Wednesday, November 27

More on participation rates for older Australians

When I read Matt Cowgill's recent post, it got me thinking about the significance of population ageing on the participation rate. In my previous post, I looked at the ageing trends. In this post, I want to reflect a little on what these trends might mean.

I spent a little time replicating some of Matt's work using the tools with which I am familiar. (I use STL rather than X12 for the structural decomposition of time series data). My results are comparable with Matt's. The differences are likely to be artefacts of the different processes we used.

At this point, I should note that the R/STL approach to seasonal adjustment takes out more noise/signal than the ABS approach (as can be seen in the next three charts over the same comparison for differing time periods). It is highly likely that similar differences exist between my approach and Matt's.

At one level, Matt's charts could be interpreted as saying that I should be less concerned about say half of the 100 basis point decline in the ABS all ages participation rate as it flows from the ageing population. However, this is not the conclusion I came to. (To be fair to Matt, I do not want to put words in his mouth, and he may not be making this argument).

First, let's look at the growth of the 65 years and older cohort. You can see the recent up-tick in the population as the baby-boomers move into this age cohort.

Interestingly, if we look at the size of the labour force for this cohort (ie. those in employment or actively looking for work), we see a different trend. There is an earlier uptick, but in the last 18 months, the labour force has not been growing as fast.

This is matched by a plateauing in the participation rate for this cohort.

What this says to me is that in recent years we are seeing more newly minted 65 year olds, but proportionately not as many of these people are entering the age cohort in the labour force. Given life expectancies these days, these are not good trends. As a nation we want proportionately more people in their late sixties and early seventies in employment.

There could be two issues here. The first is that the baby boomers are choosing retirement earlier than those born between the Great Depression and the end of World War II. If this is the case, it suggests that policy needs to be directed to this choice. The second is that the baby boomers are the canary in the coal mine for a contracting labour market. If the primary driver is this second issue, it suggests that policy needs to be directed to structural issues in the labour market.

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