Workforce Participation Rates and Economic Growth

| May 27, 2013

Dr Ian Watt, Secretary of the Department of the Prime Minister and Cabinet, chaired the first session of the GAP/ACHR conference on Productive Ageing. He would like the conversation around the ageing workforce to become more appropriate to the reality of an ageing population.

It is a pleasure to speak at a GAP Conference again, and it’s a pleasure to visit Sydney – something I do all too rarely – not the least because I have an opportunity to drive past my favourite billboard at the entrance to KSA.

You might think that this is a strange way to start a speech, particularly one on ‘Productive Ageing.’ It isn’t. After all, we have just had the premiere of Baz Luhrmann’s ‘The Great Gatsby,’ and while I haven’t seen the movie yet, any fan of F. Scott Fitzgerald’s novel would be aware of the role a billboard plays in the book. In Fitzgerald’s book, there is a billboard halfway between West Egg and New York City which consists of a huge pair of blue eyes that stare through a gigantic pair of yellow spectacles, advertising the services of Dr T. J. Eckleby, a New York oculist.

My billboard is much less dramatic and is about Ann [Ann Margulis]. It shows her photo on the left hand side, and says: “I am 60, highly motivated, very experienced and not over the hill.” It also says that she is looking for work in a high level administrative job and lists her mobile number.

Ann’s high profile, individual appeal is a novel one.

However, the underlying message is generic. It is that older employees are valuable; they are not too old and they want to work – but sometimes they need to do something unusual to find it.

However, let me step back and start at the start, not at the end.

As someone who is now a member of the older generation, I look at the title of this first panel session – “Productive Ageing: New Employment Opportunities” – and reflect how the discourse around our ageing population has already changed.

Back in the 1980s, when the Australian Public Service (APS) first started to seriously track the ageing of its workforce, it was all too often framed in terms of ‘risks’, ‘crises’ and ‘burdens’.

Three decades later, the APS is using terms like ‘the silver economy’, ‘productivity’ and ‘opportunity’, and they are more appropriate to the reality of an ageing workforce.

This is not just another example of Baby Boomers re-writing the narrative to suit their own stage in life.

It is rather a sign that we inhabit a different world from that of the 1980s.

And a very different one from that in which my grandparents worked, aged and spent their retirement.

Back in 1901, not long before my grandparents started their families, life expectancy was 55 for men and 59 for women. Today it is 79 for men and 84 for women.

When the age pension was introduced in 1908, only half of the male population lived long enough to become eligible. These days, 85 per cent of men live beyond 65.

Some, along with a growing number of women, are now staying in the workforce well beyond the age at which they once would have been presented with a gold watch and their first retirement income cheque.

Over the past 20 years the workforce participation rate of those aged over 65 has gone from around 5 per cent to around 12 per cent.

The rate for those aged 55 or more has gone from around 21 per cent to around 35 per cent.

It is now crystal clear that we need to keep older workers in the workforce but, however much our discourse has changed, however much we now speak of ‘opportunity’ not ‘risk’, the challenges of doing so remain.

There has been modest growth in participation by older workers.  But not enough to make up for the slow decline in overall participation that an ageing population brings.

Why does this matter?

Because declining workforce participation rates reduce the rate of economic growth and hence our future levels of per capita GDP.

The 2010 Inter Generational Report estimates that a 3.6 per cent fall in the participation rate will result in a level of real GDP that is 4.3 per cent lower than otherwise.

Keeping people in the workforce longer delivers economic and other benefits – for the workers, for governments and for Australia and the Australian economy.

But how do we bring about the cultural shift that will see people work for longer?

One way is to change expectations of when people should retire, both among older workers and among employers and fellow employees.

Historically, we have assumed retirement times based on chronological age, not capability. This is despite the fact that as we live longer and healthier lives, chronological age becomes a poorer and poorer proxy for capability.

Worse, in the early days of the age pension we also adjusted expectations for gender.

In 1910 the pension age for women was set at 60 on the seeming assumption that females generally became ‘incapacitated for work’ earlier than males. We are phasing this gender differential out, and by 2014 it will be gone. But we have been sending a wrong signal about female capability for 104 years.

Partly because of our focus on chronological age, retirement decisions have historically been driven by one key factor: access to retirement incomes, whether the pension – or, more recently, superannuation.

Indeed, in 2010-11, the most commonly cited reason for retirement in Australia was ‘reaching retirement age or becoming eligible for the pension or super’.

The phased raising of the pension eligibility age to 67 by 2023 and the raising of the super preservation age to 60 are steps in the right direction and, in part, designed to influence what people think of as the ‘right’ age to retire.

Incremental reforms around retirement incomes can also help. For example, from July 1 this year the superannuation guarantee will be extended to workers aged over 70 — boosting the retirement savings of about 51,000 workers and sending a signal that there are financial benefits from working on, and a government imprimatur for doing so.

But even with new ‘age’ thresholds and incremental retirement income reforms, the nexus between chronological age and the ‘right’ time to retire remains.

So how do we change the culture around retirement more dramatically?

To my mind, this is the challenge encapsulated in this conference’s theme.

To pursue a future without ‘age’.

At the very least, to pursue a future in which age is not, of itself, the signal to retire; in which age is not an automatic barrier to participation, a stumbling block to acceptance.

We are not there yet.

First, as the Human Rights Commission Susan Ryan recently pointed out, there is still discrimination against older workers, with assumptions that older people have less energy, higher incidence of illness and skills that are out of date.

Such discrimination may sometimes need to be met by legislative and regulatory responses, but that alone will be insufficient and is often a second best solution.

Second, we need to increase employer and employee demand for older workers – or, at the very least, decrease employer and employee resistance to older workers. This means broadly tackling stereotypes or misconceptions around older workers.

This is work our other panellist for this session, Heidi Holmes, is actively engaged in.

And it is work being progressed through initiatives such as the Australian Ambassador for Ageing program, aimed at changing assumptions and encouraging active ageing among older people themselves.

Finally, in a world of competition for skilled workers, an ageing workforce will force all of us to focus more on employing older workers – what we need to do is remove the real and imagined barriers to doing so.

But how do we do that?

One thing we can do is to learn from the workplace changes that have transformed the experience of working women over recent decades.

Take my workplace as an example. The APS has gone from forcing women to resign if they married, as recently as the mid-1960s, to boasting a majority female workforce in 2013.

More than 57 per cent of ongoing APS employees are now women. In my Department of the Prime Minister and Cabinet it’s 62 per cent.

Thirty-nine per cent of the Senior Executive Service is now female. In my Department it’s 42 per cent. And five of my seven direct reports at PM&C are women.

Many things helped drive this change, including:

  • from the 1970s onwards, the expansion of childcare availability
  • anti-discrimination and affirmative action laws
  • paid parental leave; and
  • industrial laws that provide for more flexible working arrangements.

But cultural change has also driven those factors. And most importantly, the competition for skilled workers has helped drive that cultural change – how can you ignore half the workforce in an increasingly competitive market when your salaries aren’t hugely competitive and, in our case, you have to encourage people to Canberra?

Today, we must ask, ‘what types of legislative and regulatory responses do we need if we want to help drive real and lasting shifts in behaviour among older workers, and among those who employ them?’

But, much more importantly, as the workers age, and employers have to consider older employees, how do we facilitate/encourage/support that consideration and attract and retain older workers?

There are several ways in which we can do it as employers.

First, we can improve the overall diversity of our candidates and include employees from the mature age workforce in fields.

Second, we can work toward providing equal learning and development opportunities for older workers to provide incentive to feel wanted, stay engaged and keep developing their skills.

Third, we need to identify and limit workplace health risks to make sure that an ageing workforce does not result in an increase in workplace injuries.

Fourth, we need to give them flexibility in their working hours, to allow them to combine work with caring responsibilities or leisure pursuits, or even just to help them better manage their own health or disability.

Fifth, we can emphasise experience and life skills through their advertising and selection processes, to ensure that older workers are more likely to apply, and more likely to be recruited.

Finally, we can adapt work practices to suit mature-age workers, including making appropriate training and equipment available to minimise the physical requirements of the work.

In conclusion, Australia’s ageing population and their involvement in our workforce is an essential issue for discussion. How we work with this demographic and how we recognise their contribution to the workforce will be vital for Australia’s economic future.

Ann got her job – a happy ending. In doing so she has helped raise the profile of older workers across Australia. That matters to all of us. The key issue is making it easier for the next ‘Ann’ and the one after that.