Older workers, not immigration, is key to overcoming ‘labour shortages’

By Leith van Onselen

Economist Callam Pickering has published some more interesting analysis showing that while Australia’s population is ageing, there are a rising number of older Australians working that mitigates this impact:

Australia’s population is getting older, putting downward pressure on economic growth and labour force participation—the proportion of the civilian adult population holding jobs or looking for work.

But the drag on growth is moderated by the fact that older Australians are remaining in the workforce longer than previous generations…

In fact, labour force participation by people 55 and older has never been higher. And that’s helping offset the economic impact of an ageing population. What is more, older worker participation is expected to rise further in coming decades because of a gradual rise in the retirement age from 65½ currently to 67 by 2023…

Since the beginning of the global financial crisis, workers 55 and over have accounted for around half the increase in total hours worked in the Australian economy. They are working slightly fewer hours per person than previous generations of older workers but collectively, today’s older Australians are working harder than any previous generation in their age group.

Older Australians are staying on the job for a variety of reasons:

• Older Australians are healthier. We are living and staying healthy longer, and that has translated into longer, more productive careers.
• Changes in the type of work performed in Australia—including smaller shares of workers in construction, manufacturing and agriculture—have created more opportunities for older workers. The service sector, which now accounts for around 80% of Australian jobs, tends to be less physically intensive.
• Workplaces have become more open to flexible working arrangements. Workers are demanding greater flexibility and employers are obliging. Older workers are well placed to take advantage of these arrangements as they move toward retirement.
• The global financial crisis took a bite out of the superannuation savings of many Australians, forcing some older employees to work longer than they had planned. Australia’s baby boomers tend to be asset-rich, typically in residential property. But many are income-poor and their superannuation balances tend to be modest, limiting their retirement income.
• The superannuation system’s tax incentives encourage people to keep working. Salary sacrifice and voluntary contributions allow households to reduce their tax liability and prolong their superannuation payments.

One factor that hasn’t yet had an impact, but will push labour force participation higher in the future, is a rise in the age at which workers can access their superannuation, known as the preservation age. People born before July 1, 1960 can tap into their superannuation when they are 55. But those born after July 1, 1964 have to wait until they turn 60. With the retirement age also rising, it is probable that the preservation age will rise further in coming decades…

The ageing of Australia’s population has itself created opportunities for older workers. The number of older people working as carers and aides has climbed by an average of 8% a year since the 2007–08 financial year, and presumably much of that increase involves serving seniors. Growth in health professions has also been strong. In other words, older people caring for other older people may be one of Australia’s growth industries.

A few months back, the Benevolent Society released a report which found that age-related discrimination is particularly rife in the workplace, with over a quarter (29%) of survey respondents stating they had been turned down for a job because of their old age, whereas 14% claimed they had been denied a promotion because of their old age.

And last month, the Regional Australia Institute warned that Australia is facing a pension crisis unless employers stop their “discrimination” against older workers, and that an ageing population could be mitigated provided employers embraced an older workforce.

So it would seem there is much further scope to boost workforce participation among older workers.

For years the growth lobby and the government has told us that Australia needs to run high levels of immigration in order to alleviate so-called ‘skills shortages’ and to mitigate an ageing population. This has come despite the Department of Employment showing that Australia’s skills shortage “remains low by historical standards” and Australia’s labour underutilisation rate tracking at high levels:

Economic models are often cited as proof that a strong immigration program is ‘good’ for the economy because they show that real GDP per capita is moderately increased via immigration, based on several dubious assumptions.

The most dubious of these assumptions is that population ageing will necessarily result in fewer people working, which will subtract from per capita GDP (due to the ratio of workers to dependents falling).

Leaving aside the fact that the assumed benefit to GDP per capita from immigration is only transitory, since migrants also age (thereby requiring an ever-bigger immigration intake to keep the population age profile from rising), it is just as likely that age-specific workforce participation will respond to labour demand, as has happened above, resulting in fewer people being unemployed. This is exactly what has transpired in Japan where an ageing population has driven the unemployment rate down to only 2.8% – the lowest level since the early-1990s:

So, rather than relying on mass immigration to fill phantom ‘labour shortages’ – in turn displacing both young and older workers alike – the more sensible policy option is to moderate immigration and instead better utilise the existing workforce as well as use automation to overcome any loss of workers as the population ages – as has been done in Japan.

It’s worth highlighting, once again, that economists at MIT recently found that there is absolutely no relationship between population ageing and economic decline. To the contrary, population ageing seems to have been associated with improvements in GDP per capita, thanks to increased automation:

If anything, countries experiencing more rapid aging have grown more in recent decades… we show that since the early 1990s or 2000s, the periods commonly viewed as the beginning of the adverse effects of aging in much of the advanced world, there is no negative association between aging and lower GDP per capita… on the contrary, the relationship is significantly positive in many specifications.

The last thing that Australia should be doing is running a mass immigration program which, as noted many times by the Productivity Commission cannot provide a long-term solution to ageing, and places increasing strains on infrastructure, housing and the natural environment.

The sustainable ‘solution’ to population ageing is to better utilise the existing workforce – both young and old – where significant spare capacity exists.

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