Jobs - it's not all about the baby boomers

Written By Unknown on Rabu, 06 November 2013 | 11.25

THE ageing baby boomer generation is reducing participation in the labour market, but excessive focus on this by over-zealous policymakers could put economic growth at risk.

The Reserve Bank of Australia wants the economy to grow as fast as possible, generating as many jobs as possible, without causing wages-driven inflation as unemployment falls.

That potential growth rate - what RBA boffins refer to as "trend" - is limited by growth in the supply of labour.

That's where the baby boomers come in.

The proportion of the working-age population aged 60 or over, and more likely to retire, rose from 21.5 per cent to 24.5 per cent over the past decade.

The participation rate - the proportion of the working age population active in the labour market - fell to a seven year low of 64.9 per cent in September.

It peaked at 66 per cent three years ago.

That fall took 215,000 people out of the hunt for a job.

If it hadn't, the unemployment rate would be 7.3 per cent rather than the reported 5.6 per cent.

A bigger pool of unemployed jobseekers would give more scope for growth before the RBA puts the brakes on by lifting interest rates.

It seems reasonable to put two and two together and conclude that the ageing population has reduced the economy's potential to grow.

That makes it worthwhile to check by crunching some numbers.

Here are some I prepared earlier, using Australian Bureau of Statistics data.

The table shows, for each year ending September, how much the unemployment rate was affected by changing participation rate.

It's broken down into the impact of the population's changing age structure and all other effects.

2003 Population: -0.2 Other: +0.1

2004 Population: -0.2 Other: +0.4

2005 Population: -0.2 Other: +1.6

2006 Population: -0.2 Other: +1.1

2007 Population: -0.2 Other: +0.4

2008 Population: -0.1 Other: +0.3

2009 Population: -0.1 Other: -0.2

2010 Population: -0.2 Other: +0.6

2011 Population: -0.3 Other: +0.4

2012 Population: -0.3 Other: -0.1

2013 Population: -0.3 Other: -0.5

The effect of the ageing of the population is clearly rising.

It's shaved 0.3 percentage points from the jobless rate in each of the past three years.

Other effects have mostly worked in the opposite direction, tending to push participation up, most notably early last decade.

But more recently those "other" effects have tended to reduce participation, shaving as much as 0.5 points from the jobless rate in just the latest year.

It turns out that these "other" effects are strongly correlated with employment growth.

So, when the economy picks up over the coming year or two, the increasing number of jobs on offer will encourage potential workers into the market.

The participation rate will stop falling in line with the ageing of the population and probably even push higher for while.

So the economy's scope to grow is greater than it might seem to be.

Let's hope the policymakers don't assume the baby boomers are all that matters for the participation rate.


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