Employment trends and labour supply

This is Australian employment trends and labour supply. I originally came upon the report by the Reserve Bank of Australia (.pdf) over at Crikey.com, who were making light fun of the RBA’s suggestion that our retirees need to get back to work.

Are we at full-employment (trivia: that post, linked, is easily the most popular I’ve ever written. I wish I was earning residuals on the thing)? With unemployment still down at around 4.25 percent, I should think we are. There are some odd quirks in our data, thought, for example:

Labour Force Participation:

Labour force participation

Still trending downward for males.

It’s basically up in the things that are driving employment, down in the things we don’t really do anymore (or that we do with ever fewer people: agriculture and manufacturing).

employment by industry

Remember that’s on a log scale (i.e. differences in logs, not of numbers – this means ratios rather than differences. Basically it just makes looking at growth rates easier for our brains).

The advances made in types of hiring (i.e. more part-time and casual work at the expense of full-time work) also have moved participation around for males and females. While participation is steadiliy increasing for females (here according to birth cohort)

Female LFPR by cohort

It is declining for males

Male LFPR by cohort

Typically a product of decling access to permanent full-time (i.e. one job = one family, car, mortgage) employment. The other quirk surrounds those older people – who are retiring in greater numbers, earlier:

Age at retirement

and, along the way, in greater numbers than the OECD:

LFPR for aged, compared

Which gives the RBA it’s final word:

The demand for labour has grown strongly since the early 1990s. This demand has in part been met by a large decline in the unemployment rate, especially for young persons seeking full-time employment and the long-term unemployed. In recent years, the strong labour demand has also been met by a rise in the participation rate of older workers, although the stabilisation of participation by prime working-age males and continued increase in participation by females has also been important.

Given the current low rate of unemployment, a continuation of the recent trends that have underpinned the rise in the national participation rate would help meet ongoing labour demand. The fact that the participation rate of older persons in Australia remains below that of other OECD countries suggests that further increases may be possible.

There are, of course and as usual, multiple explanations for the participation rates of older people:

  • They’re retiring early because they can afford to (a good thing), or
  • They’re “retiring” because they can’t get hired (a bad thing).

The disability statistics suggest at least some of this is happening (retirement due to ill-health is an avenue for older people who can’t find employment):

LFPR disability

In which case the RBA’s assessment is probably not worth pursuing, and the reasons are not complicated:

  • People retiring early because they can afford to retire early are unlikely to perform the tasks wanted by a NAIRU economy
  • People “retired” as disabled or unemployed are unlikely to possess the skills demanded for most of such jobs.

The only real job I ever held, after my first degree, was as statistician for a government rehabilitation service. All I really learned there was the practicality of the interest by government in moving people from disability pensions (costing tax money) to jobs of any kind (paying tax money).

Given the pounding budget surpluses our economy is already paying in, I would suggest that any decision to properly lean on older people and push them back into jobs they (more or less certainly) do not want to do would be a political decision, rather than an economic one.

I do object, more than a little, to the suggestion that, because other countries in the OECD have higher participation in these age groups, we should push for it. In the US older people work because they need the medical benefits – it’s a bad thing, not a good thing, that the US workforce contains a significant number of people made slaves to employer-provided health insurance.

Sweden is another extreme. Formerly home to incredibly low unemployment rates, they suffered such a recession in the early 90s that they’re still recovering (and with quite high unemployment rates). However the Swedish government’s attendance to the activation principle is, for want of a better word, mighty. In the mid-90s fully half of government expenditure went to such programmes, rather than cash benefits. The participation of women in the Swedish labour economy is also quite high (related to a point to be made in just a minute).

My point, I guess, is that we can’t/shouldn’t seek to emulate the participation rates of labour economies that, themselves, we cannot properly emulate. Or, in the case of the US, should not seek to emulate. I’m sure it would be very easy to withhold access to PBS drugs by people aged 55-64 if they won’t work, but good luck winning the election on that platform.

Meanwhile, the problem observed in – I believe – the first post I ever made here, persists. We still have a labour economy built against the participation of mothers, and we still have a political economy built against the introduction of immigrants. I’ve an idea: the Ba’athists in Iraq were all fired, and they (a) had to join the party to work (like communists), and (b) ran the country. Why don’t we invite them all to Australia?


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