Ageing population will drive up wages - report

18:35, Mar 25 2013

Expect to pay much more for haircuts and healthcare in future, as the population ages, but the ageing population will also hurt the manufacturing sector.

For businesses, an ageing population will shrink the future pool of workers as a fraction of society.

"That drives up wages as firms bid for talent," an independent NZIER report on the ageing population says.

Higher wages will make life even tougher for many manufacturers facing global competition, though it is not the "death knell" if they can adapt.

But goods and services that are not internationally traded, such as "healthcare, haircuts, lawn mowing and retail, etc, will become more expensive", the report says.

A NZIER senior economist and head of public good research, Kirdan Lees, said the cost of things like haircuts and plumbers would probably rise faster than inflation.


And it would be worse in some areas such as Marlborough, Tasman and the West Coast, which would have a rising proportion of older people and a shrinking pool of workers.

"You might be paying more for the plumber. It seems to be quite hard to get a plumber in some of those regions. Expect it to be more so in the future," Lees said.

The impact of an ageing population on wages for some sectors would be felt in big cities like Wellington and Auckland, but to a lesser extent, he said.

The report also shows that spending on health and insurance increases over time as people get older and demand more services.

It suggests that wages will rise 16 per cent faster than inflation during the long term and investment returns will fall from 4.8 per cent to 3.2 per cent on average.

Those higher wages will also make previously jobs-rich sectors like manufacturing even less competitive and cut their production.

That will continue the long-run trend in manufacturing as companies move away from competing on cost and rather compete in niche sectors on specialised knowledge and expertise, NZIER says.

"Expect the smart money to shift away from these labour-intensive trade-exposed sectors such as textiles, clothing and manufacturing, continuing a trend that has taken place over the past few decades."

However, it is not sounding the "death knell" for manufacturing because companies will find ways of connecting with world markets to meet new demands, it says.

"Our advice would be to keep moving into niches you have some specific advantage," Lees said.

New Zealand is not alone facing an ageing population, and is about the middle of the pack, with all facing a "global fight for talent".

The report looks at the impact of the ageing population shrinking the labour force by 5.5 per cent during the next 50 years.

But some sectors will see the silver lining from a greying society.

"Health, travel and insurance are likely to profit from an older population," NZIER says.


The price of a haircut is already rising faster than inflation and as the population ages, that trend is expected to continue, the NZIER report says.

Traditional barbers in Wellington charge between $12 and $20 a cut; more up-market hairdressers charge $30 or more.

Women's hairdressers tend to charge up to $100 and beyond and nationally prices are rising faster than inflation.

The national average price of a shampoo, cut and blow-wave is $64.24, according to Statistics NZ figures, up from $48.43 in mid-2006.

If prices had moved in line with general inflation, the average cut would be about $8 cheaper.