The Department of Labour says the labour force will stop growing as New Zealand's population ages.
The Workforce 2020 report says the number of available workers will peter out over the next 12 years as women and older people withdraw.
By then, the department says the proportion of people working will have fallen to 63%, from the current 68%.
Deputy secretary Monique Dawson says a scarcity of skilled labour will become even more serious.
She says the projections show there will be a shortfall in labour even with relatively high birth rates and high levels of immigration, and the only long-term solution is a new focus on lifting workplace productivity.
However, independent forecaster BERL questions the assumptions this is based on.
Senior economist Ganesh Nana says the department is painting such an unduly pessimistic picture that it risks creating a self-fulfilling prophecy.
