Ageing Population and Declining Labor Force Participation in Australia - Essay Example

Student’s Name: Course: Tutor: Date: Ageing Population and Declining Labor Force Participation in Australia Executive Summary The ageing population crisis in Australia is causing major concerns for the State government as well as other stakeholders over the globe. This is due to the fact that the situation could be the cause of a crumbling economy of the country, and this could also have diverse effects for other trade partners. This paper shall delve into the effects of the aging population on the Australian economy. Introduction and Background Population ageing refers to the recent growth experienced in labor force participation, which is likely to come to an end, with the rate of participation projected to decline over the medium term. A fall in participation will have a dampening effect on economic growth. Most of Australia’s population is growing and ageing at such alarming rates that the government is constantly making attempts aimed at prioritizing healthy ageing so that the citizens are in a position to contribute to the economy of the country for the longest possible. This will also help in alleviating the burden of health care. The 2010 Intergenerational Report released by the Australian Government (The Treasury) projected that the population of the country would grow from approximately 22 million persons to 35.9 persons in 2050. In addition to this, the ageing of the nation’s populace was also projected to see the number of people aged between 65 and 84 years grow by more than double, while those with 85 years and above would more than quadruple. The number of persons of working age supporting every person aged 65 and above was 5 in 2010, though the same was projected to decrease to 2.7 people by 2050. These are worrying trends for any economy, and this is due to the fact that such a situation would adversely affect the proportion of the population of traditional working age. As a result of this, the rate of labor force participation across the entire populace is projected to take a nosedive (Csu.edu.au). Trends in Labor Force Participation Tiffen & Gittins (67) define labor force participation as that section of the total populace which chooses to be actively involved in the labor force. The labor includes those people that are working in various capacities currently, as well as those people who are currently seeking work, despite being unemployed at the time. The rate of participation tends to move hand in hand with the business cycle, whereby during recession, it declines due to the discouragement of job seekers to go out there searching or non-existent jobs. On the other hand, participation levels rise as the cycle turns and formerly discouraged job seekers return to the market in search of job opportunities. As stated earlier, the trends being experienced by Australia are so alarming that the government has taken upon itself to make labor force participation and labor supply key policy issues in the country. Over the last three decades, female labor participation has had a tendency of show discrepancies in accordance with the trends in economy as opposed to their male counterparts. As such, the rising female participation has partly been offset by declining male participation. To be more particular, females have tended to withdraw from the labor force rather than risk unemployment during the economic downturns; males have however opted to remain in the labor force. Since the beginning of 1981, more than 80 percent of the increase experienced in female labor participation reflected a corresponding increase in female part time participation. Part time participating in this context refers to the total number of unemployed females seeking part time employment, and part time employment females expressed as a proportion of the entire female populace. During the period, the decrease in the participation of males is largely a reflection of a decline in full time participation by 11.8 percent. This can partly be attributed to an aggregation in the part time participation of 6 percent (Kennedy and Hedley, 4-6). Labor force participation also varies by age, with variations in the aggregate participation in the labor force are frequently composed of a number of different trends for specific gender and age groups. A research study carried out to evaluate the age profiles of participation rated for males and females in the last three decades, beginning 1981 showed that male participation rates had decreased in most of the age groups while the reverse was true in the case of females. A rather interesting feature in the rates of female participation was realized in the reduction in the plunge in female participation in the 25 to 34 years age group. This reflected an increase in part-time participation by females in this age group, particularly amongst the married females. A trend depicting males leaving the labor force earlier than the retirement age was also identifiable from the data collected, with a fall of 9.5 percentage points between 1981 and 2001 in the participation rate of males aged 55 to 59 years (Kennedy and Hedley, 4-7). In the 2011-2012 period, males were more involved in the labor forces and this is evidenced by the labor force participation rate of 79 percent, against a rate of 65 percent for the females, all aged between 24 and 74 years of age. The two periods which experienced a marginal increase in the rates of labor participation for males were the 2002/2003 and the 2011/2012 periods, which rose by only a meager one percent, whereas the female rates by over 4 percent. The increase in female participation rates was actually attributable to the older females, as opposed to the much younger female populace (Abs.gov.au). The Health Care System A direct outcome of declining death rates in Australia is the fact that the citizens, in general, enjoy one of the highest life expectancies globally. The age 65 year level only got to increase slightly in the period between 1900 and 1970, though, since 1970 to date, it has experienced constant improvement. The improvement in life expectancy has also grown since the early 1970s, though most of the gains in life expectancy amongst older Australians occurred during the last three decades, when the death rate from cardiovascular diseases (notably heart disease and stroke) fell significantly (Novak, Berg & Wilson, 170). This too has an effect on the economy because as stated earlier, it increases the number of people in the bracket of received support from those in the working age. Older persons are also more likely to use hospitals and healthcare facilities as opposed to the younger people. With increase in age, the period referred to as the length of stay (in hospitals) also increases, and the likelihood of entering residential aged care also increases with age (Csu.edu.au). As stated earlier, the country’s aged population is projected to grow from the current 12 percent of the population to approximately 18 percent of the entire populace by the year 2021. This increase in the ageing of the population is basically driven by a decline in fertility levels, and an increased longevity. The youth population is projected to remain more or less the same and as such, the population of the working age who will be responsible for bringing in the income will only rise from 13.2 million to 15.1 million. As such, the level of dependence on the ageing and health services funded by the government will also increase a factor that has a great and considerable impact on the local government. A lot of the costs of ageing will be absorbed by the local and federal governments of the country (Novak, Berg & Wilson, 3). In Australia, the government is responsible for providing health and aged cares services, and in the last couple of years, the cost has more than doubled to approximately 4% of the Gross Domestic Product (GDP) in the last three decades. The government of Australia provides medical services through the Pharmaceutical Benefits Scheme, Medicare, contributions to the state hospitals, rebates to the private health insurers, and by offering grants to non-governmental organizations for community care, residential care and indigenous health care. In addition to these, aged care is projected to almost triple from the current 0.8 percent to more than 1. 8 percent of the country’s GDP in 2041/2042. This is exclusion of the payments that the government provides to the senior citizens in the form of service, pensions and other superannuation allowances (Regional.gov.au). Consumption/ Production Rates/ Investment An ageing population will most certainly cause a reduction in the number of employed persons. As many of the citizens reach retirement age and leave their jobs, the fact that there are fewer people getting into the job market, it would appear on face value that productivity will increase if output remains constant. However, this will not be the case because decreases in the workforce will certainly lead to changes in the levels of output. The value may, however, remain unchanged depending on the technology used in the production processes. While it may be true that advancement in age brings about the experience and tends to increase productivity and hence production levels, it reaches a point where “the physical as well as mental effects of aging are likely to offset the benefits of experience”. As such, production may increase with ageing of the population up until the point where the effects of ageing begin to affect the majority of workers, and production is bound to experience a major decline, all factors held constant. The result of this will be an inevitable decline in aggregate levels of production, which may only be counteracted by changes in technology and education. An ageing population will also lead to decreased supply of capital levels and this will be a hindrance to investment and growth. This is due to the fact that as people age, they are no longer involved in active income generating activities, and they tend to draw down on their savings. The drawing on savings, when done by a large section of the population has a great impact on the economy because it reduces the levels of bank reserves, and as such, reduces the amount of funds available for investment by the financial institutions. A decline in public savings will also be inevitable and this is due to the fact that the aging population causes an increase in government expenditure, and reduced taxation receipts. This in effect leads to reduced capital supply, and reduced investments, and the cycle go on and on. The situation described above could bring about two possible effects to the country. First, the rate of capital deepening will reduce, and while some may predict that this will improve the intensity of capital flows of the world, data from the past shows that the effect is muted. Secondly, business organizations will not be in a position to obtain domestic funds for expansion, and this could lead to decreased growth and output due to the use of old technology. Innovation by way of advanced research and development will be restricted. Businesses' could opt to source funds from overseas, though this would only serve to increase the country’s foreign debt. Australia’s low savings percentage will also contribute to a rise in net foreign debt as retirees' request more funds during their retirement. When all is said and done, the effect of the above on consumption rates will decrease due to reduced amounts of disposable income. The older people, who in this case represent a large portion of the total population, will reduce their level of purchases on items they consider luxurious. In effect, producers will move towards reduced production as a means of responding to the unplanned increase in inventory levels. The primary measure of output, Gross Domestic Product (GDP), will eventually decline and the final result will be a slowing economic growth (Cheng, 3). Coping Mechanisms Globally, Australia does not rank very high on the educational attainment of its citizens. However, in the recent past, the country has seen a growing increase in participation in tertiary education as well as increased retention rates in secondary school. These will definitely lead to increase skill levels, which could eventually give way to increased labor productivity. Globalized markets, integration of regional and international economies and changes in information technology have created numerous benefits as well as challenges in the Australian economy. These challenges are beneficial and to a great extent, disastrous. It is the way in which the government responds to them that determines whether they will continue to enhance productivity of capital or not (Cheng, 5). With regard to the increasing medical costs that could be diverting resources that are intended for the provision of other key goods and services, the government should make the decisions on how the more pricey medical treatments could be distributed among the people likely to benefit from them. According to Dannefer & Phillipson (529), there is a high possibility that they will be distributed in a manner that favors and benefits the younger generation. Tax issues should also be dealt with by making decisions that will not hurt the younger working-age generation. As such, this will tend to create justice between generational groups by distributing benefits and burdens of the institutions charged with fulfilling generational responsibilities (Thompson, 107). Conclusion Gauging from the information, the country is headed for major economic and social disadvantages and as such, the government should look into ways of curbing the long term effects that could face future generations. Works Cited Australian Government Department of Infrastructure and Regional Development. Chapter 6: Health and Ageing-Impact on Local Government. Web. 26th April 2014. http://www.regional.gov.au/local/publications/reports/2003_2004/C6.aspx Charles Sturt University. Health Priorities in Australia: A Growing and Ageing Population. Web. http://www.hsc.csu.edu.au/pdhpe/core1/focus/focus1_2/4004/1-2-3/health_pri1_2_3.htm. 2010 Cheng, Ashley. The Consequences of an Ageing Population for Australia’s Future Productivity and Economic Growth, and the Associated Economic Policy Challenges. Web. 26th April 2014. http://www.rba.gov.au/econ-compet/2007/pdf/first-year.pdf. 2007 Dannefer, Dale. & Philipson, Chris. The Sage Handbook of Social Gerontology. New York: Sage Publications, 2010. Print De Waal, Hugo. et.al. Designing and Delivering Dementia Services. New York: John Wiley & Sons, Ltd. 2013. Print. Kennedy, Stephen. & Hedley, David. Educational Attainment and Labor Force Participation In Australia. Web. 26th April 2014. http://archive.treasury.gov.au/documents/677/HTML/docshell.asp?URL=educational_attainment.asp. 2003 Kudrna, George. & Woodland, Alan. Economic Effects of Population Growth and Ageing in Australia. Web. 26th April 2014. http://www.pc.gov.au/__data/assets/pdf_file/0012/111045/06-population-chapter04.pdf Novak, Julie., Berg, Chris. & Wilson, Tim. The Impact and Cost of Health Sector Regulation. Web. 26th April 2014. http://www.achr.com.au/pdfs/The%20Impact%20and%20Cost%20of%20Health%20Sector%20Regulation%20-%20FINAL.pdf. 2010 Thompson, Janna. Intergenerational Justice: Rights and Responsibilities in an Intergenerational Policy. London: Routledge, 2009. Print. Tiffen, Rodney. & Gittins, Ross. How Australia Compares. Cambridge University Press, 2004. Print. Read More