Problems the Australian Finance Sector Faces - Case Study Example

PROBLEMS THE AUSTRALIAN FINANCE SECTOR FACES Name: Course: Tutor: Date: Table of Contents PROBLEMS THE AUSTRALIAN FINANCE SECTOR FACES DUE TO SHORTAGE OF SKILLS AND AGEING WORKFORCE AND SKILL SHORTAGES AND SOLUTIONS 3 Executive summary 3 Introduction 5 Impacts of skill shortages and ageing workers on the finance sector 5 Situational analysis- a demographic overview of the shortage of skills and ageing population in Australia 9 Comparison with other countries 11 Australian government policy initiatives 13 Solutions of the shortage of skills and ageing problem to the finance sector in Australia 14 Conclusion 17 Recommendations 18 Bibliography 19 Mock interview 25 PROBLEMS THE AUSTRALIAN FINANCE SECTOR FACES DUE TO SHORTAGE OF SKILLS AND AGEING WORKFORCE AND SKILL SHORTAGES AND SOLUTIONS Executive summary The impacts and effects of an aging society have more than become a reality in most countries today. It is comparatively a new factor in the history of the human race and most countries have to cope with the tremendous effects of an ageing society especially in the workplace. Apart from the fact that the old reflect a society with experience and skills, the financial and economic implications of such a mystery are far reaching (McDonald & Ross 2001, 316). Majority of countries in the world is faced with such a problem and the reasoning behind it elicits views of different natures. Australia is one such country that is faced with a rapid shortage of skills and ageing population that is fast eating into its economy. Ranging from the financial implications to the economic sabotage that such a problem imposes on the country, the nation’s think-tank is warning of a looming crisis in the near future. The Australian Bureau of Statistics (ABS) predicts that one in every five people will be aged by 2042 and that 0ver 10 percent of the population will be aged over 80 years. Researchers in Australia are warning of a poignant situation and stress in the economy following this worrying trend (ALGA). Majority view an shortage of skills and ageing population as triumph of a caring and civilized society that has the interest of all its citizens at heart, including the old. However, this does not augur well with economists and financial officers who think that shortage of skills and ageing population is more of a curse in disguise than a blessing to be proud of. In view of such facts and contrasting opinions, Australia can now be compared to other countries of the world that either face similar situations or are better off than Australia (Farrell et al 2005, 21). Such countries include Japan, Taiwan, Hong-Kong and Germany. At a later stage in this paper, a comparison of these countries shall be made in relation to the demographics of their respective ageing populations. It shall, also review the financial implications of an ageing society, a situational analysis of this trend, strategies the Australian government is taking to address the matter and a conclusion of the paper (Bartram & Roe 2005, 225). Introduction The world is faced with the threat of an accelerated shortage of skills and ageing population that is not being replaced at the speed with which it is ageing. This emerging trend occurs in most countries ranging from developed nations to those that are still developing. The situation in the developed world is worse and demographic maps are fast loosing meaning (Parker, 2011). This effect is rapidly spreading into the third-world counties that a fourth generation of shortage of skills and ageing population is slowly forming. Western countries like the United States are not spared of this problem, while Europe and the Asian countries have worried trends too. Australia is one such country with this problem and this paper looks at the situation in Australia, comparing it with other countries like Japan, China, Taiwan and the United States. The effects of a shortage of skills and ageing population to the finance sector economy are analyzed and conclusions drawn from them (Hiroyuki & Tabata, 2010, 669). Impacts of skill shortages and ageing workers on the finance sector One of the most emerging and striking elements of the modern world is its changing demographic profile. The issue of shortage of skills and ageing population in Australia is making headlines in relation to some of the most discussed policies and matters in government. This issue sits besides every arena in which policies are discussed in Australia alongside other pertinent issues like globalization and climate change policies. The ageing population policy is of tremendous magnitude to the Australian government given the fact that the financial effects are slowly showing up. The percentage of the shortage of skills and ageing population may be rather less in developing countries, but the magnitude of the demographic profile changes is perhaps greater (Hiroyuki & Tabata, 2010, 667). The shortage of skills and ageing population in Australia has a direct impact on the economy, as the employable population is fast shrinking, and the older people dwelling at subsistence levels will be susceptible because of deficient number of the younger population to take care, and support them (Department of Health Services). The baby-booming population dates back to the end of the Second World War, and the reasons why the Australian population is aging is because birth rates have declined tremendously from 1969. The baby-boom generation that surged after World War II is now middle aged, and birth rates have since reduced (DoFAHCSIA, 2011). Another reason why the Australian population is fast ageing is the advanced and improved technology in the medical sector. Health awareness programs have been on the rise, and efficient Medicare systems are allowing people to live longer. Opportunities for women have also improved substantially, and more women are being employed (Farrell et al 2005, 23). This is one of the major causes of a shortage of skills and ageing population since many opt to work first and then get married at a later stage. They are therefore, beginning families at an exceptionally late age while some even opt to forfeit motherhood at all. The time needed to complete basic education, and obtain a comfortable job is increasingly becoming longer, and people settle down to start families at an unusually late stage of their life (McDonald & Ross 2001, 119). The ageing population may be skilled but may not provide the sufficient labor to drive the economy. A shortage of skills and ageing population causes slow per capital growth so that a reasonable fiscal gap is created and the overall share of the government in the economy rise. This will create a significant structural change in the management of the economy and the government will be forced to allocate more money to cater for the ageing. The 3Ps policy is essential in analyzing the financial implications of shortage of skills and ageing population to the economy. Participation and productivity carry more weight as an ageing population lacks efficient productivity levels to drive the economy. Their participation is also at a stake because their health and general fitness is low, therefore, unable to participate actively in financial matters. The older population will work less to contribute to the aggregate economy after age 55 (Lee & Mason, 2010, S164). The economy and its finance shift to the supply side because more and more funds have to be allocated to the support of the older people (DoFAHCSIA, 2011). The finance sector is therefore, faced with serious challenges of not only skills but also the proactiveness needed to drive the economy. The Australian economy may be doing so well that one can be forgiven for thinking that an ageing population lacks any contribution to this. However, the case is different because the older population takes more fiscal allocations than other key sectors of the economy. More financial resources have to be allocated to cater for the older people who are based at the caring facilities. The government has to pay these bills that amount to about 40,000 dollars per person in a year (Karmel & Maclean, 2006, 29).If the shortage of skills and ageing population is extreme, then it means the economy is funding a population that contributes nothing towards sustaining it. This directly relates to the lack of skills that are necessary for the economy (Hiroyuki & Tabata, 2010, 667). An ageing population is a burden to the society, and the financial sector becomes worse hit by this effect. This sector requires people who are not only active in development and implementation of financial strategies but also actively participating in building up the economy. As one gets old, the mind becomes congested with so many things concerning the old age that they have little or no time left for generating innovative ideas. The expertise skills are at stake because the old people mind is occupied with so many things. They do not contribute significantly to the financial sector because they take more than they input to the economy. Ranging from the money, they get for care at the treatment facilities and the pension the government pays them to sustain them in their old age. Research shows that a majority of Australians, less than 30 percent have two thousand dollars savings in their accounts (Lu & McDonald, 2006, 286). Most of them have less than that amount, and this is of considerable effect to the financial sector as it gives more money to this population more than it receives from them. Taxes collected from the ageing population are far much less than the expenditures on them. As the demographic profile increases, the shortage of skills and ageing population grows larger, which means that the government has to pay more pensions to an extremely large population that has little or no contribution to the financial sector. A tax and social security analysis in Australia have shown that the system impartial is in its handling of dual verses single income families (Bartram & Roe 2005, 227). As a result, the economy is doing right, but more families are dependent on the government for support of the old people. Skills have become extinct with the onset of an ageing population because young people are not in possession of the required skills to propel the economy further. Birth rates have decreased, and there are less young people. The paradoxical argument of this is that the economy requires young and energetic people to drive it, yet the demographic profile it tilted towards an old generation. Therefore, there is a deficiency in the skilled work force that supports the financial sector. This implies decreased taxes and increased expenditures in the financial sector, because the people working are too small in number that they cannot support the large number of the ageing population. The government has to find ways of generating extra revenue through the financial sector, in a bid to support the population (Crown, 1993, 33). Lack of skills in Australia has had many consequences apart from just slowing down the economy. There have been decreased investment rates that have been characterized by under-investment in the financial sector (Bruffy & Juliano, 2006, 3). The structural changes in the demographic profile are responsible for this and investment has gone way below standards because of unskilled work force. Investment requires risk-taking skills, innovative and implementation skills in general, yet they are not available with the older population (Leuprecht 2010, 38). The cyclical surge in unemployment rates is caused by the inadequate skills required to meet the minimum threshold for employment. When these are combined with shortage of skills and ageing population in Australia makes unemployment levels shoot-up. The financial sector is faced with recruitment problems because of unskilled work force and an ageing population. As a result, policy formulation within the financial sector and in government level lacks innovative people to develop or improve them. This is entirely caused by the ageing population and skill shortage (Ross & McDonald, 2003, 2). Situational analysis- a demographic overview of the shortage of skills and ageing population in Australia The Australian Bureau of Statistics (ABS) estimates that close to three million Australians are now aged 65and over. It also predicts that nearly four million baby boomers set to join them in the next fifteen years (Australian Bureau of Statistics). Within forty years those aged eighty-five and over, who have the most chronic needs for care, are projected to increase from 322,000 today to over 1.72 million (Reed, 2008, 92). Approximately, half the beds in Australian public hospitals are occupied by people over 65 years, who make up barely an eighth of the population (Reed, 2008, 82). People aged 75 to 84 generate pharmaceutical bills five times larger than those aged forty five to fifty five, and ten times larger than those aged twenty five to forty five (Australian Bureau of Statistics ). The total population is set to rise to over twenty eight million in 2047, and the demographic profile is set to change substantially (Bruff & Juliano, 2006, 7). There will be fewer children and so many old people because of the age shift (Lu & McDonald, 2006, 289). The working class generation is set to decrease because the growth rate is slowing down and less people, aged fifteen to sixty five who make up majority of the wok age will decrease. The total population is also predicted to decrease by an eight percent value while those aged 55-64 years are set to increase by a massive 50 percent over the next forty years. Close to twenty-five percent of the population is estimated to be aged over sixty-five years of age by 2047 and will be the fastest growing cohort (Lee & Mason, 2010, S163).This figure is almost twice the value today the reality is that the older the age, the faster the growth rate. This is evident in the projected statistics of ABS that those aged over eighty-five years will be the fastest growing segment in the demographic profile. Fertility rates are on the brink of collapse too. Since the end of the Second World War, fertility rates in Australia have decreased at unprecedented levels, from about 2.9 percent in 1970 to less than one percent in 2010 (Bruffy & Juliano, 2006, 3). This is a vital issue of concern as the younger population is at risk. Women opt not to give birth by using control methods that lower their fertility levels. This makes the fertility levels decrease as caused by such methods and others like professional responsibilities (Graeme et al 2009, 12). Comparison with other countries The shortage of skills and ageing population is a global challenge as manifested in the old age dependency ratios in different countries like Japan, Taiwan, Hong-Kong and China. The effect is worse in China because it is the most populous nation in the world and the trends are worrying. The situation is set to triple in china and the dependency ratios are predicted to be beyond the control in the next fifty years (Jason, 2010, 6). The global trends have far reached implications on the investment rates, asset returns, capital flows and labor supply (Leuprecht 2010, 31). The Japanese life expectancy for both men and women has been among the highest in the world for quite a long time. Both Japan and Australia have life expectancies are quite high and with a greater proportion of the aged population. While Japan has a total population of more that 127 million people, the old population aged sixty-five and over makes up 25.5 percent of the population (Jason, 2010, 5). This figure is more than Australia total population, but the similarity is that both countries have a worrying shortage of skills and ageing population (Karmel & Maclean, 2006, 27). Taiwan has a similarity too regarding old age. It has a greater percentage of aging people close to 30 percent of its total population (Jason, 2010, 6). The demographic profiles of both countries are tilted towards the older generation. Hong-Kong is not spared either. It makes up one of the most populous cities in the world and since its incorporation into China; the percentage of the shortage of skills and ageing population has been on the rise (Graeme et al 2009, 4). The percentage of shortage of skills and ageing population Australia, China, Taiwan and Japan is similar since they both average to about 15 percent. The projected growth rates of this trend are also similar in the sense that, by 2050, all these countries shall have 30 percent on average ageing population. The United States exhibits similar conditions although the demographic profile is quite different and the percentage of the lower population is much lower than the rest of the countries (Borowski & Ozanne, 1993, 56). Japan has the highest aged population in the world of about 21 percent (Jason, 2010, 7). This is the percentage of the aged population aged 65 and over. However, it is lower than the age at which one is considered old in Australia, which ranges from 73-79 years (Lee & Mason, 2010, S163). Birth rates in both of these countries have decreased from the collapse of the Second World War. In Japan, it decreased from around 4.5 percent in the 1950s to around 1.2 percent in 2007 (Lee & Mason, 2010, S163). Irrespective of this, the Australian baby boom generation has lead to a sharp decline in fertility rates compared to Japan. The figure is way below replacement rate, and this has resulted to a decrease in the population and the average fertility rates (ALGA). Competitive positions in all these countries have been affected by this trend, and the future health status is in danger. With unprecedented levels of ageing populations, there is a shortage of skills and an increase in the dependency ratios on the working population. More people are getting old and little or no replacements are available to care for the old guard. The result is a looming crisis in the health sector and competitive positions in the economy, projected by the shortage in skills and ageing population (Kacapyr, 1999, 769). Australian government policy initiatives The Australian government is developing numerous strategies that are aimed at combating the shortage of skills and ageing population trend. Key among these strategies includes re-skilling and training of the old personnel to remain productive in the economy (Crown, 1993, 34). These measures are being implemented at institutional, schools and work place facilities (Kacapyr, E, 1999, 769). The major aim of such a strategy is to equip the old generation with skills aimed at propagating the economy and making the productive at their old age (Ross & McDonald, 2003, 5). The government has also introduced a strategy to help the old population save more funds that will sustain them after their retirement (Borowski & Ozanne, 1993, 58). This is done in order to reduce overdependence on government support by the ageing population so that they have enough saved money to sustain them. This will go a long way in ensuring that dependency rates are decreased and that more old people can save more money during their working period in order to sustain them after their retirement (DEEWR, 2011). Improvement of health facilities to care for the increasing number of the ageing population is another strategy that been implemented by the Australian government (Karmel & Maclean, 2006). This strategy is set to cater and provide improved services to the old people. The government has increased funding to these facilities and even builds new ones so that the ageing population has a better place to nurse their old age concerns (Stevens, 2005). The government through the department of human services has introduced an awareness policy to try to educate the Australian population of the need to have children (Lee & Mason, 2010, S165). Since the ABS predicts that the young population is in danger if urgent measures are not taken, the government has implemented this strategy to urge parents to have more kids. The government has also increased budgetary allocation to the department of Health and Ageing so that older people have adequate care during their old age (Department of Health and Ageing, 2010). In an attempt to deal with the skill shortage crisis, the government has increased budgetary allocation for the Education Departments to fund more school and equip them with facilities for learning (Crown, W. H. 1993, 34). More training institutions are on the raise so that more and more young people are trained and equipped with the necessary skills needed to sustain the economy (Graeme, 2009, 13). More youth careers have been approved so that the academic sector fosters diverse people who are capable of doing more than one job (Karmel & Maclean, 2006, 13). The increases in youth training institutions will effectively help in solving the problem. More educational institutions are encouraged to introduce learning programs for the older people and part time classes for the to advance their skills and re-equip them with emerging ones that will see them contribute to the economy even in their old age. The quality of higher education is also being improved to train people and equip them with more advanced skills that will make them productive to the economy and help them stay competitive in the global economy (Ross, 2008, 189). The introduction of e-learning in the institutions has also boosted education access levels especially among the ageing population as they can get the skills online without attending schools. Older people are able to study from their homes while working at the same time (Australia's Demographic Challenges). Solutions of the shortage of skills and ageing problem to the finance sector in Australia Organizations have played a big role in tackling the problem of skills shortages and ageing population. All employees after training, they expect to be employed in various organizations, which give them some sense of satisfaction. For this reason therefore, organization have ensured that their services are favorable to the employees by facilitating their growth and career development (Rudd, 2010, 4). Organizations have been flexible enough in ensuring that they take as much employees as possible to increase chances of more people being employed and reduce the number of people without employment (Walters, 2008, 98). Absorbing the appropriate skills into the organization helps in reducing the gap between employed and the jobless. Once many are employed, they are always busy and can think of development their skills even more through continuous job training (Australian Bureau of Statistics). On the other hand, various organizations have shown and proposed the need for the old people to be cared for through the setting up programs, which are targets them. The programs can be in form of entertainment to keep them happy and if possible for those who can still work can be given duties according to their capabilities, but not strenuous work like in the past (Australian Bureau of Statistics). Old people need to be loved to respected, this will give them strength to explore life even more. Some organizations can also give post to the old as board chairpersons or advisors. These people have the experiences and despite the old age, they can give direction to the organization (Walters, 2008, 98). In addition, the organizations have the capacity of building new institutions that can offer various courses and nurture the various talents existing within the community. This should be the aim of every organization as it ensures reliable skills are available throughout (Rudd, 2010, 12). Armed with such facts about the impacts of skill shortage and ageing population to the financial sector, we can be able to device several solutions to this problem. The Australian government is faced with this problem of an ageing population, but there has to be a way out in terms of solving the problem (Reed, 2008, 92). There seems to be nothing that can be done to change such a trend, however, the best practices and policies may be of importance to solve the problem. Shifting focus and attention to equip the ageing population with the required skills to propel the economy is one such imitative (Ian et al 2000, 52). The parcel of knowledge, astuteness and experience that so often accompanies itself with age is part of an internal responsiveness that cannot be traded, sold, or stolen. It should however, be activated augmented and utilized in all the forks, fields and storefronts of society, and in the outlets of their creative imaginations (Crown, 1993, 32). By so doing policies of re-skilling, the older workers through specialized programs should be developed by the Australian government. These programs must be incorporated in institutions, workplaces and schools to assist in integrating the older generation into a vibrant society. The government should also develop plans and strategies to train the remaining staff when retirement time for other staff reaches. Successfully integrating this staff to take charge of the work when people are no longer productive due to old age, is one such policy that the Australian government should look at (Borowski & Ozanne, 1993, 59). Another solution to this problem is the development of progressive disengagement strategy that will oversee a shift from around the clock work, succession scheduling, and assisting practitioners presently in part-time jobs move into full-time employment. This will ensure that the continuity of work is maintained, and no voids are left when old age reaches (Ian et al 2000, 59). Creating awareness programs that will encourage the Australian people to have more kids and raise families in an early age is also another solution to this problem. Since fertility rates have decreased since 1969, awareness programs should be carried out to encourage the Australian people to give birth so that the country not deficient in the young population. This will ensure propagation of the work force and a population that sustains the economy (Bartram & Roe, 2005, 227). Conclusion In conclusion, the problem of shortage of skills and ageing population is slowly catching-up with the modern society and nations have to find solutions to this problem. From the above findings, it is indeed true that most nations are faced with these problems and there is a significant threat to the world economy. Work-related skills are on the brink of falling due to the rising levels of the ageing population. There is an increasing trend of the shortage of skills and ageing population in greatest economies of the world like the United States, China, Japan and Europe as a continent (Ian et al 2000, 56). This is a dangerous trend, as they not only have an impact on the individual economies but the global economy as well, given the effects that come with an ageing population. Fertility rates are declining in Australia and other countries, which imply that the young population is in danger. Women are using birth control methods and choosing to settle down at a later stage due to academic and job related responsibilities. However, the steps being undertaken by the Australian government are bold and, in my opinion, they will succeed in reducing the effects that the shortage of skills and ageing population brings (Department of Health and Ageing, 2010). Recommendations Most nations should develop and implement strategies that are aimed at solving the shortage of skills and ageing population problem. The education system should be restructured to reduce the time one takes to complete education and secure a job, so the younger an energetic people are used to advance the economy. Governments faced with extreme conditions of this problem like Japan and Australia should control fertility rates for women through cutting birth control methods, and encouraging them to have more children, so the economy has more work forces to sustain itself (Ross, 2008, 187). Re-skilling of the older generation should be adopted in all countries so that the old generation does not entirely depend on the government. These will include measures to make them save more during their working period so that they have money to sustain them after retirement. Educational facilities and learning institutions should be upgraded to provide more services like e-learning and part time programs to accommodate older people into the system and re-skill them even as they work. More youth training institutions should be set up to curb unemployment rate and more employments created by governments so that more people work to support the economy (CEDA Policy Statement). Bibliography ALGA. 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Smoothing the Fiscal Costs of Population Ageing in Australia: Effects on Intergenerational Equity and Social Welfare. Journal of Economic Record, vol. 84 (265) pp. 177-192 Rudd, K. 2010. Responding to the Challenge of Australia’s Ageing Workforce. Delloite Ltd, p1-15, retrieved on 31 May 2011from http://www.deloitte.com/assets/Dcom- Australia/Local%20Assets/Documents/Industries/Manufacturing/043072_Ageing%20wo rkforce%20POV_QLDSCREEN.pdf Stevens, GR, 2005. Finance and the Ageing Population. Financial Planning Association of Australia Limited. FPA National Conference 2005, CFP. Retrieved on 30th May 2011 from http://www.rba.gov.au/publications/bulletin/2005/dec/pdf/bu-1205-2.pdf Walters, 2008. The Experiences, Challenges and Rewards of Nurses from South Asia In The Process Of Entering the Australian Nursing System. Australian Journal of Advanced Nursing, vol. 25 (3), p 98 Mock interview Addressee: manager of a paper company PART A- PERSONAL DETAILS Q1. What is your Gender? (Tick one) a) Male ( ) b) Female ( ) Q2. What is your age bracket? a) Under 20 years ( ) b) Between 20 – 35 years ( ) c) Between 36 – 50 years ( ) d) Over 50 years ( ) PART B-Professional Q3.What is the name of your organization? __________________________________________________________ Q4. Do you think the aging population in Australia has significant negative effects to the finance sector and the economy at large ? a) No ( ) b) Yes ( ) Q5. In your opinion, what do you think is the problem with having shortage of skills and ageing workers? I) Contributes less to the national income II) Increases the dependency ratio III) Many funds are channeled to care for them yet they have insignificant contribution to the economy. IV) Time wasted caring for them would have utilized financially to benefit the economy V) The productive efficiency of older people is low Q6. How does a shortage of skills and ageing workers affect your organization? I) Majority of the current employees in the economy are almost retiring II) The policy of not recruiting/ or limiting the recruitment of older people may be regarded as a form of discrimination III) The government has little to tackle the menace. Q7. What is your organisation doing in order to deal with the issues of skills shortages and ageing workers? I) Proposing to the government to increase the retirement age. II) Promote informed debates about issues and problems of older population III) Stimulated the awareness on the need of developing proper strategies to tackle the problems caused by ageing workforce. Q8. What are recommendations do you give to the Australian government in order to deal with this problem once and for all? I) Encourage the population to have more babies II) Encourage the influx of foreign workers III) The government to raise the retirement age IV) Re-skilling the older generation in order to increase the efficiency Q9. How does Australia and other countries like Japan, China, and Germany compare in relation to this problem? All countries especially the developed ones like Japan, China, and Germany have the same problem of dealing with ageing population. In most instances, such countries have run short of the required labor to steer the economy. These countries have instituted various policies in order to tackle the problems like encouraging more births, foreign workforce and increasing the retirement age. Q10. How would you rate your satisfaction with the level strategies currently being used by the government to tackle this problem? Highlight only one. Excellent! Good, Bad! 3 2 1 Read More