Time to get working on participation

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The reality of an ageing population has been looming for a long time, and yet we are still debating the first steps we should take in response. What is clear is that we need to start taking those steps, with a focus on significant structural changes – and the release last week of the latest Intergenerational Report provides a timely reminder.

One of the most pressing and fundamental concerns relates to workforce growth and participation. The numbers are daunting: in 40 years, the number of people of working age for every person aged 65 and over will halve from 4.5 today to 2.7.

National labour-force participation is currently around 64.7% of the adult population (down from our all-time peak of 65.7% in late 2010, trend). The Report expects this could fall to 62.4% by 2050, which is similar to levels last seen in Australia in the mid-1980s, when a much lower proportion of women were in paid work.

If we are to maintain our incomes and living standards at today’s standards or raise them, then this potential return to 1980s levels of participation is not acceptable.

The Report lists various population groups that should be encouraged to increase workforce participation, including older people, parents, women, people with disabilities and the long-term unemployed. More needs to be done to assist those groups into the workforce.

This has been self-evident for some time – something the Report correctly stresses. However, while better access to childcare for working parents is singled out as an area requiring further support, the Report is otherwise very sketchy on practical proposals to encourage participation among other groups. It merely provides a short list of measures the Government is already undertaking or proposing.

As Ai Group has long contended, skilled migration must continue to play a central role in our workforce growth and development. An estimated 88% of permanent migrants are aged under the age of 40, so net migration will remain a key contributor to labour force growth going forward.

Although the Report makes no recommendations on migration policy, it assumes that net overseas migration is held at current average levels of around 215,000 net additional people per year from 2018-19 (up from 180,000 per year assumed in the last report in 2010). According to this assumption, however, net migration would fall over time as a proportion of the population and the workforce, to around its long-term average of 0.5% of the population.

A better policy option may be to increase net migration, so it provides a higher degree of support to our workforce growth, relative to our total population growth.

These are not the only benefits that may be found abroad: while the Report compares Australia to other countries such as Canada, Switzerland and New Zealand that are doing better in terms of workforce participation, it does not set out examples of successful policies implemented in such countries, from which we could usefully learn.

All of these countries rank higher than Australia on key measures of competitiveness (including Switzerland at Number One in the WEF’s Global Competitiveness rankings). Perhaps their success might be worth closer examination.

Are the impacts of demographic change already a reality in your business? Or are you already making preparations to meet this challenge? Please share your stories below.

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Julie Toth
Julie is Ai Group’s Chief Economist, producing economics research, comment and policy for Ai Group and its members. She has over two decades of experience in Australian public policy and economics research, working across the public and private sectors. Prior to joining Ai Group, Julie held senior economics roles with the ANZ Banking Group, the Productivity Commission and other Federal Government agencies.

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