Bernard Hickey: Prepare to pin on your nappies

Japan's ageing population is a cautionary tale for NZ. Photo / AP

Opinion

Adult nappies will outsell baby nappies in Japan within the next few years.

And that's a stark warning for New Zealand, says David Bloom, an economics and demography professor at Harvard University's School of Public Health.

Bloom was in Wellington to talk about how demography is our destiny - how the structure of our population can drive society's economic and social performance.

Like most developed countries, New Zealand's economic growth sped up through the 1950s to the 1990s as people began living longer, the birth rate fell and the proportion of people at the most productive working ages rose.

More people worked, they had more time to work because they had to spend less time looking after fewer children and more women joined the workforce.

At the same time, better healthcare, vaccines, clean water and antibiotics meant more people lived longer. The resulting surge of people in the working age groups created a "demographic dividend" of stronger economic growth .

But throughout the world, that dividend is reversing as more workers retire, they save less, spend less and begin getting sick. The most cited example is Japan, which has been in or near recession for most of the past 25 years because the population aged faster than many others, in part because it allows almost no migration and has never been good at encouraging women into the workforce.

Economists predict more nappies will be sold for adults than for babies by 2018. It's a cautionary tale of what happens to an economy and society when it fails to adjust its policies to offset the reversal of the demographic dividend.

Bloom pointed out that China's population structure faced similar problems as its one-child policy rebounded through a declining working-age population and a rise in those aged over 65 from 9 per cent now to 24 per cent by 2050.

He was more positive about New Zealand's situation, given our relatively high net migration rates and our high workforce participation rates, but he did flag a few challenges.

"Demographics are providing a very high octane fuel for New Zealand's economy. They've done that for the past five decades and they're continuing to do it today.

"But the demographic cylinders in New Zealand's economic growth engine are now starting to shift into reverse. New Zealand is on a glide path down in terms of the working age to non-working age ratio of the population," he said, pointing to a rise in the portion of the population over 65 from 13 per cent now to 23 per cent by 2050.

He said this process was gradual and gave New Zealand time to adjust, potentially by investing more to improve the health and education of its population, encouraging migration and extending the age of eligibility for New Zealand Superannuation.

However, it had other headwinds, including having the third-highest rate of obesity in the OECD behind the United States and Mexico, and a sliding performance in the OECD's most recent PISA tests for maths and science education.

"That's going to weigh down the economy - pun intended - by reducing productivity and increasing the burden of medical care costs," he said, pointing to our high consumption of fast food and low consumption of fruit and vegetables.

Record high net migration figures this week show that part of the solution is already in place.

But the rejection of Labour's proposal for an extended age of retirement and Prime Minister John Key's insistence there is no need to change it suggests all is not well.

New Zealand's drag may not be as painful as some others, but that does not mean it can be ignored.