Human capital in Aotearoa New Zealand: Trends and capital stocks

This analytical note is part of a suite of papers by the Treasury to support its strategic advice on policy priorities for lifting human capital. Human capital is defined as the productive wealth embodied in people in the form of the knowledge, skills and abilities that enable them to participate fully in work and society more broadly. The most recent estimates placed the real economic value of New Zealand’s human capital at around $1.9 trillion in 2018, with a real value that grew at around 2.6% per year since 1986. This note examines high-level trends in contributions to human capital in New Zealand over the past two decades. It also presents a decomposition of the aggregate growth of human capital stock since 1986 to understand the contributions that selected components have made over time. Other papers in this series have developed an overall approach to analysing human capital that is suited to the New Zealand context (see Schaer, 2025) and analysed scenarios around the future of New Zealand’s human capital (see Ng, 2025). The analysis highlights key opportunities and challenges to New Zealand’s human capital now and in the future. The availability of human capital will become a key challenge over the long term as the age composition of the population changes. New Zealand is youthful compared to most high-income countries but is expected to undergo major shifts towards a greater proportion of older people as natural birth rates fall and a greater proportion of people age out of the workforce. Fewer entrances into the labour market by younger people relative to the number of people retiring each year is expected to reduce the working age population and may reduce labour force participation over time. Some trends indicate that New Zealand’s human capital is both high and improving. Broad-based employment growth over the past 20 years has been a key source of income growth relative to other OECD countries (Galt, 2023). This has been driven in large part by a greater share of people entering and remaining in the workforce, particularly women, older people, and overseas migrants. Women’s contribution to human capital growth was $135 billion in excess of the national average growth rate between 1986 and 2018, partly reflecting their strong rise in workforce participation. Employment and labour force participation rates have performed well historically, though unpacking the aggregate trends reveals persistent ethnic and gender disparities in the form of chronic underutilisation and lower wages. Migration has made a net positive contribution to population and employment growth since the early 1990s and has become the main driver of population growth as natural birth rates fall. International migrants are on average younger and more likely to hold advanced qualifications compared to New Zealand-born residents. With highly educated New Zealanders emigrating at high rates for employment opportunities overseas, inward migration will play an increasingly important role in meeting the demand for jobs and skills in the labour market, unless wages and other pull factors can become more competitive to improve the retention of skilled labour. High quality education is a long-term investment into people’s human capital. New Zealand has benefitted from rapidly improving skill levels in the adult population over the past two decades, bolstered by more advanced qualifications in the resident population and the migration of educated people. Between 1986 and 2018, bachelor’s degrees contributed an additional $168 billion to the value of human capital over and above the national average growth rate. Postgraduate degrees have contributed an additional $200 billion over the same period. At the aggregate level, a well-educated workforce is a key factor in achieving greater aggregate productivity, innovation and long-term economic growth. At the individual level, increasing knowledge and skills plays a large role in labour market outcomes and higher average lifetime earnings. However, these educational gains have not translated into as high an increase in relative wages in New Zealand compared to other OECD countries. Trends suggest a potential future decline in skill levels. In keeping with international trends, New Zealand’s school level achievement, as measured by the Programme for International Student Assessment (PISA), is declining. Performance in literacy, numeracy and science has dropped to the lowest scores since records began. Additionally, the skill profile of temporary migrants has declined in recent years, owing to a larger share of temporary work visa approvals for migrants in lower skill categories. If these trends continue, a deteriorating skills base in the population will weaken New Zealand’s productive capacity over the medium to longer term. Between 1986 and 2018, New Zealand’s human capital growth was driven by increasing contributions from postgraduates, women and Māori. Contributions specific to women were supported by increases in labour market participation and a growing share of bachelor’s and postgraduate degree attainment. Māori contributions, while still behind non-Māori in overall human capital value, show positive trends driven by a younger workforce, a declining share of unskilled workers, and rising qualification attainment, particularly at the non-degree and mid-skill levels. Overall, the trends point to a mix of opportunities and challenges for New Zealand’s human capital in the future. The structural ageing effect will shrink the growth of the working age population, and with arguably limited scope for further increases in participation and hours worked by older people, mitigation options may fall to some mix of reducing chronic underutilisation, reducing differences in employment and participation gaps, and increasing inward migration. There are opportunities to support wage growth and skill premiums through higher productivity, which could help to retain and attract skilled workers. Lastly, addressing the significant potential productivity losses from declining school level educational attainment will be important to safeguard New Zealand’s human capital over the longer term.