The end of plentiful labour

4 min readMar 5, 2020
Photo by Fauzan on Unsplash

The 1960s were a remarkable time in terms of the world’s growing labour force. Women began entering the workforce in increasingly large numbers and the baby boomer generation — the largest living adult generation — came of age. Many, particularly Western economies prospered, and the world economy expanded six fold in the following decades due to this combined demographic windfall.

According to a report from Bain & Company, labour force and population growth contributed one-third of the total economic growth for OECD nations between 1960 and 2015. This trend is now reversing as baby boomers reach traditional retirement age and fertility rates are falling globally. At the other end of the spectrum, young adults are entering the workforce later than previous generations. Many are staying in education longer, while others find themselves without the right skills for the rapidly evolving workplace.

Impact of a declining population

A declining population is not all bad news. It is likely to be much better from an environmental point of view and to place less strain on the world’s resources. Recent research indicates that having one fewer child reduces a parent’s carbon emissions by 58 tonnes of CO2 a year.

In the near term, it could also be good for workers, as a shrinking labour market creates opportunities for those who are left. However, while it will be a prosperous period for highly skilled employees, those with low- or mid-level skills may not be so lucky. These cohorts are likely to face the most disruption from the new technologies that are set to change the nature of work.

On the other hand, it is clear that automation won’t be rolled out uniformly across all industries at the same time. Bain and Company predict some sectors will continue to use lower-cost labour for some time rather than invest in automation.

Baby boom to baby bust

Declining fertility rates are not caused by the natural decline of individual fertility. While opinion is divided on the exact causes, falling fertility rates seem to relate to three key factors:

  • declining child mortality rates and women tending to have fewer babies as a result
  • greater access to contraception and family planning advice
  • increased numbers of women in education and work.

In the 1950s women had an average of 4.7 children over their lifetime. By the end of 2003 over half of the world’s population lived in countries where the fertility rate was under 2.1, below the long-run replacement rate. The indications are that countries with rates of less than 2.1 will eventually see their populations starting to shrink. By 2017 around half of the world’s 195 countries recorded fertility rates of below this replacement level. And the United Nations predicts that by the year 2100 the global fertility rate will be 1.9 births per woman over their lifetime.

Source: United Nations, Department of Economic and Social Affairs, Population Division, World Population Prospects 2019

An aging population

Low levels of fertility, coupled with increased longevity, mean that for virtually all countries their populations are getting older. For New Zealand and Australia, the UN predicts that the percentage of people aged over 65 years will double between now and 2100. However, on the flip side, many people are choosing (or needing) to work for longer and tend to be healthier into old age, reducing the impact on the labour force in the short term.

Replacement migration

A report from the Global Burden of Diseases points out that many countries in the West have not yet had to face their declining populations, as low fertility rates have been compensated by increases in international migration. Large scale “replacement migration” has been touted as a possible way to rebalance the dependency ratio of nations. However, as the entire world’s population shrinks and ages the global “migration solution” will be less and less effective.

Population growth is just one factor in determining economic growth, albeit an important one. McKinsey Global Institute explains that productivity improvements could compensate for declining population growth but productivity growth would have to be 80 percent faster than that achieved over the last half-century. In New Zealand’s case, unless it can turn around its persistently low productivity growth rates, this is an unlikely saviour. Like Japan, we could soon be grappling with the economic and social effects of a shrinking and aging population.

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