a road of continuity to the past. Additionally, knowledge of minority languages and being bilingual may be an economic advantage. Others maintain that ethnic minority languages are of economic importance as they form a linguistic skill base for enterprises such as tourism and trade.43
The Treaty of Waitangi is part of our constitutional framework. It protects Māori rights, including rights to language, enhancing Māori development. The Treaty settlement process and the related fisheries and forestry developments are important for facilitating Māori development.
Provisional results of the 2001 Survey of the Health of the Māori Language show that 42 percent of Māori adults aged 15 years and over (136,600 people) speak Māori to some extent.44 Māori language use was limited in household situations.45 The Social Report 2001 highlighted that Māori who live in an area with a high proportion of Māori residents are the most likely to be Māori language speakers. Regions with higher than average proportions of Māori with conversational Māori skills were Gisborne (34 percent) and Bay of Plenty (27 percent).46
These statistics demonstrate that retention of Māori language has stabilised since the 1970s. This stabilisation has been led by Māori initiatives, such as kohanga reo (Māori language nests), government support, and new speakers of Māori within younger age bands. While there has been some success of kohanga reo it remains unclear how successful this approach will be in arresting language decline amongst younger people.
The Māori language continues to be "at risk" of becoming extinct. Total language loss is effectively irreversible. Unlike other ethnic groups who come from locations outside New Zealand, Māori don't have the option of returning to a native environment as a way of maintaining this aspect of their ethno-cultural identity. This places emphasis on the need to sustain language as a key element of Māori culture.
This is an issue for other groups (migrants and their children), as acculturation into New Zealand society can sometimes be achieved through the relinquishing of native languages, highlighting the tension between bonding and bridging social capital.
The World of Our Children and their Children
Our children and the children of their cohorts will be more ethnically mixed than their parents and grandparents. They will have a greater knowledge of different cultures. A growing recognition of the importance of cultural capital means our children are likely to place a greater emphasis on te reo Māori and other cultural values that they can pass down to future generations.
A greater number of people whose origin was the Pacific, Asia and other countries will be New Zealand born. They will face similar issues around their language and culture, particularly the smaller groups. These issues will be exacerbated for groups who have more of their people living in New Zealand than in their original homeland. It is not clear, however, whether the trend will be towards groups of people struggling to maintain their traditional cultures, or whether a new culture and national identity will emerge that can embrace and integrate aspects of the adopted country.
The greatest number of New Zealand people must be able to access New Zealand institutions, if we are to avoid social conflict and attract people from around the world to live here. There is a need for a common, flexible culture of acceptance to evolve if New Zealand is to have a sustainable future.
Selected Areas of Work by Government with Links to This Issue
- Ethnic Perspectives in Policy, by the Office of Ethnic Affairs
- Review of Ethnicity, by Statistics New Zealand
- Survey of the Health of the Māori Language (2001), by Statistics New Zealand and Te Puni Kōkiri
- Māori Language Strategy, by Te Puni Kōkiri
- Reducing Inequalities, interdepartmental
- Capacity Building, interdepartmental.
2.4 Fertility and Family Formation
Changes in fertility have implications for sustainable development. Fertility will continue to be an important driver of future changes in the size and composition of the population. Equally, work and family issues have broader implications for both fertility and sustainability.
An ageing labour force will increase the demand for women to be in paid employment and this may exert downward pressure on fertility.
Major changes in fertility and family formation have occurred over the past three decades. These changes are not unique to New Zealand. They have occurred across most developed countries.
An important aspect of this transition has been a return to a long-term trend of low fertility.
Accompanied by a shift towards older parenthood, an increasing proportion of New Zealand women are postponing childbearing. Birth rates at older ages have risen. The trend to later parenthood has also been accompanied by an increase in the proportion of women remaining permanently childless. Among women who do have children, there has been a decline in big families.
However, the rise in birth rates of older women suggests that recent trends are partly a repositioning of fertility rather than a total abandonment of childbearing. At present, it is unclear whether the catching up of fertility at older ages is sufficient to compensate for declines at younger ages.
Changes in fertility have been accompanied by changes in family formation. The proportion marrying has declined. The age at first marriage has increased, as has cohabitation, particularly at younger ages. There has been increased union breakdown and a corresponding growth in re-partnering. There has been a growth in social acceptance of same-sex relationships.47
These changes have resulted in more diverse family forms. An increasing proportion of children now spend some time living with a single caregiver, changing patterns of partnering and re-partnering have been accompanied by an increase in those living in reconstituted families, and over 5,000 families identified as same-sex couples in the 2001 Census.
While New Zealand has experienced a fertility transition broadly similar to most developed countries, there are differences across ethnic groups. The Māori population has experienced delayed and accelerated fertility decline. Māori fertility fell rapidly during the 1960s and 1970s, and by the early 1980s had almost converged with that of the non-Māori population.
Māori and Pacific women continue to have a higher average number of children than the European/ Pākehā population. There are also ethnic differences in the timing of childbearing. Māori and Pacific women are more likely to have children at an early age than European/Pākehā women.48
Recent trends, however, show an upward shift in the age of childbearing among Māori women. This suggests Māori may be moving towards the fertility patterns of the European/ Pākehā population. As yet it is too soon to be sure if this is a temporary phenomenon or indicates fundamental change in fertility behaviour.
Drivers of Fertility Decline
Changes in fertility have been driven by a complex range of social, economic and cultural factors. A comprehensive review of these factors is beyond the scope of this report.49 But some of the possible explanations for recent fertility changes include changes in female education and earnings, and changes in the norms and values around childbearing.
Changes have increased the costs to women of not working, in terms of loss of potential earnings. Changes in female economic behaviour have also been accompanied by shifts in attitudes, with an increased emphasis on female careers, and a reduction in gender-role specialisation, which further supports lower fertility.
A similar argument links recent fertility changes to the emergence of dual-earner couples, and the increasing importance of having a second income to meet lifestyle aspirations. Female earnings are progressively more important for the accumulation of assets, consumer goods and the overall economic wellbeing of the family.
On the flip side, many direct costs of having children are also increasing, including childcare, school expenses, and supporting children through tertiary education. The increased cost of having children contributes to postponement of childbearing and declining fertility.
Fertility decline has also been linked to a long-term shift in values systems including an increased emphasis on individual autonomy and the expression of "higher order needs", such as freedom of choice. These changes have resulted in increased individual decision-making around fertility, a growing acceptance of non-traditional lifestyles and an acceptance of non-traditional female roles. These factors support both lower and later fertility.
Low Fertility
Over the past 20 years, most developed countries have experienced below-replacement fertility. At around two births per woman, the total fertility rate in New Zealand remains closer to replacement than in most developed nations. But our fertility is expected to fall further over the next two decades.
Below-replacement fertility directly contributes to the process known as structural ageing. Structural ageing occurs when progressively smaller birth cohorts narrow the base of the population age structure, and increase the proportion of the population in the older age groups.
Structural ageing is occurring in its most extreme form in Japan and many southern European countries where fertility rates have been at low levels for several years. Very low birth rates are placing considerable pressure on social institutions, including the age pension and health care system, as increasing proportions of the population are accessing these services.50
The prospect of rapid population ageing and future population decline has also raised concerns over the effects on economic growth and labour supply. From a sustainable development perspective, continued low fertility is of concern, as it reduces the size of the labour force and may impact on economic growth.51
A further decline in birth rates will increase population ageing and consequently affect the sustainability of social institutions. Conversely, an immediate return to high fertility would swell the number of children in the population at the same time as the older population is undergoing rapid growth. Such a pattern would exert considerable pressure on working-age people.
Migration can moderate but not reverse structural ageing. In the long term, migrants also age and ultimately contribute to ageing.52 Furthermore migrant numbers required to offset ageing are large and are likely to be unsustainable. Finally demographic trends in other developed countries mean that New Zealand will face increasing competition in attracting skilled migrants (see the discussion in Mobility and Patterns of Settlement earlier).
Work and Family Issues
Recent family formation trends, including delayed childbearing and a decline in family size, have increased women's ability to participate in paid employment. On the other hand, increasing labour force participation among women is likely to affect decisions around childbearing, particularly the timing of first birth. However, cause and effect in the changing interaction between work and family issues are not always clear.
An increasing proportion of women combine paid work with childcare. As a result, factors that reduce role conflict, such as the availability of quality and affordable childcare services and the development of family-friendly workplaces, are becoming more important.
While the overall age at childbearing has risen, a small proportion of women have children at an early age. These women have different needs, including the provision of second-chance education opportunities and development of childcare services that are accessible to those participating in education and in work.
Traditionally the extended family has provided an important source of unpaid childcare. A number of recent demographic changes may impinge on this relationship. Older women, traditionally an important source of childcare, are now more likely to be in paid employment than previously. Increased family mobility and the geographical isolation of family members may also influence the extended family's capacity to provide childcare.
Emerging parenting arrangements also have implications for the design and mix of childcare services and workplace policies. A small but increasing proportion of fathers are undertaking primary childcare responsibilities. There has been a trend towards joint parental care-giving responsibilities. The variety of childcare arrangements following separation and divorce are also significant.
Economic Circumstances of Families
Changes in family structure have implications for families' economic circumstances. Sole parent families are more likely to experience difficult economic circumstances than two parent families. In 1997-1998, more than half of sole-parent families had incomes below a poverty threshold (defined as families with incomes below 60 percent of the median, adjusted for housing costs). This compares with 18 percent of two-parent families.53 An increase in sole-parent families has implications for resources available to children.
Increasing diversity is also apparent in the economic circumstances of two-parent families. There has been an increase in "work rich" families, in which both parents are in full-time employment, and "work poor" families, where neither parent is in paid work.54
An increase in families experiencing economic difficulties has implications for the distribution of resources across generations. Support needs of families with dependent children are competing against those of the ageing population. Families who experience prolonged economic hardship are less able to save for their own retirement and are more likely to be completely dependent on taxpayers.
Family Support Networks
Changes in family formation, including smaller family size, increased childlessness and higher rates of separation and divorce, have implications for support networks available to an ageing population. Smaller family size, for instance, reduces the number of adult children who can potentially provide care for their parents.55 At the same time, smaller families may have positive effects in increasing the economic resources available to family members.
The implications of increasing levels of separation and divorce among recent cohorts are unknown. One outcome may be a weakening of intergenerational ties and consequently a reduction in the size of family support networks. The economic consequences of separation and divorce may result in families that are less able to invest in their children. Conversely, higher rates of re-partnering and the formation of "reconstituted families" may increase the size of family support networks and raise the importance of the roles of aunts and uncles.
Future Trends
Fertility is a key driver of the size and composition of the population.
Predicting future fertility is difficult. Current trends, however, show a marked increase in the proportion of women in their 20s and 30s who do not have children. At this stage, it is unclear whether women are delaying childbearing or whether an increasing proportion of women will remain childless.
Experience of previous cohorts suggests that permanent childlessness is not a preferred option for New Zealand women. Information on the reproductive intentions of childless women shows that most expect to have children at some stage.56 Only a small proportion intend having only one child. Recent trends may reflect a postponement rather than an abandonment of fertility altogether. However, male decisions about fathering children are also important in determining fertility trends. Little information is available on male fertility decisions.
However, high levels of childlessness among women in their 20s and 30s makes it difficult to discount prospect of further fertility declines.
A consideration of New Zealand's fertility requires an understanding of why fertility is low. The factors that influence fertility are many and complex.57 Many of these trends are ongoing. It is possible that fertility will not be made up at the older ages, as many women and couples reassess their plans or experience difficulties in conceiving at the older ages.
Coupled with this, there is no developed country where fertility is increasing. Many comparable countries are currently exhibiting birth rates at much lower levels. All of these changes suggest that New Zealand's fertility may decline further.
Any examination into future fertility patterns, however, needs to consider factors specific to the New Zealand context. At present, the higher fertility and younger age structure of the Māori and Pacific populations are resulting in a total fertility rate that is relatively high by developed nations' standards. Although fertility is also falling among Māori and Pacific women, levels of childbearing remain significantly above that of the European/Pākehā population. This may counter a future shift towards very low levels of fertility.
The World of Our Children and Their Children
Children born today will face different choices about partnering, childbearing, education and work. Pressures and incentives to work are likely to increase over coming decades, which may result in parenthood being postponed or abandoned.
Our children and their children will grow up with older parents and grandparents. They will have smaller numbers of siblings than current and past generations. This may have implications for parenting style and the nature of children's relationships with their parents and grandparents.
Changes in partnering patterns suggest that our children and their children will frequently experience more complex family networks, including step-parents and step-grandparents.
Selected Areas of Work by Government with Links to This Issue
- Pay Equity discussion paper, by the Ministry of Women's Affairs
- Agenda for Children, by the Ministry of Social Development
- Youth Strategy, by the Ministry of Youth Affairs
- Family Dynamics research programme of the Ministry of Social Development
- Future Directions, by the Ministry of Social Development
- Future of Work, by the Department of Labour.
2.5 Growing Older
The average age of New Zealanders is increasing. This continuing trend is the result of improvements in life expectancy and a fall in fertility rates to sub-replacement rates.58
The ageing of the New Zealand population is not a new phenomenon. But the combination of a large cohort about to reach retirement age and a small cohort about to enter the workforce creates major risks for the sustainability of New Zealand's development. Prospects of an ageing population raise concerns that living standards will fall because increases in old-age dependency will mean that output per worker has to be shared amongst a larger population of non-workers.
The number of elderly people in New Zealand around the middle of the 21st century may be higher than suggested by official population projections. Official projections are centred around an assumption of an increase in life expectancy of one year per decade on average. This compares with an experience of a gain of two years per decade during the 20th century for New Zealand and many other industrial countries.
The greatest growth in the world's older population will be in developing countries, where population ageing is occurring at a faster rate than in industrialised countries.59 But it has been in industrial countries where the debate on ageing has been keenest. This debate has focused on the increasing proportion of people who are old. It reflects the importance to industrialised countries of the accompanying shrinkage in the size of younger generations and the costs of health care and pensions.
Increases in life expectancy can come from two sources: increases in the number of people reaching old age and increases in potential lifespan. There is evidence to support the former source of expansion in life expectancy. There is growing evidence that potential lifespan is increasing as well.60 Declines in mortality over the early part of the 20th century were concentrated at younger ages. More recently they have been concentrated among the aged.61 For example, the number of centenarians is increasing at an exceptionally rapid rate, mostly because of declining mortality after age 80.62
Ageing trends for European/Pākehā in New Zealand are in line with other OECD countries, with the greatest impact on the proportion of elderly people the result of the powerful cohort effect from the baby boomers, as opposed to changes in life expectancy.63
There is little evidence of a simple relationship between income growth and falling mortality, nor between income inequality and mortality rates. But there is evidence that advances in pharmaceuticals, the care of heart disease and levels of education attainment are associated with decreases in mortality.64 Improvements in life expectancy for men have been smaller than female gains. A faster rate of improvement for females, despite already having lower mortality rates, is evidence that death rates at older ages are not yet approaching biological limits.65
The significance of increasing life expectancy for older age groups on population statistics can be demonstrated by its impact on the numerical growth of female octogenarians in England and Wales.66 More than half a million females aged 80 and over are alive today in England and Wales who would have been dead if mortality after age 80 had not fallen from 1950 levels.
Why Changes in Life Expectancy, Longevity and Mortality Matter
The economic and social environment will be influenced by changes in both the lifespan and the vitality of individuals at increased ages. Hardship is likely to increase, the greater the length of time older people spend economically and physically dependent on the assistance of younger generations. Conversely, increased years of economic and physical activity can lessen this hardship. It is open to debate which of these forces will dominate in the coming decades. The impact of an aging population may be greater:
- the lower the growth in working-age population
- the lower people's willingness or ability to participate in the workforce
- the higher the rate of survival (both into retirement and through retirement)
- the lower the pace of productivity growth (which will impact both on the wages of workers and the returns made on assets accumulated by people as they age).67
Labour Market Participation
We can expect the labour market to respond to a shrinking workforce by raising real wages to encourage higher participation levels. However, it is not clear how older workers will respond, particularly if wage gains are offset by higher taxes to cover increased public expenditure. These issues are discussed in more detail in Section 2.6.
Public Finances
Ageing populations will put pressure on public finances, as superannuation payments and health-related expenditures rise.68 As pressures on welfare systems mount, so will pressures for people to provide for their own retirement. If older people remain active, they are likely to contribute both socially and economically to the wellbeing of their families and communities.
Saving Rates
People's saving behaviour during their working lives will influence their welfare through old age. The wealth held by the elderly will increase their independence by reducing their reliance on transfers from the young. Saving behaviour shows significant gender and ethnic differences. The saving decision process is complex and not well understood.69
There are two opposing views about what will happen to the international financial system from 2011 when the baby boomers begin to retire. One view is that they will be trying to liquidate their assets simultaneously, driving down asset prices and leaving baby boomers with a smaller nest egg than anticipated. The other view is that forward-looking financial markets are pricing assets to incorporate the ageing of the boomer generation. As a result there will be no market meltdown when the baby boomers retire.70
Given people's preference for investing in real estate in many countries, many researchers have focused on the impact of an ageing population on housing markets.71 The consensus view is that there could be a decline in house values as supply exceeds demand. This raises the question of whether home equity should be included in considering the resources available to finance boomers' consumption in retirement.72 While it is unclear to what extent today's aged use their home equity to finance consumption, the aged in the future may need to make greater use of this source of finance.
Productivity
There is little evidence as to whether an ageing workforce will stimulate innovation and productivity or be less dynamic and have a negative impact. Therefore the main population impact on productivity is expected to come from higher capital investment as labour becomes more scarce.
Consumption Patterns
World expenditure on medical and pharmaceutical technology is likely to increase in coming decades.
One view is that the post-World War II baby boom has been a strong force in determining economic events.73 It will continue to be in coming decades. Whenever boomers reach a new stage of life, demand for related products soars. Demand slumps when they move on. The first boom was in baby products. In the 1950s and 1960s, the key issue was pressures placed on schools. Likewise, as this generation approaches retirement age, ageing issues dominate. The ageing of the baby-boom generation points to strong growth in the following industries:
- preventive health care, disability-related equipment and medical technology firms
- travel, leisure and entertainment firms
- financial services
- technology firms.
An increasing proportion of society will be interested in old-age health and disability products. This demand will increase activity in this area. This may result in further improvements in both length and quality of life. Growing ethnic diversity will also impact on the products and services that are available. For example, formal care for the old will need to take greater account of different cultural needs and tastes, in both the type of care that is available and the food that is provided.
Consumption patterns are also influenced by social and cultural values. For example, the increasing value that people place on the environment has meant demands for cleaner air and water, and reduction of waste and the use of hazardous chemicals. We are likely to see an increase in demand for improved urban environments.
Health
Part of the increase in longevity reflects the benefits of past medical and lifestyle improvements. Improvements in the treatment of cardiovascular disease and changes in individual behaviours, such as smoking and diet, have greatly reduced middle-age death rates, particularly for men.
Another reason for optimism about increases in life expectancy in the future is the contribution of advances in medical technology to reducing mortality rates. The amount of resources and effort the world devotes to improving medical knowledge will have a direct impact on life expectancy.
However, increasing longevity may not necessarily mean an increase in disability-free life. In 1998, over half of New Zealanders aged 65 and over had a disability, with significant numbers needing help with everyday activities such as preparing food, bathing, housework, getting out and shopping.74 Women have more disability-free years than men. Combining projections of ageing and disability implies reductions in prevalence rates of disability for those over 65, but an increase in overall disability numbers.
Health technology improvements will increase life quality and reduce disability. There is likely to be a correlation between longevity and functioning capabilities, with an increase in life expectancy likely to imply an increase in the fully functional component of individuals' lives. This time could be spent being physically, socially and economically active.75
Another factor that may reduce care costs for the elderly is that longer life for males translates into a re-balancing of the female to male ratios in the older age groups. As the number of ageing couples increases, along with an increase in the preference and ability to live in their own homes, the need for formal care may fall. In addition, severe disability only appears at the very end of life. For the age group 60 to 80, disability symptoms have declined over time, while life expectancy without severe disability is increasing across countries. If such tendencies continue, the impacts of ageing on long-term care needs would be substantially reduced.76
By international standards, the female advantage over males in life expectancy in New Zealand (5.1 years) is among the lowest in the developed world. Iceland currently holds the distinction of having the greatest life expectancy for males at birth (77.5 years), living on average 1.8 years longer than New Zealand males. Japanese females, with a life expectancy at birth of 84.0 years, live on average 3.2 years longer than New Zealand females. Iceland has the lowest female-male difference in life expectancy at birth (3.9 years) while Japan has one of the highest (6.9 years).
While there is significant potential for further improvement in both male and female life expectancy in New Zealand, the implications for the sex gap are unclear.
Given the high mortality rates of Māori and Pacific peoples, an obvious avenue for future improvements in the longevity of New Zealanders is to improve the life expectancies of these populations. The latest life tables (1995 to 1997) suggest that a non-Māori girl can expect to outlive her Māori counterpart by 9.0 years. For newborn boys, the non-Māori advantage is 8.1 years. However, adults between ages 30 and 70 are disproportionately contributing to this difference, indicating that the disadvantage has accumulated during their childhood and young adult years.
The World of Our Children and Their Children
Our children and their children are likely to live in a world where they will compete for resources with a powerful older age lobby. The smaller size of their cohorts means future generations will have less purchasing power than older generations. More consumer products will be aimed at older people. Key issues will include euthanasia and personal security and safety.
Being part of a society with many older people has implications for our children's and their children's ability to plan for their own retirement, and their ability to support their families as well as participate in other activities. Having older parents and being older parents, combined with needs to provide higher levels of education for their own children, mean that more of our children will have several generations simultaneously dependent on them.
On the other hand, our children and their children are also likely to live in a world where the elderly are fitter and more active than they are now. An increasing proportion of older people will have different cultural, social and environmental requirements than the present elderly population. The results are difficult to predict.
Smaller families and growing wealth are also likely to result in larger inheritances spread among fewer people. This will ease the financial burden for some, but increase the risk of a higher disparity of wealth amongst the population.
Selected Areas of Work by Government with Links to This Issue
- Work by the Senior Citizens Unit of the Ministry of Social Development.
2.6 The Nature of Work
The performance of the economy will have a profound impact on the wellbeing of people living in New Zealand. An integral part of this will be the performance of the labour market, not only in its importance to overall economic performance but also in its direct impact on the wellbeing of individuals and communities. Paid employment is not only the key source of income for most people, it is also an important dimension of people's participation in society: "The type of paid work we do - whether it is full time or part time, the skill level of the work we do, and the level of income it attracts … determines our standard of living, and the opportunities we are able to provide for our families. It affects how we feel about ourselves and the time we have to undertake non-work activity."77
The changing New Zealand population structure has significant implications for the labour market in upcoming decades. In this section we will focus on the implications of:
- an increasing average workforce age
- the retirement decision
- greater participation by groups who do not fit a traditional male working model
- unpaid work
- reductions in the size of cohorts entering the workforce
- the role of skills in labour market performance
- the process of skill acquisition
- an increasingly global labour market.
Implications of an Older Workforce
The extent to which the average age of the workforce rises depends on:
- when workers decide to retire
- when young people decide to enter the workforce
- how workers participate during the middle years of life.
How these three decisions pan out, and what influence factors like migration patterns, technological changes, human capital developments and government decisions play upon them, will contribute to how New Zealand adapts to demographic pressures in coming decades.
There are both advantages and disadvantages associated with an older workforce.
Older workers are, in general, more experienced and more productive. Higher productivity means higher incomes, which in turn implies a heightened capacity for society to support its dependants. Older workers are generally in poorer health. But improvements in health mean that each new cohort of older workers is more physically capable of working at advanced ages than previous ones. From a physical perspective, the latitude of choice about continuing to work or retiring is likely to continue improving. However, there will be proportionally fewer young workers to undertake physically demanding work.
As part of an international survey, the Ministry of Education's report Adult Literacy in New Zealand, Results for the International Adult Literacy Survey shows that low skills are more prevalent among older workers. Some employment problems for older workers are due to poor literacy and numeracy. Analysis shows that low skills of older workers have more to do with cohort effects than the ageing process itself. Literacy skills, for example, show no more than a modest decline between ages 40 and 65.
In 1995 42 percent of workers in New Zealand aged between 50 and 64 years had less than upper secondary education. This is expected to decline to about 31 percent by 2025. Thus new cohorts of older people will be considerably better educated than in the past. Consequently the skill disadvantage will be reduced.78
Other potential problems from an ageing workforce include age discrimination, a possible reluctance of employers to invest in skill training for older workers, and a potential unwillingness among older workers to take lower-paid work or re-train.79
Returns on training to the employer will be assessed against the worker's expected remaining tenure, which is likely to be shorter than their total expected remaining working life. A lower quit rate of older workers raises the relative expected returns to training older workers. Similarly, rapidly changing skill requirements reduce the importance of a long payback period in selecting trainees, but could magnify the importance of any age-related decline in the ability (or willingness) to learn new skills.
In regards to training, a distinction needs to be made between general and specific skills:
- as workers age, skills learned on the job become more important relative to skills learned in school. The more specific nature of on-the-job skills means there is less portability in the skills of older workers. They thus risk large earning losses if they change employers or are made redundant
- firms may under-invest in general skills because these skills are more portable. This market failure is likely to have more acute impacts on older workers owing to the greater period of depreciation in general skills and the compounded effect this might have.
There are a number of other factors that affect older workers:
- under-paying junior workers and over-paying senior/long tenured workers may have adverse effects on older workers who are attempting to delay retirement or change jobs. Essentially, the wage expectations of older workers might exceed their value to the firm
- the overhead costs of hiring are a doubled-edged sword for the older worker - on one side they increase job security, on the other they act as a disincentive for hiring people who are perceived to have just a limited time in the workforce
- age discrimination appears widespread, but its influence is difficult to identify accurately
- evidence on the substitution patterns for workers of different ages is reasonably limited, but indicates that workers of different ages are quite good substitutes in production. To the extent that this finding is reliable, it suggests that modest declines in the relative earnings of older workers would be sufficient to secure employment for them in the future. However, this side-steps the difficult issue of whether an older workforce will be less adaptable
- age-earning profiles tend to indicate that earnings increase up to around age 50 and then either stabilise or fall until retirement. But it is problematic to differentiate cohort effects from age effects.
Skill levels and ongoing training will have an important bearing on the wages that older workers can command, and hence also on their willingness to stay in active employment.
The Retirement Decision
Retirement decisions are complex. Today there are many paths to retirement. For a start, the decision to retire is not always a finite one. Conceptually full retirement occurs when a person leaves the workforce and never re-enters it.
In reality there is always the possibility that circumstances will change and a retired person will decide to return to paid work. In other circumstances the retirement process could be quite gradual or be used as an opportunity for a change of career.
In the traditional male working model of factors influencing the retirement process, wages rise as experience, skill and responsibility increase. Eventually wages peak. They may even decline.
At the same time, leisure becomes more attractive because the amount of remaining life expectancy declines. There comes a point when free time becomes more important than the money earned in a job. A decision is made to retire.
This simple framework suggests that increased wages for older workers may delay retirement. Likewise an increase in longevity makes taking leisure time today less attractive (since there is more of it) and so also encourages delayed retirement decisions. At the same time, older workers earning low wages and lacking savings may delay retirement on the basis that they cannot afford to retire.
In real life retirement is influenced by more factors than merely wages and life expectancy. Personal health, job opportunities, access to wealth and family circumstances including care responsibilities for partners, parents, children and grandchildren are also key influences.80
Although western society has come to regard retirement and potentially a long period of retirement as the norm, it is in fact a fairly recent phenomenon. At the beginning of last century retirement could be described as being relatively uncommon. In 1910, two out of three men past the age of 65 in the United States were employed. Even at age 72, male participation was over 50 percent.81 Burtless and Quinn (2000) argue that the long-term trend towards earlier male retirement has had an important voluntary component closely related to the concurrent rise in wealth.82 A study of five OECD countries83 showed that:
- the transition from work to retirement differs across countries: it is more gradual in the UK and US, and more abrupt in Germany, Italy and the Netherlands
- women tend to retire earlier than men
- civil servants and workers in manufacturing tend to retire earlier
- service workers and the self-employed retire later
- professionals and the better educated tend to stay longer in the work market
- the retirement decision is a joint decision, with the probability of retiring higher if the partner is not active
- heads of large households tend to retire later.
Greater Participation by Groups Who Do Not Fit a Traditional Male Working Model
However, the traditional male working model outlined above does not reflect typical patterns of many people's working lives. Women typically experience increasing wages until their 30s, then a sharp drop in the childbearing years. A pick-up typically occurs later but there is never a catch-up to the levels of their male counterparts.
Nor does the model fit the working pattern of an increasing number of men and women who follow diverse lifecycle patterns of employment, including a non-partnered, work focused life, sharing jobs and child-rearing, mid-life career changes and so on.
Our understanding of these changing trends for women and men is far from complete.
Table 9 presents a number of employment indicators from the 2001 Census broken down by ethnicity and gender, and the relative labour-market characteristics of different groups. Women have traditionally had lower levels of education and job experience than men. However, women have been catching up on formal education and job experience since World War II.
There has been increasing participation in the labour market by women, particularly those of childbearing age. This trend reflects a number of factors, including changing attitudes to women's roles, better contraception, the relative decline in manual labour, the rise in part-time work and greater individualism in society.84
Today a growing number of women have genuine choices about their paid employment. This trend will continue. Female economic capacity will be enhanced by rising female educational attainment, falling fertility, and social trends removing barriers to women entering the workforce and earning high incomes.
Women's diverse circumstances will play a role in their future labour market participation. Women's preferences are likely to range from being full-time carers of small children to working part-time or full-time in paid employment. These decisions will be influenced by the availability of affordable quality childcare and flexible work practices.
Table 9: Selected Characteristics by Ethnicity, 2001 Census
| |
Ethnicity |
| European |
Māori |
Asian |
Pacific |
| Number of people |
2,871,432 |
526,281 |
238,179 |
231,798 |
| Median Age |
|
|
|
|
| male |
36.1 |
20.8 |
26.4 |
20.1 |
| female |
37.5 |
23.0 |
29.7 |
21.9 |
| total |
36.8 |
21.9 |
28.3 |
21.0 |
| Percent with tertiary qualifications |
|
|
|
|
| male |
33.2 |
17.6 |
33.8 |
13.5 |
| female |
29.9 |
20.0 |
31.3 |
16.7 |
| total |
31.5 |
18.8 |
32.4 |
15.2 |
| Percent of adults employed full-time |
|
|
|
|
| male |
63.1 |
54.0 |
45.7 |
52.7 |
| female |
36.6 |
32.9 |
30.3 |
34.7 |
| total |
49.3 |
42.9 |
37.4 |
43.3 |
| Percent of adults not in labour force |
|
|
|
|
| male |
24.8 |
25.8 |
37.1 |
28.3 |
| female |
38.6 |
38.1 |
49.0 |
40.9 |
| total |
32.0 |
32.3 |
43.5 |
34.9 |
| Percent main urban |
68.8 |
63.7 |
93.7 |
92.2 |
| Percent other urban |
15.6 |
20.3 |
4.2 |
5.4 |
| Percent rural |
15.6 |
16.0 |
2.1 |
2.4 |
| Median age - rural |
37.3 |
24.1 |
28.9 |
17.9 |
The changing ethnic composition of the population is often seen as negatively impacting on economic capacity. Such views implicitly assume that any existing disparities in economic performance will persist. Indeed, the current relatively low level of participation of Māori at higher levels of educational achievement is likely to have ongoing adverse impacts on Māori ability to match capacity with opportunity. But participation and tertiary educational achievements for Māori are improving. Recent trends indicate that this upskilling may be translating into an expansion of Māori employment.
In a world where a growing number of people do not fit traditional male or female models of paid and unpaid work, policies that accommodate this diversity become imperative. Challenges involve creating new modes of work, new organisational forms, and new life-long learning systems. Policy questions include how to encourage more flexible working patterns, how to reduce the incidence of involuntary early retirement and eliminate discrimination, whether people's expectations of how long they will be actively able can be changed, and how best to support people's needs to balance work and family.
Unpaid Work
In order for society to function, children, the old, the sick and the disabled must be cared for. Food must be prepared, houses cleaned and community activities undertaken. Much of this work is unpaid. Women undertake the majority of it.85 The distribution of unpaid caring responsibilities is a key economic issue for families. The time taken to do unpaid work limits the carer's ability to participate in education or employment, and it frees others to get paid work. Indeed, the distinction between those who are economically dependent and independent may be a false one. Rather the relationship is one of mutual dependence.
The issue of who does unpaid work has wider implications for other women. If the work is not done by an unpaid family member, then the family must pay someone to do it. That person is likely to be a woman. Employing people to do these tasks is not an option for poorly pa